Fiat 3Q Trading Pft Down 62%, Write-Offs Seen

By Gilles Castonguay (Wall Street Journal)

Of DOW JONES NEWSWIRES

MILAN (Dow Jones)--Italian auto maker Fiat SpA (F.MI) Wednesday posted a 62% drop in quarterly trading profit as the recession hit its sales hard, and it spoke of possible write-downs due to its partnership with Chrysler Group LLC. The warning is one of the first signs that its holding in the U.S. car maker, brokered by the U.S. government earlier this year, could weigh on its earnings even though Fiat had vowed it would not cost it any money.

"This is a sign that it might have an impact on its P&L," one London analyst said on condition of anonymity. In June, Fiat took a 20% stake and full management control of Chrysler. Fiat said it was reviewing the carrying value of some investments in platforms and architectures, especially in its cars, as it aligned its business with that of the U.S. company. "The group may revisit the future viability of some of its past investments, necessitating the write-off, as unusual items, of these legacy investments," it said. "They will not have a cash impact."

Fiat Chief Executive Sergio Marchionne declined to elaborate on a conference call with analysts ahead of the Nov. 4 presentation of his plan to revive Chrysler. UBS analyst Philippe Houchois said it likely meant ditching old platforms at the cost of hundreds of millions of euros. For the third quarter, Fiat's net profit tumbled 95% to EUR25 million, as revenue fell 16% to EUR12 billion. Its closely-watched trading profit - operating profit excluding exceptional items - totaled EUR308 million, ahead of analysts' expectations of EUR260 million, according to a Fiat poll.

"Aggressive cost containment actions helped mitigate the effect of revenue declines and pushed trading margins up to 2.6% (against 2.4% in the second quarter)," Fiat said in a statement. Like other car makers, the Turin-based maker of Fiat, Alfa Romeo and Lancia cars has suspended some production at its factories, cut costs and reduced cash burn in the face of the downturn. Fiat confirmed its 2009 targets, including a group trading profit exceeding EUR1 billion and a net industrial debt of less than EUR5 billion. Marchionne told analysts he expected Fiat to produce a trading profit of EUR1.5 billion in 2010 on a 2%-3% rise in sales as long as the government in its home market of Italy extended its scrapping scheme in some form beyond the Dec. 31 deadline.

Fiat and other manufacturers have had a fillip over the summer and autumn with demand for their cars being bolstered by government schemes across Europe to encourage the scrapping of old cars and the purchase of new, less polluting ones. Industry experts fear demand will fall once more when the scrapping schemes end. As for its Iveco truck and CNH (CNH) agriculture and construction equipment units, Fiat said it expected them to keep facing depressed demand for the whole year. Fiat shares ended 2.05% down at EUR11 in Milan, following the whole European auto sector lower following the publication of lower sales figures by France's PSA Peugeot-Citroen (UG.FR) earlier Wednesday. One Milan analyst cited profit-taking after a surge in Fiat's stock ahead of its results as well as speculation on the extent of the write-offs.