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Fiat debts grow as recovery spending mounts

Fiat chairman John Elkann, right, and Fiat’s chief executive Sergio Marchionne stand near a new car during the opening of a new Maserati plant in Turin Jan. 30, 2013.

STEFANO RELLANDINI/REUTERS

Fiat SpA said on Wednesday its debt grew by about €1-billion ($1.36-billion U.S.) in 2012 as European car sales tumbled 14 per cent, leaving the Italian car maker ever more dependent on strong growth at U.S. unit Chrysler Group LLC.

As Fiat's management moves to increase spending on new models in Europe and the United States, investors are keeping a close watch on its debts for signs that cash-burning European operations are straining the group's crucial ability to invest in products that will win customers in the future.

Fiat, suffering from a brutal sales downturn in Europe, said it did not expect business conditions to change in 2013 from its previous forecasts and that its home region "continues to present significant levels of uncertainty."

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Fiat's net debt rose about 18 per cent to €6.54-billion ($8.81-billion U.S.) during 2012, a better performance than nearly all analysts had expected.

Some of the new spending was on view on Wednesday when chief executive Sergio Marchionne and Fiat chairman John Elkann unveiled a newly retooled factory outside Turin where the auto maker will build Maserati luxury sedans for export.

Chrysler is also spending on new models and said separately it expects cash flow to slow to $1-billion or higher in 2013, from $2.2-billion in 2012.

Chrysler is to sell 16 Fiat and Alfa Romeo models through its North American dealer network by 2016.

Chrysler plans to introduce in both 2013 and 2014 eight new or significantly refreshed models in the North American market, including an Alfa Romeo model and a Fiat model.

Since it exited bankruptcy in 2009, Chrysler has overhauled its lineup and emerged as the chief source of strength for Fiat as economic weakness in Europe hurts its sales. But Chrysler has also made its own missteps, as with the shaky introduction of its Dodge Dart compact car last year.

"While we are pleased to have achieved strong financial results in 2012, the enterprise we are crafting is not complete," Mr. Marchionne said in a statement.

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Total available liquidity for the group was €20.8-billion, slightly higher than year-end 2011.

The size of the group's cash pile is also being closely monitored since Mr. Marchionne has said he intends to spend the company's cash to increase Fiat's stake in Chrysler from its current 58.5 per cent.

Fiat said its full-year loss before interest and taxes in Europe, where car sales are entering their sixth year of decline, was €738-million. It has said it does not expect to break even in Europe before 2015.

It pared fourth-quarter losses in Europe before interest and taxes to €165-million, down from €298-million the same time last year.

Group fourth-quarter trading profit was €987-million compared with the €1-billion expected by analysts.

A weak performance and uncertain outlook for Europe was offset by strong performance in the United States, mirroring results reported by Ford Motor Co. on Tuesday.

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Chrysler reported a rise of 68 per cent in fourth-quarter net income, to $378-million from $225-million a year ago, as its vehicle sales rose 12 per cent, outpacing the 10-per-cent gain in the broader U.S. car market.

Chrysler said net income would rise to about $2.2-billion in 2013 and revenue would be between $72-billion and $75-billion.

Chrysler's modified operating profit forecast of $3.8-billion in 2013 is nearly one-third higher than 2012 levels. Initially, Mr. Marchionne forecast a 2013 profit of between $3.8-billion and $4.4-billion.

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