Standard & Poor’s Ratings Services lowered its long-term corporate credit rating on Fiat SpA (Fiat) to ‘BB-‘ from ‘BB’, due to weakness in Europe.
The ratings agency said Fiat will continue to suffer from overcapacity in European auto plants in general, and from the underutilization of its plants specifically.
The announcement came after the Italian auto giant said its net profit in the first quarter soared ten-fold to 379 million euros ($500 million) thanks to its US partner Chrysler, without which it would be in the red.
Excluding Chrysler, Fiat’s revenues fell 5.7 percent due to declining European auto sales.
Fiat also suffered a drop in production and deliveries due to a monthlong strike by trailer drivers protesting higher gas prices and government austerity measures.
CEO Sergio Marchionne estimates that European car plants can make about 20 percent more cars than the shrinking market can absorb, hurting profits.
In addition, the executive confirmed during the conference call that future investments in Italy beyond those already announced would remain on hold until the market improves, and the company said Fiat’s domestic market is expected to register the lowest volumes since 1983 this year.