Fiat Out of the Red

UNCLAS MILAN 000039

SIPDIS


E.O. 12958: N/A
TAGS: ECON EIND ETRD PGOV IT ECON AORC EUN
SUBJECT: Fiat Out of the Red


Restructuring Starts to Show Profits
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1. Fiat Chairman Luca Cordero di Montezemolo held a
press conference to announce that after almost five
years of steady losses, the auto giant posted
operating profits of 1.33 billion euro in 2005. Fiat
ended the year with 7 billion euro in cash, compared
with 6 billion euro at the end of 2004, and reduced
its net industrial debt to 3.2 billion euro from 9.4
billion euro. The full-year profit is the first
recorded results of a massive restructuring including
substantial cost cuts, the sale of Fiat's stake in
energy group Italenergia Bis, a debt-for-share swap
with its bankers, a 1.5 billion euro "divorce
settlement" from General Motors to end a failed
alliance, and increased sales from the launch of a new
car model, Grande Punto, historically the group's
best-selling model. Fiat also recently signed
production agreements with Ford Motor Co. and Tata
Motors Ltd. of India.


2. Industry analysts wonder if Fiat car recovery has
legs, especially because the GM settlement and debt
for stock swap were one-offs. Fiat is currently
fighting with Italian Welfare Minister Roberto Maroni
to get the GOI to pay for lay-offs/early retirement
packages at its Italian plants. Maroni has postponed
any decision until after the April national
elections.

Banks Cashing Out
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3. San Paolo IMI and Monte dei Paschi di Siena
unexpectedly sold last week the shares they received
for Fiat debt. The two banks, along with three other
large Italian banks, rescued the troubled company in
2003 through a debt-for-equity swap. There have been
lots of rumors as to why Turin-based San Paolo IMI
decided to disinvest. The bank's official response is
that it sold its share because the investment was
always meant to be temporary, arguing that Fiat has
completed its turnaround. Italian press, however,
have personalized the transaction, speculating that San
Paolo president Enrico Salza felt excluded when the
Agnelli family, fearing that Fiat was under assault,
decided to buy back some of their Fiat shares last
September without consulting him. Press also notes
that Salza has never been on good terms with Fiat's
current President and head of the powerful national
manufacturing association, Confindustria, Luca Cordero
di Montezemolo. (Note: Despite the extensive coverage
as to why Salza did not first coordinate this move
with Fiat, we note that such disclosure would have, in
fact, been illegal.)

Deborah Graze