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 million.
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.)
Subscribe to WSJ: http://online.wsj.com?mod=djnwires