Fiat debt grows as recovery spending mounts

DETROIT/MILAN Wed Jan 30, 2013 4:37pm EST

A Chrysler badge is pictured on a new car at a dealership in Vienna, Virginia April 26, 2012. REUTERS/Kevin Lamarque

A Chrysler badge is pictured on a new car at a dealership in Vienna, Virginia April 26, 2012.

Credit: Reuters/Kevin Lamarque

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DETROIT/MILAN (Reuters) - Fiat FIA.MI said on Wednesday its debt grew by about 1 billion euros in 2012 as European car sales tumbled 14 percent, leaving the Italian carmaker ever more dependent on strong growth at its Chrysler U.S. unit.

As Fiat's management moves to increase spending on new models in Europe and the United States, investors are keeping a close watch on its debt for signs that cash-burning European operations are straining the group's ability to invest in products that will win customers in the future.

Fiat, suffering from a brutal sales downturn in Europe, said it did not expect business conditions to change in 2013 from its previous forecasts and that its home region "continues to present significant levels of uncertainty."

Fiat's net debt rose about 18 percent to 6.54 billion euros ($8.81 billion) during 2012, a better performance than nearly all analysts had expected.

Fiat decided not to pay a dividend based on the 2012 results. The company's board said it did not recommend a dividend payment "given the company's desire to maintain a high level of liquidity," the Italian carmaker said.

Fiat shares traded in Milan fell 4.8 percent on Wednesday to 4.46 euros. Trading was suspended briefly, and a trader in Milan said that was because of the lack of a dividend.

Some of the new spending was on view on Wednesday when Chief Executive Sergio Marchionne and Fiat Chairman John Elkann unveiled a newly retooled factory outside Turin where the automaker will build Maserati luxury sedans for export.

Chrysler is also spending on new models and expects cash flow to slow to about $1 billion in both 2013 and 2014, from $2.2 billion in 2012. Marchionne said.

Chrysler is to sell 16 Fiat and Alfa Romeo models through its North American dealer network by 2016.

In both 2013 and 2014, Chrysler plans to introduce eight new or significantly refreshed models in the North American market, including an Alfa Romeo model and a Fiat model.

However, in an update of its North American vehicle plan, also issued on Wednesday, Chrysler said it is pushing back the launch dates of six vehicles, two of them by two years.

It will delay by two years to 2014 the launch of a Ram truck model to be built by Fiat, expected to be a small commercial van, and an unnamed Jeep model, to 2015.

Chrysler also said it would drop plans to make three Fiat-built Chrysler small cars and two Fiat-made Dodge brand cars in 2013.

Since it exited bankruptcy in 2009, Chrysler has overhauled its line-up and emerged as the chief source of strength for Fiat as economic weakness in Europe hurts its sales. But Chrysler has also made its own missteps, as with the shaky introduction of its Dodge Dart compact car last year.

"While we are pleased to have achieved strong financial results in 2012, the enterprise we are crafting is not complete," Marchionne said in a statement.

CASH PILE RISES

Total available liquidity for the group was 20.8 billion euros, slightly higher than at year-end 2011.

The size of the group's cash reserve is also being closely monitored since Marchionne has said he intends to spend the company's cash to increase Fiat's stake in Chrysler from its current 58.5 percent.

Fiat said its full-year loss before interest and taxes in Europe, where car sales are entering their sixth year of decline, was 738 million euros. It has said it does not expect to break even in Europe before 2015.

It pared fourth-quarter losses in Europe before interest and taxes to 165 million euros, from 298 million the same time last year.

Group fourth-quarter trading profit was 987 million euros, compared with the 1 billion euros expected by analysts.

U.S. RESULTS STRONG

A weak performance and uncertain outlook for Europe were offset by strong performance in the United States, mirroring results reported by Ford Motor Company (F.N) on Tuesday.

Chrysler reported a rise of 68 percent in fourth-quarter net income, to $378 million from $225 million a year ago, as its vehicle sales rose 12 percent, outpacing the 10 percent gain in the broader U.S. car market.

Chrysler said net income would rise to about $2.2 billion in 2013 on revenue between $72 billion and $75 billion.

Chrysler's modified operating profit forecast of $3.8 billion in 2013 is nearly one-third higher than 2012 levels. Initially, Marchionne forecast a 2013 profit of between $3.8 billion and $4.4 billion.

(Additional reporting by Deepa Seetharaman; Editing by David Cowell, Steve Orlofsky and Dan Grebler)

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