Fiat SpA sharply cut its group targets for the next two years on Tuesday, saying languishing sales in austerity-hit Europe may mean its trading profit in 2014 is a third lower than it targeted two years ago.
Revising the projections made when European economies had seemed ready to recover from the global financial crisis, the Italian auto maker said it now expected to sell 4.6 million to 4.8 million cars in 2014, not the six million it had hoped for.
The Turin-based group cut its forecast of 2014 trading profit to €4.7-billion to €5.2-billion from €7.5-billion previously, while 2012 net industrial debt could hit €6.5-billion, up to €1-billion above the previous projection.
Under chief executive Sergio Marchionne, Fiat took control of the bankrupt U.S. car maker Chrysler in 2009. Chrysler's revival since then has kept Fiat afloat in the current European crisis, allowing it to keep all its Italian plants open, although they are running below capacity.
Fiat also reported slightly better-than-expected third-quarter profits on Tuesday, and said again that it did not plan to shut European factories, unlike some of its competitors.
Instead, it promised to increase investment and return its European operations to profitability in 2015-2016 by developing "global brands Alfa Romeo, Maserati, Jeep and the Fiat 500 'family'."
Mr. Marchionne acknowledged the risk involved in investing and avoiding factory closures while the European market was shrinking.
"This is truly not for the faint-hearted," he said. "We never shied away from the challenges of making Chrysler into a viable car maker. I think we need to do it one more time, to find a permanent solution to Europe's quandary."
Mr. Marchionne, who unsuccessfully bid for General Motors Co.'s European division Opel in 2009, said he had not discussed the business with GM since then. He also denied a report that he had proposed a three-way tie-up with GM and France's PSA Peugeot Citroen earlier this month.
According to the anonymously sourced Bloomberg report, Mr. Marchionne had approached GM and PSA Peugeot Citroen, which are already pursuing an alliance in purchasing, logistics and future vehicle development.
"I wasn't the guy talking to Opel about anything … We haven't had conversations since… 2009," Mr. Marchionne said on a conference call with reporters and analysts when asked to comment on the report.
Shares in Fiat accelerated losses on the back of the profit warning and closed down 4.7 per cent in Milan.
"The share is being buffeted by the lowered targets, though honestly it's all just a natural consequence of the unfolding crisis on the European markets," said an Italian fund manager, who spoke on condition of anonymity. "Thank God there's Chrysler. Fiat without Chrysler would be in real trouble."
Earlier in the day, Fiat had posted third-quarter trading profit above analysts' forecasts as a jump in sales at Chrysler offset a growing loss in Europe, where the car maker sees no recovery until 2014.
Fiat reported a trading profit of €951-million against market expectations of €910-million. Its trading loss in Europe, where it sells 25 per cent of its cars, was €238-million, double the level of a year ago.
Fiat's bearish outlook hammers home the problems facing European car makers as they struggle to stem losses from high fixed costs in a shrinking market.
Europe's sovereign debt crisis, government spending cuts and high unemployment have hit consumer spending and sent demand plunging, with new car registrations in the region showing their sharpest contraction in September for 12 months.
Last week, U.S. rival Ford Motor Co. said it would shut plants in Belgium and Britain, with the loss of thousands of jobs.
PSA Peugeot Citroen has accepted state aid and even Germany's Volkswagen AG, previously more resilient to crisis than its mass-market rivals, posted a big drop in quarterly profits.
Fiat's bottom line continues to be bolstered by Chrysler, which posted an 80-per-cent rise in quarterly net income on Monday, as well as by strong results in Brazil.
In Italy, total car sales have declined to levels not seen since the 1970s and Fiat has responded by cutting back on spending – a strategy that has drawn criticism from trade unions, politicians and even some other business leaders.