Skip navigation
Newswire

UPDATE 2-Steep road ahead for Fiat after Q2 losses

(Adds more analysts, GM background)

By Jane Barrett

MILAN, July 29 (Reuters) - Italy's struggling Fiat group reported on Monday an operating loss of 127 million euros in the second quarter, slightly worse than analysts' forecasts and confirming how much work lies ahead in its recovery plan.

Fiat's core auto unit, where losses over several years have deepened as car sales slumped, posted an operating loss of 394 million euros, better than a first-quarter loss of 429 million euros as Fiat kicked its restructuring into gear.

"A couple of months ago Fiat said it expected operating losses at Fiat Auto in 2002 to be in line with 2001. That means they will now have to make a profit in Q3 and Q4 and that looks challenging," said Gaetan Toulemonde, an auto sector analyst with Deutsche Bank in Paris.

Fiat Auto made a 2001 operating loss of 549 million euros.

Fiat's loss stood in stark contrast to better than expected profits at other European carmakers, including Renault and PSA Peugeot-Citroen which last week raised margin forecasts after strong first-half results.

Fiat shares, which hit 10-year lows last week, closed up five percent but lagged a seven percent rise in the DJ Stoxx index of European auto stocks which Fiat has underperformed by about 33 percent this year.

In a preliminary results statement, Fiat forecast its full-year group operating loss would be in line with the first half, when it totalled 426 million euros.

"The outlook statement might be giving some concern but I don't think it should be viewed as a negative outlook," said John Lawson, an analyst at SSSB, adding the economic environment was not good for any company wanting to sell assets.

"What you can deduce is that the operating cash flows have steadied and that is an area of extreme concern," he said.

Fiat has launched a sweeping restructuring including layoffs and asset sales to cut debts as agreed with creditor banks which on Friday signed a three billion-euro emergency financing plan.

Fiat said it "strongly intended to respect the targets... through operating cash flow and, where appropriate, by more non-strategic asset sales".

In May, Fiat listed 11 mainly industrial assets that could be sold but has instead banged out deals to sell its stake in sports car maker Ferrari and part of its majority interest in energy holding Italenergia which should feed through in the third quarter.

CAR WOES

Fiat Auto's deep losses have fuelled speculation Fiat will take up a "put" option to sell its 80 percent stake in the company to General Motors Corp , which bought the other 20 percent in 2000.

Fiat said it would "aggressively pursue the turnaround of Fiat Auto with a view to becoming a stronger member of the GM federation" but did not elaborate.

It also said Fiat Auto should show concrete results of the recovery plan in the second half but warned Fiat would probably have to offer price cuts in line with aggressive incentives that it expected competitors to launch.

Car sales, which fell 18.8 percent in the first half, could be boosted by new Italian tax breaks on eco-friendly cars.

Fiat Auto's revenues fell 15 percent from last year to 5.78 billion euros, dragging group turnover to 14.6 billion euros, down 7.6 percent but held up by sales in other businesses like airplane engines and tractor-making.

On a net basis, Fiat remained in the red with a loss of 34 million euros, despite a 671 million-euro capital gain from selling a 34 percent stake in Ferrari to a group of banks led by Milan's Mediobanca .

"There was a net loss at group level in the quarter when most people were expecting the capital gain from the Ferrari sale would give them a slight profit," said an analyst with Banca Akros in Milan who asked not to be identified.

Fiat's net debt -- which it has pledged to cut to three billion euros by the time it approves 2002 results, probably in early May next year -- was 5.8 billion euros at the end of June, down from 6.6 billion euros in March.

Analysts polled by Reuters last week had expected Fiat to show a group operating loss of 105 million euros on revenues of 14.77 billion euros while Fiat Auto's turnover was forecast at 5.82 billion euros with an operating loss of 375 million.

(additional reporting by Stefano Rebaudo and William Schomberg in Milan and Madeline Chambers in Frankfurt)