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McClatchy-Tribune  07/30/2014 3:05 PM ET
Fiat profits fall 55% as Chrysler incentives, launches hurt bottom line [Detroit Free Press :: ]

July 30--Fiat, the carmaker that controls Chrysler, said second quarter profits fell 55% during the second quarter as industry sales in South America fell and the cost of incentives and product launches in the U.S. hurt the company's performance.

Sergio Marchionne, CEO of both Fiat and Chrysler, said Chrysler has lost discipline on its incentives in the U.S., partly because it still has a number of older models such as the Jeep Patriot, Jeep Compass and Dodge Caravan that have not been significantly updated for several years.

The automaker is forced to rely on higher incentives to support the sales of those models, Marchionne said.

"It is something that we obviously intend to remedy," Marchionne told anaylsts during a conference call today. "I think we need to become a lot more disciplined on the pricing side of this."

Marchionne, who is hoping to win approval of from Fiat shareholders Friday to restructure the two automakers into a single corporate structure, also addressed recent reports of merger talks with Volkswagen and Peugeot.

"I think there is nothing to talk about here. I think we have dismissed all of those rumors as being rumors," he said. "When we have something to announce we will make it clear."

Marchionne reiterated his willingness to talk to any automaker about alliances to jointly build cars or engines but dismissed any suggestion that Fiat would want to sell an individual brand, such as Ferarri or Alfa Romeo.

"We are open to discussions with everybody -- especially if the objective is to improve the cost positioning and the market presence of our brands," he said.

On Friday, Fiat shareholders will meet too vote on a proposal to rename the company Fiat Chrysler Automobiles, to incorporate the company in the Netherlands and to place its official headquarters in London.

The merger is designed to make it easier for the two automakers to function as a single, global automaker. None of the changes are expected to significanlty affect the company's total employment in Turin or Auburn Hills.

During the second quarter, Fiat earned a net profit of 197 million euros ($264 million) for the three months ending June 30 compared with 435 million euros ($583 million) for the same period a year ago.

The automaker's earnings before interest and taxes dropped to 961 euros ($1.3 billion) compared with 1.1 billion for the same period a year ago. The company's profits dropped sharply even though total sales of cars and trucks increased 2% to 1.18 million.

The results disappointed investors, as shares of Fiat fell 16 cents, or 0.02%, to 7.45 euros per share on the Italian stock exchange.

Despite a disappointing first half of the year, Marchionne said Fiat and Chrysler now expect to sell 4.7 million cars and trucks this year. Previoulsy, the company said it expected to sell up to 4.6 million cars and trucks.

Achieving that, however, will not be easy, Marchionne said.

"We had a crappy first quarter, a halfway decent second and we need to have outstanding quarters in the third and fourth," Marchionne said.

Fiat said it still expects to earn a profit of 600 million euro to 800 million euro ($800 million to $1.1 billion) for the year and increased its outlook for total sales of cars and trucks.

Fiat struggled in Latin America, where its sales dropped 21%.

In Latin America, Fiat's earnings before taxes fell to 62 million euro ($83 million), down from 224 million ($300 million) for the same period last year as revenue fell to 2.2 billion euro ($2.9 billion), down from 2.8 billion ($3,7 billion) for the same period a year ago.

Last week, Ford and General Motors both reported losses for their South American divisions amid economic turmoil in Brazil and Argentina.

In North America, which is essentially Chrysler, the automaker said net income fell to 598 million euro ($801 million), down from 733 million euro ($982 million) for the same period a year ago because of higher incentive costs and the cost of launching new models.

It is normal for automakers to incur higher costs on major product launches. Chrysler launched the all-new 2015 Chrysler 200 mid-size sedan in May, a car that the company expects will do much better than the outgoing version.

All of Chrysler's financial results were reported today as part of Fiat's NAFTA division under international financial reporting standards. Chrysler is scheduled to separately report second quarter earnings on Aug. 11 under generally accepted accounting principles, the system used by U.S. companies.

Fiat is still struggling in Europe, where industry sales are just beginning to recover following a recession that has lasted several years and has hit the automaker's home country of Italy especially hard.

The automaker said it lost 6 million euro in Europe during the second quarter, a huge improvement from a loss of 69 million euro for the same period last year.

In Europe, Fiat is in the middle of a massive restructuring plan that is aimed at reducing its reliance on the sale of mass market Fiat models in favor of increased sales of Maserati and Alfa Romeo models.

So far this year, Fiat has sold 17,500 Maserati's worldwide, nearly five times more than it sold for the first six months of 2013.

"We have really tried to move away from the sand box that this company has historically played in," Marchionne said.

Contact Brent Snavely: 313-222-6512 or Follow him on Twitter @BrentSnavely.


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