Issue: Jun 2009


Moody's Comments on Fiat's announcement on the planned global strategic alliance with Chrysler



Moody's Investors Service commented on Fiat Group's and Chrysler Group's announcement that they have finalized their previously announced global strategic alliance resulting in Fiat owning an equity stake of 20% in Chrysler

by Moody's Investors Service

 Moody's Investors Service commented on Fiat Group's ("Fiat") and Chrysler Group's ("Chrysler") announcement that they have finalized their previously announced global strategic alliance resulting in Fiat owning an equity stake of 20% in Chrysler.

Falk Frey, Senior Vice President and lead analyst at Moody's for the European automotive sector, said: "On its own the announced transaction does not appear to change materially the credit profile of the company in the short term."

Frey went on to say: "The terms and conditions of the finalization of the strategic alliance and Fiat's equity stake in Chrysler are as anticipated and will, based on our understanding that Fiat will not make any cash investment nor provide any kind of financial commitment or support, not change Moody's current ratings for Fiat (Ba1/Negative)."

Potential benefits resulting for Fiat from economies of scale, sale of platforms, engines and components or the access to the North American car market might occur only over the medium term.

The finalization of the announced alliance follows the approval of the U.S. Bankruptcy Court in New York and various regulatory and antitrust regulators. Fiat declares in a joint press release that the company formerly known as Chrysler LLC sold substantially all its assets without certain debts and liabilities, to a new company that will operate as Chrysler Group LLC. Chrysler Group issued to a subsidiary of Fiat 20% equity interest in the new company. Fiat's equity interest will increase in increments by up to a total of 35% if certain milestones defined in the agreement are achieved. The agreement defines the transfer of technology, platforms and powertrains to new Chrysler.

Going forward, Moody's will closely monitor the progress in the execution of Fiat's plan to allow for increasing its stake step by step to 35%. Key challenges, in Moody's view, are (i) the implementation and transfer of Fiat technologies into Chrysler vehicles; (ii) creating a more attractive product pipeline that enable the company to stabilized or regain its eroding market position in its home market; (iii) re-engineering of Fiat models to meet U.S. safety regulations (iv) bridging the cultural gap between an American and a European company. Furthermore, the amount of time and energy dedicated by Fiat management to successfully turn around Chrysler's operating performance could become critical especially in the current market environment which is a challenge for any car manufacturer in its own. Any changes towards the company's intention to abstain from any kind of financial commitment or support would likely result in a re-assessment of Fiat's 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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