New Fiat Chrysler Automobiles faces big challenges image

Fiat has cut its 2014 profit forecast after a slump in Latin American earnings, underscoring the task the carmaker faces as it completes a merger with US arm Chrysler and shifts its focus away from Italy to create a true global player.

Fiat, which this month bought out Chrysler’s minority investor in a $4.35 billion deal said the new FCA (Fiat Chrysler Automobiles) group would have its primary listing in New York, with a secondary listing in Milan. The holding group will be registered in the Netherlands and have its tax domicile in Britain, cementing a politically sensitive shift away from Italy.

Five years after Fiat helped to rescue Chrysler from bankruptcy, the number 3 US automaker, has become a major profit centre for the group, helping to offset a six-year European market slump. Meanwhile, unions and politicians have been concerned about any potential job cuts, but Fiat said the merger would have no impact on jobs in Italy or elsewhere.

Latin America has also become important. But Fiat said on Wednesday core earnings in the region plunged 80 % in the final quarter of 2013, dragging group results below forecasts and contributing to its decision to lower expectations for this year.

“Fiat remains a fragile business, is highly leveraged … and will not generate cash anytime soon. Management appear to face Sisyphean tasks in many regions,” Max Warburton, an analyst at Bernstein, said in a note.

The Latin American headwinds and much slower growth in forecast profitability at Chrysler mean the merged FCA will remain a company in the midst of a painful restructuring.

“The number of challenges is not going to decrease,” Chief Executive Sergio Marchionne said during a conference call.

The much needed investments to revamp plants and build new models are expected to consume cash in 2014, with capital expenditure forecast at around 8 billion euros ($10.9 billion).

Marchionne, who pledged to stay at the helm of FCA for at least three years, said he hoped to list the group in New York as of October 1, hoping to benefit from a more liquid market.

While analysts have widely welcomed the Chrysler deal, which Marchionne funded without a rights issue and more cheaply than anticipated, they have been more skeptical about the group’s rising debt and the ability of the 61-year-old executive to turn the Fiat part of the business around.

The group managed to reduce its losses in Europe, and surprised to the upside by a strong performance of its luxury brands, especially Maserati. Chrysler’s fourth-quarter adjusted net income rose 74 % to $659 million.

Via Reuters