More Pain for Fiat as Loss Widens, Debt Rises

Fiat showed how far it has to go to recover from its worst ever crisis today when it unexpectedly posted a wider first-quarter loss than a year ago, hit by another lame performance at its auto unit.

The Italian group, which is drawing up a long-awaited industrial plan to clamber back to profit and cut debt, reported a first-quarter operating loss of 342 million euros ($393.6 million), compared with a 299 million-euro loss a year ago.

That was worse than the lowest forecast in a Reuters poll and Fiat shares, which have lost about half their value in the last year, fell two percent after the results were released. They then climbed back to close 0.8 percent higher.

"There has been no improvement in the car business or in the other parts of the group," said Patrick Juchemich, autos analyst at Sal Oppenheim in Frankfurt, who is cautious on the stock.

Most investors are looking ahead to June when the tractor-to-tools group is due to present its new blueprint, which new Chief Executive Giuseppe Morchio said would focus on customer service, cost controls and technology.

"The results are just a detail, the big picture is they are trying to turn things around," said a Milan-based fund manager.

Fiat, owners of the Ferrari marque and Formula One team, said 2003 would be "a tough year of transition" with hard market conditions but expected its full-year operating loss to be narrower than the 762 million euros it lost last year.

But there are still dark clouds on Fiat's balance sheet as net debt jumped to 5.2 billion euros from 3.8 billion at the end of 2002, above a three billion limit set by its banks last year. Credit analysts cited seasonal effects and Morchio, the latest manager charged with turning Fiat around, reiterated his commitment to slash net and gross debt to the banks' targets.

The sale of insurer Toro and Fiat Avio - expected to raise about four billion euros - and customer financing unit Fidis should go a long way to cutting back debt, Morchio added. Analysts said high cash burn at the car unit - one billion euros according to one of them - was Fiat's biggest problem.

"This highlights that after the divestitures of cash generative businesses, the cash burn could get worse rather than better," said Morgan Stanley analyst Adam Jonas.

Fiat Avio and Toro generated 241 million euros of cash last year, helping limit the group's total negative cash flow to 1.65 billion euros.

Autos Bleed

Core carmaker Fiat Auto, which cut thousands of jobs last year, reported a first-quarter operating loss of 334 million euros, widening from 180 million euros in the fourth quarter.

"When you bear in mind that the Italian market was stronger in the first quarter it is not a good sign that they are still losing this much money," said Juchemich.

Fiat is due to unveil a new version of its best-selling Punto in June with three new models due out later this year, which it hopes will lure back buyers.

Some analysts said Fiat showed scant evidence of the benefits of recent cost cuts. Morchio said there was still scope to trim costs in its dealer network and through its partnership with General Motors, which owns 20 percent of Fiat Auto.

Fiat was also hit by a weaker dollar, which knocked 500 million euros off revenues at its tractor and bulldozer unit Case New Holland due to translation effects.

German rival Volkswagen saw first-quarter profit slashed by more than two thirds by a stronger euro and a weak market while France's PSA Peugeot Citroen showed there was still room to grow and sales of its new model line-up rose. Morchio was downbeat about the future of Fiat's key markets, which he said were unlikely to show any turnaround until at least late 2003 as the global economy bumps along.