Analysis: Crisis-hit Italy tests Fiat's allegiance

Fri Dec 2, 2011 11:21am EST
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By Silvia Aloisi

MILAN (Reuters) - Fiat SpA's FIA.MI five car factories in Italy are all in the red and its profits now driven squarely by U.S. affiliate Chrysler, meaning a further scaling back of its 100-year-old Italian operations -- if not a complete pullout -- now looks increasingly likely.

The company's quixotic chief executive Sergio Marchionne says it would be unthinkable for the company not to have the interests of its 80,000 employees and its homeland at heart.

But as Italy gets sucked ever deeper into the debt crisis engulfing the whole euro zone and Fiat suffers an Italian market at its lowest ebb in 15 years, a revamped Chrysler is now the main source of revenues and profits for the combined group.

"Economically, financially, Fiat is already out of Italy," said an investment banker who follows the company.

A full-blown merger is expected by 2014 and the group's centre of gravity is shifting inexorably towards the United States.

In the third quarter, two-thirds of the group's profits -- seen at more than 2.1 billion euros for the whole of 2011 -- came from Chrysler. By contrast, Italy now represents less than 15 percent of consolidated revenues from as much as a third before the Chrysler tie-up.

On Friday Marchionne said he expected 2012 to be another difficult year for the auto market in Italy, where Fiat's sales have shrunk by 210,000 units in the last four years, but added that the U.S. market, and Chrysler, were performing very well.

Analysts estimate that Fiat loses around 1 billion euros a year in its home base, and Marchionne said last year that the group would perform better without Italy.   Continued...