Fiat earnings slump under poor European sales

Italian carmaker Fiat reported Tuesday that second-quarter net income plummeted by 92 percent as a slump in European sales offset a profit at its U.S. carmaker Chrysler.

Fiat, which is based in the northern city of Turin, posted a profit for the second quarter of €103 million ($126.53 million), down from €1.3 billion in the same period last year. Without Chrysler, Fiat would have lost €240 million, Fiat said.

Fiat and Chrysler CEO Sergio Marchionne called it a "good quarter for Fiat, on the back of some really strong results over at Chrysler."

But the auto market remains grim in Europe, which is facing its fifth consecutive year of decline. Marchionne told analysts he would address issues of capital and plant utilization in Europe after the third quarter in order to gauge political progress in resolving the ongoing financial crisis.

"All of these questions need to wait until we have a better read of the European market development, and we have a better read of Europe as a whole," Marchionne said.

Fiat already has pulled back on investments in its native Italy, and is holding off on new car rollouts. Italian automotive workers have been on temporary layoffs, and Fiat extended the usual month-long holiday closure at its state-of-the art Naples plant by two weeks.

Marchionne has been pressing the European Union, as the harbinger of the common market, to help coordinate what he and some other industry players see as the need to reduce capacity in Europe which hurts profits. Otherwise, he has said, vulnerable carmakers will face failure. So far, there has been no formal response.

Any moves by automakers to reduce capacity on their own brings political outcry, as happened in France this month when Peugeot announced it would eliminate 8,000 jobs and close one factory to deal with declining demand.

To deal with volatile financial markets, Fiat is keeping what Marchionne called "an inordinate amount" of cash on its books as a hedge — around 20 percent of sales. While Fiat continues to be able to access the markets, the CEO said access is not consistent.

Fiat's European business lost €184 million before interest, taxes and one-off items, compared with a loss of €406 million a year ago, when not counting unit acquisitions or sales. Europe's deteriorating financial crisis has hit the automotive industry hard.

Shipments of cars and light vehicles overall were down 13 percent in the quarter. Demand in Fiat's home Italian market was down 19 percent, heading to the lowest level for the year since 1979.

Fiat's significant Latin America business also softened, with second-quarter profits declining by 25 percent to €238 million.

The one bright spot was Chrysler, which on Monday reported a second-quarter profit of $436 million, compared with a loss of $370 million a year earlier. U.S. sales were up 24 percent in the quarter, outpacing the market.

While the two automakers combined posted revenues of €21.5 billion, most of that belonged to Chrysler and reflected sales growth in North America and Asia. Fiat revenues without Chrysler were down 7.5 percent to €9.2 billion.

Shares in Fiat closed down 4.4 percent at €4 in Milan trading.

Despite the uncertain economic conditions, the company confirmed targets for the year of revenues in excess of €77 billion and net profit between €1.3 billion to €1.5 billion.