Fiat slides back into the red

FIAT Group SpA posted a net loss of €281 million ($A440m) in the fourth quarter of 2009 which contributed to an €848 million ($A1.3b) loss for the full year.

It was the first loss for the Italian company since chief executive Sergio Marchionne pushed it back to profit in 2005 after four straight years in the red.

Fiat said its car brands performed well, but its commercial vehicles, truck and agricultural and construction manufacturing divisions were hit hard by the global financial downturn.

The company attributed €699 million ($A1.09b) to restructuring charges which included its “strategic realignment with Chrysler” under which it acquired a 20 per cent stake in the US giant last June, with separation packages for 8300 workers across the group.

The company forecast a return to profit in 2010, but said this could hinge on continued European government incentives that encourage the purchase of environmentally friendly vehicles, such as scrappage schemes.

Mr Marchionne told analysts in a conference call this week that this year “is probably the wrong year to abandon the scrappage schemes”.

“I think it will have a pretty drastic impact on demand on the European side,” he said.

Mr Marchionne, who has been appointed chief executive of Chrysler Group in addition to his role at Fiat, has announced plans to quickly take advantage of the new set-up, with Chrysler to begin producing Fiat engines in Michigan late this year and start building the Fiat 500 small car from 2011.

Left: Fiat 500 BEV.

As GoAuto reported last week, Fiat also plans to streamline its engine strategy across the Fiat and Chrysler brands and expand the Chrysler range with rebadged Lancia small cars in a range of markets including Australia. While the tie-up with the struggling American giant had an impact of Fiat’s 2009 results, Mr Marchionne told GoAuto at the Detroit motor show that he was pleased with the way the Fiat and Chrysler Group alignment was playing out.

“The alliance is working is probably the best way to describe the state of affairs,” he said.

“I think that we have accomplished what we wanted to accomplish in terms of the dissemination of the technology of Fiat onto Chrysler. All those processes are underway.

“The fact that we will be manufacturing the 1.4-litre engine in Dundee (Michigan) in the third quarter of this year, which is 12 months after we signed the agreement, is an indication of how quickly things are moving.”

Mr Marchionne said the initial phase of what he called Chrysler’s cleansing process had not been easy. “Seven months have gone by, they have been long and hard months, but I think we have set all the posts for what is going to be a fruitful long-term relationship,” he said.

Mr Marchionne said Chrysler was in a very different position to the Fiat group: “We are at different stages of the recovery pattern. Fiat fixed its problems.

“Chrysler needs to now do its recovery. Our objective here is to really assist Chrysler in coming back. It’s not easy you have seen the competition out there.”

In a frank admission, Mr Marchionne said the Chrysler line-up was not as strong its rivals.

“There are a lot of people who have started this process a lot earlier than we have. On a relative basis they probably have a stronger portfolio than we do,” he said.

Mr Marchionne was asked when Chrysler sales would hit ‘rock bottom’.

“I think we did. If you are talking about market share, the numbers we have seen in the last two or three months indicate the natural capacity of the system, without inducing it with crazy incentives, without trying to bribe customers with cheques,” he said.

“This is natural capacity of the house and it tells you about what happened in terms of the equity of these brands. We have allowed other people to occupy the space so we need to claw that space back and we need to fight really hard.”

Despite describing rebuilding Chrysler sales as a “huge” job, Mr Marchionne said one of the most important points was that the company was not “burning cash” to close sales and would not be concerned if it lost some sales in the short term as a result.

“We know we are not depending on an unnatural sales organisation to try and keep this thing afloat,” he said.

“The first four months of 2009 were absolutely doped. The incentives that were going out of here were incredible. We will not repeat this.”