Fiat has cut its 2009 earnings forecast and said it won’t pay a dividend after Q4 profit plunged as the recession hit its sales.

The firm’s share price plunged on concerns that the company may have to raise capital after debt rose.

Net income fell to EUR163m in the fourth quarter from EUR570m a year earlier, the company said.

Fiat also reported a 30% drop in fourth-quarter trading profit to EUR663m. That was slightly better than analysts’ average expectations.

The biggest slump in Italy’s car market since 1993 forced Chief Executive Officer Sergio Marchionne to cut Fiat’s financial goals for the first time since he brought the carmaker back to profit in 2005. Auto sales dropped 19% in western Europe in the fourth quarter, with Fiat’s registrations down 5.5% in Europe in 2008.

The company cut its full-year forecast for 2009, predicting profit will fall to ‘in excess of EUR300m’, compared with its original outlook of EUR2.9bn-EUR3.1bn.

Bloomberg noted that Fiat had said in October in the worst scenario profit could fall to EUR400m.

Fiat also said it won’t pay a dividend for 2008 to common shareholders. Net debt swelled to 5.9 billion euros. The company isn’t seeking to raise cash, Simone Migliarino, head of communications, said in a separate statement.

High restructuring costs – mainly due to realigning residual values of its leased vehicles – reduced Fiat Group’s 2008 net profit to EUR1.72bn from EUR2.05bn in 2007.

Unit sales of Fiat Group Automobiles (FGA) fell 3.6% to 2.15m in all of 2008, while trading profit fell 13.9% to EUR691m.