Analysts have told the Reuters news agency that struggling Fiat Auto cannot simply come up with a magic cure to reverse its losses and must develop a sound strategy.
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The immediate challenge is to make a success of the new Punto city car, due to go on sale in June. If that and three other models due out this year fail to stop the Italian industrial giant bleeding cash, its days may be numbered, Reuters said.
“Once the Punto starts selling we’ll have an idea of whether Fiat can make it,” Patrizio Pazzaglia, a fund manager at Bank Insinger de Beaufort, told Reuters. “If we don’t see signs of a turnaround in the third quarter, we’ll be quite worried.”
Reuters noted that chief executive Giuseppe Morchio, Fiat’s fourth CEO in less than a year, has said his plan will focus on innovation, cost control and customer care.
“There is a very long checklist,” Vivek Tawadey, credit analyst at BNP Paribas, commented to Reuters. “They need to work on the product side, their quality, distribution, sales, costs and address their working capital and capacity issues. It’s a daunting task.”
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By GlobalDataAccording to Reuters, Fiat last year promised to invest 2.5 billion euros a year on new and renovated models to reverse 2002’s 11% sales slump. The firm has said the fleet of new models should pull its core car arm Fiat Auto and the group back to breakeven in 2004.
In the meantime, Reuters added, high cash burn and 2002’s record 4.3 billion-euro net loss have already prompted the top three debt rating agencies to cut the 104-year-old carmaker to “junk”.
“They have some good bits in there. It’s a matter of turning around the losses and making some cash out of smaller but better businesses,” Sanpaolo fund manager Nicoletta Urbani told Reuters.
The news agency noted that, lurking in the background is a put option that allows Fiat to force GM to buy its 80% of Fiat Auto from next year but in the next 18 months GM has to decide whether to pay its billion euro part of a five billion recapitalisation of the car unit.
“If it turns its back, it suggests Fiat Auto is still rotten and raises questions over the joint ventures,” Pazzaglia added in his comments to Reuters.
“I don’t have any serious investors in Fiat,” said one analyst, who asked Reuters not to name him. “Who they think is going to stump up new cash is beyond me.”
