By Dow Jones Business News, March 05, 2013, 12:45:00 PM EDT
GENEVA--Fiat (F.MI, FIATY) stole the spotlight at the Geneva motor show Tuesday as it took the wraps off new, racy but
low-volume Ferrari and Alfa Romeo sports cars, new flagship models for two of the Italian auto maker's premium brands.
In terms of Fiat's near-term future, they were sideshows.
More significant was Chief Executive Sergio Marchionne's renewed commitment to buying out minority shareholders in
Chrysler LLC, Fiat's majority-owned U.S. unit.
Despite the dispute over Chrysler's value with a United Auto Workers' retiree trust that holds a 41.5% stake in the
auto maker, Mr. Marchionne said he has no wish to take Chrysler through the alternative of an initial public offering.
Mr. Marchionne said Fiat has the financial capacity to pull off a full merger even as the auto maker bleeds red ink in
Europe. In contrast, Chrysler's sales and profit have bounced back strongly since it emerged from bankruptcy protection
under Fiat's management.
"We need to have all the activities under one umbrella," Mr. Marchionne said.
The prospect of having Fiat and Chrysler listed separately served no purpose, he said. "Having two types of
shareholders for the same business is a bit ridiculous," he said, speaking to reporters at the Geneva motor show. Fiat's
sister company, Fiat Industrial SpA (FI.MI, FNDSF), is in the process of buying the shares it doesn't already own in
U.S. based industrial-equipment unit CNH Global N.V. (CNH, NHL.FF).
Mr. Marchionne said Fiat should get access to the necessary credit from banks to fund the multibillion-dollar
acquisition cost as well as around 9 billion euros ($11.7 billion) of cash on its balance sheet. Fiat also wants to pay
down debt at Chrysler to help facilitate the merger, according to people close to the companies.
"I have renewed a number of friendships with bankers," Mr. Marchionne said.
Still, Fiat expects its net industrial debt to widen to about 7 billion euros at the end of this year, from 6.5
billion euros at the end of 2012 due to sustained losses at its business in Europe. Sales of new cars in the region in
their sixth consecutive year of decline as the prolonged European economic crisis, marked by rising unemployment, higher
taxes and changing consumer habits, have hit mass-market auto makers like Fiat hard. Registrations of new cars in Italy,
Fiat's home market, fell 17% in February to their lowest level since the 1980s.
Fitch Ratings downgraded Fiat's credit worthiness to "BB-" from "BB" last week, warning a further downgrade is in the
offing because of the "persistent weakness of Fiat's standalone results," uncertainty about Fiat's plan to turn around
its European business, and the prospect Fiat will shell out cash to buy shares in Chrysler.
The family-controlled auto maker passed its dividend for 2012 to shore up its cash reserves in anticipation of buying
out the trust from Chrysler.
The Turin, Italy-based auto maker holds options to buy Chrysler shares every six months from the trust with the total
capped at a 16.6%. Fiat has pledged to increase its ownership of Chrysler until it gets to more than 70% ownership.
The trust, called a Voluntary Employee Beneficiary Association set up to pay medical costs of Chrysler's union
retirees, has the right to ask Chrysler to initiate proceedings for an IPO as part of a 2009 agreement that helped bring
the Auburn Hills, Mich., car maker out of court protection.
Last July, Fiat sought to exercise its first-call option to buy a 3.3% stake in Chrysler from the trust. But the VEBA
according to a lawsuit filed by Fiat in September refused to turn over the shares. Earlier this month, with the lawsuit
still pending, Fiat asked to buy additional shares from the VEBA. The court is expected to rule on the suit in the next
several months, Fiat said.
Fiat had offered $139.7 million last year to buy 3.3% of Chrysler from the VEBA and this month proposed paying $198
million for another 3.3% stake. The VEBA responded to Fiat's suit over the initial 3.3% stake by asking for about $343
Chrysler's U.S. profits--it has a set a set a net profit target of $2.2 billion and expects revenue of between $72
billion and $75 billion this year--are helping to offset Fiat's losses in Europe. In the U.S., Chrysler's vehicle sales
climbed 21% last year to 1.65 million, while its market share rose to 11.4% from 10.7%, making it the only major U.S.
auto maker to gain share in 2012.
Fiat's problems have gotten so serious in Europe that with many of its factories working well below full capacity,
last year Mr. Marchionne tore up one restructuring plan to focus on another.
The auto maker is streamlining its line-up to focus on premium brands, principally the Fiat 500 range of city cars,
Alfa Romeo, and Maserati, aimed at export markets rather than Europe. Fiat is counting on the new Alfa Romeo 4C roadster
to spearhead the brand's return to the U.S. later this year.
(Jeff Bennett and Christina Rogers contributed to this article.)
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