Fiat Sees Better Q2 for Cars as Brand Row Goes On

Fiat said on Thursday results at its core but loss-making car division should be better in the second quarter than the dismal first and tried to scotch talk the unit's marques could be broken up.

But a top lawmaker said a plan to split Alfa Romeo away from Fiat Auto and into Fiat's sports car unit Ferrari, and then sell the rest of the core car division, was "the only way forward".

Fiat Auto made an operating loss of 429 million euros ($423.5 million) in the first quarter, dragging the group to a net loss of 529 million euros and forcing it to run to banks, including erstwhile enemy Mediobanca, for help.

"The second quarter will be better than the first. How much better remains to be seen," Giancarlo Boscetti, Fiat Auto's Chief Executive, said at a meeting of Italian auto body Anfia.

In a bid to raise money, Fiat sold 34 percent of Ferrari to a Mediobanca-led group last month, saving it from listing its crown jewels on a shaky market. Sources say Mediobanca wants to add Alfa Romeo to the stable that houses Ferrari and Maserati.

Such a plan would likely incur the wrath of U.S. giant General Motors Corp. which bought 20 percent of Fiat Auto - made up of Alfa Romeo, Lancia and Fiat - in 2000, giving Fiat a "put" option to sell the rest from 2004.

Fiat Chairman Paolo Fresco scotched the idea of splitting the brands, saying: "There is no such plan either in Ferrari or in Fiat Auto."

But a senior lawmaker later said that might be the only option and suggested Fiat, which also has interests ranging from energy to insurance, should try to win GM around to the idea.

"At this point Fiat should renegotiate its agreement with GM on the Alfa marque," said Bruno Tabacci, the head of the lower house industry commission which is studying a crisis rocking Italy's car sector and sucking on Fiat's revenues.

Italy's car market shrank an annual 13.4 percent in the first half of 2002, with Fiat outstripping the fall. In a bid to revive the market, the government has introduced tax breaks on environmentally friendly vehicles.

"We know what the market situation is and we hope the environmental incentives will have an effect," Fiat Auto's Boschetti said, adding a restructuring plan that includes a shake-up of its dealer network, would not be felt until 2005.

Good Plan

Italian Prime Minister Silvio Berlusconi said he had seen Fiat's recovery plan which "seems well done" and added his voice to a chorus of concern that a sale to GM would weaken Italy's historic carmaking industry.

"Nobody wants the sector to be led by a group that is not Italian or present in Italy," the billionaire businessman said.

Tabacci said splitting the brands up and adding Alfa Romeo to Ferrari's stable was "the only way of ensuring an Italian way out of the Fiat crisis".

Fiat's Fresco said the group's decision makers would remain Italian "in whatever circumstance", adding that Berlusconi's concern for Italy's role in cars "rang true" with Fiat's plans.

As Fiat's finances are bashed by slowing car markets in which its share is shrinking, speculation has grown that the maker of the old iconic Cinquecento will take up the GM option.

Earlier this month, Fresco said Fiat was committed to turning around Fiat Auto but added: "The highest probability is that it will become a stronger member of this GM federation."

On Thursday, Fresco said Fiat wanted to "deepen our collaboration" with GM, which also owns European marques Opel, Saab and Vauxhall. He did not elaborate.

Fiat and GM work have a range of joint ventures including powertrain and transmission production and small car parts.