* Fiat Chrysler Q2 EBIT down 10 pct to 961 mln euros
* Results hit by weak Latin America, disappointing N.
* Says Europe stabilising, but overcapacity remains
(Recasts after conference call, adds analyst's comment, updates
By Agnieszka Flak
MILAN, July 30 Fiat plans to review its
leasing and sales incentive practices in North America to boost
margins in the region as it seeks to meet its global full-year
targets despite persistent weakness in Latin America and further
losses in Europe.
The North American operations, dominated by Chrysler, the
third-largest U.S. carmaker which Fiat now fully owns, have
become an increasingly important profit centre for Fiat after
its business in Europe was hit by a six-year market slump and
now make up more than half of the group's global sales.
But second-quarter operating profit in the region fell 18
percent despite a 7 percent rise in sales, hit by higher
incentives put in place to sell older Chrysler models and a
higher proportion of leasing deals, which offer lower margins
than retail sales to individual customers.
Costs related to the launch of the new Jeep Cherokee and
Chrysler 200 models also hit first-half earnings, but no similar
costs are expected in the second half of the year.
"One of the big drivers for the improvement in the second
half of the year has to be (North America) and those are the
things we need to go after," Chief Financial Officer Richard
Palmer told analysts in a post-results conference call.
"There is some opportunity to improve our margins in the
second half of the year as we look at the commercial policy of
those items," he added.
Fiat Chrysler reaffirmed all of its full-year targets
earlier on Wednesday and even slightly raised its forecast for
global sales to around 4.7 million vehicles, but analysts had
"We expect many to remain sceptical that it will achieve
these targets, which remain back-end-loaded," said Citi analyst
Philip Watkins in a note.
Fiat is completing a merger with Chrysler to create Fiat
Chrysler Automobiles as it seeks to boost the world's
seventh-largest carmaker's appeal with international investors
and to pave the way for a U.S. share listing for the combined
entity in October this year.
Shareholders will vote on the merger at a meeting on Friday.
The full merger is part of a strategy Fiat unveiled in May,
under which it plans to invest 48 billion euros ($64 billion)
over five years to boost sales by 60 percent and increase net
profit five-fold - all targets analysts said were highly
Fiat Chrysler plans to focus on exports of its Maserati,
Alfa Romeo and Jeep brands to make up for some of the weak
demand in its traditional markets, especially Italy, and
increase its exposure to the more resilient premium brand
Reporting second-quarter results on Wednesday, the Italian
carmaker reported a 10 percent drop in earnings before interest
and taxes (EBIT), including special items, to 961 million euros,
weighed down by a persistently weak market in Latin America, a
region that used to account for a quarter of Fiat's profits.
Analysts were expecting a poor performance in the region,
because of the impact of the strong euro against local
currencies and the end of a car buying incentive programme in
Brazil, but the 23 percent drop in sales there was bigger than
some had expected.
Nevertheless global sales rose 5 percent to 23.3 billion
euros in the three months, boosted by double-digit percentage
increases in Asia and the company's luxury brands, which include
Ferrari and Maserati.
Chief Executive Sergio Marchionne said the European market,
where the group nearly broke even in the quarter helped by sales
of Fiat 500 models, the new Fiat Ducato light truck and Jeeps,
was stabilising, although he warned that overcapacity and cost
pressures were still hurting margins.
Net debt stood at 9.7 billion euros at the end of June, down
from 10 billion at the end of March.
Shares in the company, which have risen 28 percent in the
year to date, closed down 2 percent, underperforming a 1 percent
fall in Milan's main market index.
($1 = 0.7475 euros)
(Additional reporting by Bernie Woodall in Detroit; Editing by