Issue: May 2009


Moody's Comments on Fiat's agreement with Chrysler



With its plan of a combination of the activities of Fiat Group Automobiles and General Motors Europe into a new company

by John Larkin

Moody's Investors Service commented on Fiat S.p.A.'s ("Fiat") announcement to establish a global strategic alliance with Chrysler LLC ("Chrysler") and its proposal of a combination of the activities of Fiat Group Automobiles (including the interest in Chrysler) and General Motors Europe ("GM Europe") which could be spin off into a new company

Falk Frey, Senior Vice President and lead analyst at Moody's for the European automotive sector, said: "The announcement of Fiat's plan to form a global alliance with Chrysler will be initially neutral to Fiat's ratings as Fiat does not get involved into any financial commitment for Chrysler and therefore will not result in a rating action at this stage. However, should Fiat's proposed combination of Fiat Group Automobiles and General Motors Europe materialise Moody's will have in all likelihood to reassess Fiat's ratings on the basis of the new structure."

Fiat's current Ba1/NP ratings with a negative outlook assume that Fiat would not make any cash investment in Chrysler nor provide any kind of financial commitment or support.

Should Fiat's plan to create an automotive group with approximately €80 billion revenues by regrouping the activities of Fiat Group Automobiles, its stake in Chrysler and General Motors Europe materialise the impact on Fiat's ratings has to be analysed from several different aspects. Moody's notes that Fiat has indicated that it was evaluating several potential corporate structures, including the subsequent listing of a new company to combine all its then automobile activities.

Key items would be among others (i) the future financial structure of the deal; (ii) the potential price, contingent liabilities assumed and the cash outflow to be paid for GM Europe; (iii) the defined assets that would be transferred to Fiat; (iv) Fiat's plan and timeline regarding the implementation of a common organization; (v) viability and time horizon of potential synergies as well as (vi) plans and the associated costs to streamline capacities and overheads and (vii) the challenge of management not to lose focus on Fiat's core businesses as well as the risks in the carrying out of such an ambitious plan.

The announcement of the aimed deal to acquire GM Europe could therefore lead to a review of Fiat's credit ratings.

Fiat's ratings have been downgraded to Ba1/NP with a negative outlook on February 23, 2009 to reflect the significant deterioration in Fiat's financial flexibility and the severe downturn of its key markets affecting the company's expected operating performance and cash generation.

Fiat S.p.A., headquartered in Turin, is one of the largest industrial groups in Italy and the fourth largest European-based automobile manufacturer, with revenues of €59.4 billion generated in fiscal year 2008. The company is also a leading European-based manufacturer of commercial vehicles and one of the largest producers of agricultural equipment in the world.




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