Fiat Posts Nearly 70 Percent Drop In Profit

Italian auto maker reported a 69.8 percent drop in fourth quarter profit on a slump in demand for its cars in its key western European and South American markets.

ROME (AP) -- Italian auto maker Fiat on Thursday reported a 70 percent drop in fourth quarter profit on a slump in demand for its cars as the economic slowdown hit its key western European and south American markets.

Net profit for the last three months of 2008 was euro180 million ($232.38 million), down from euro597 million in the same period of 2007. Full year profit was down 16.2 percent from euro2.05 billion to euro1.72 billion, Fiat Group SpA said in a statement.

Fiat said it would not distribute a 2008 dividend for ordinary shares and halted a share buyback program. The results sent Fiat stock plummeting, just two days after it was pushed up by the announcement of a planned strategic alliance with U.S. automaker Chrysler LLC.

Following Fiat's poor showing, Premier Silvio Berlusconi said he would open talks next week on possible aid for the car sector.

Fiat expects demand to drop a further 20 percent in 2009 and sees its net profit for the year at more than euro300 million.

It said revenues for 2008 were up 1.5 percent from euro58.5 billion to euro59.4 billion thanks to a strong performance in the first three quarters. But that was offset by declines across most sectors in the last months of the year as demand fell off sharply amid the worsening financial and economic crisis.

The Turin-based company, the maker of Fiat, Lancia and Alfa Romeo brands, said trading profit was up 4 percent at euro3.4 billion with gains in agricultural equipment, truck and luxury cars more than offsetting declines in Fiat Group Automobiles, components and construction equipment.

Fiat said that despite the demand drop in the fourth quarter, this was its best ever trading profit -- defined as operating income minus exceptional items.

The key car division sold 2.15 million cars and light commercial vehicles, down 3.6 percent from 2007. The decline was particularly strong in Italy, Spain and Britain.

Sales went well in Brazil, with a full year increase of 10.6 percent, but that includes a decline in the fourth quarter as the financial crisis began to take its toll also in the south American country.

CEO Sergio Marchionne said Fiat would continue to cut production and rely on temporary layoff schemes to find an "equilibrium between supply and demand."

In December, the drop in demand in the Italian market forced Fiat to shut most of its plants in the country for a month, laying off nearly 50,000 workers for an extended holiday.

Marchionne said 2009 "is going to be the toughest year ever; we have never seen such a combination of factors coming into play at this speed."

Marchionne, who has turned around the once failing Fiat since taking over in 2004, praised Berlusconi's move to help the auto industry.

During a telephone conference he said that in view of the U.S. government's bailout, "inaction by countries such as Italy would have permanently damaged our ability to compete."

Fiat shares plummeted 14.6 percent to euro3.80 after the results announcement. The company separately denied reports in the Italian press that it was considering a capital increase to fund a merger with France's PSA Peugeot-Citroen.

On Tuesday Fiat said it had signed an initial agreement with Chrysler to take a 35 percent stake in the U.S. carmaker in exchange for sharing its technology.

Officials have indicated the deal, which is subject to regulatory approvals, could be expanded in the future to give Fiat full control of Chrysler.

"The right level of consolidation is one answer" to the auto sector's difficulties, Marchionne said, suggesting that Fiat was open to other deals.

"The Chrysler arrangement is the first step in that direction, by far it's not the last," he said.

More in Supply Chain