Originally created 02/28/04

Fiat reports the group's net loss narrows, meeting targets



TURIN, Italy -- In an eagerly awaited report from a struggling Italian industrial conglomerate, Fiat Group said Friday its losses narrowed in 2003 and it expects to make further progress this year and next and return to profitability in 2006.

The earnings report comes a little over a year after the death of longtime boss Giovanni Agnelli, an event followed by a major restructuring and the installation of a former Audi and Volkswagen executive to run its well-known automotive unit.

Fiat said the group net loss narrowed in 2003 to 1.9 billion euros ($2.3 billion) compared with a loss of 4.3 billion euros in 2002.

Revenue fell to 47.27 billion euros ($57.3 billion) from 55.65 billion euros a year ago in part because of business sold last year.

The company hopes to break even on operating costs this year, break even on income next year, and make profits in 2006.

Fiat said the launch of new models at its Fiat, Lancia and Alfa Romeo divisions pushed its Italian market share to 30.9 percent in January.

Fiat said it has cut its 2003 operating loss to 510 million euros ($634 million) compared with an operating loss of 762 million euros ($947 million) in 2002.

"We know the path is a long one, but the changes have been put in motion," CEO Giuseppe Morchio told a news conference. "Obviously, we'll be satisfied at the end of this path."

The Italian conglomerate acknowledged it is in discussions with General Motors about a disputed agreement that includes a "put option" to allow Fiat to force GM to buy its auto unit as of next year. The U.S. carmaker disputes this measure.

The put option is "under discussion" with GM, Morchio said, adding that he hopes to reach agreement before October. Fiat has long stressed that it doesn't want to sell.

The Turin automaker was in awful shape when Agnelli passed away in January 2003, and the company acted rapidly. It named Morchio its CEO the month after Agnelli died, issued a restructuring plan in June, hired a new leader to run the auto unit in November, and began investing in designing and researching new models.

The decline of Fiat had been dramatic. Since January 2001, the stock price has dropped 75 percent; since the late '80s, and its share of Italy's new car market has fallen from around 60 percent to below 30 percent.

When Agnelli died, speculation was rife that his family might dump the auto business and focus on more profitable ventures. Quite the opposite happened.

The very day of Agnelli's death, his family met and put up 250 million euros ($312 million) to help relaunch the auto unit. By summer, Fiat's third restructuring plan in three years was underway, this time focusing on what made the Fiat fortune but was now draining it: cars.

Fiat management sold off some of Fiat Group's profitable but non-auto units, a move that helped cut what Fiat Group owed from about 6 billion euros ($7.5 billion) in early 2002 to 3 billion euros ($3.75 billion) at end of 2003.

Fiat's hope is that a brand-new auto lineup will win back customers.

Last year, Fiat introduced fresh versions of its Panda, Punto, Lancia Ypsilon and several Alfa Romeo cars, while a new small-sized minivan, the Idea, hit the market last month. 2005 will be a key year, with the arrival of a new large-sized car, as well as an SUV, and two new Alfa Romeos.

The company got encouragement in November when its new Panda won the European Car of the Year award in a poll of auto journalists.

But do rave reviews from the motoring press sell cars? It's hard to forget the disaster of Fiat's midsize Stilo, which won good reviews when it was introduced in 2001 but still bombed, not even nearing the company's expected sales.

The Fiat brand may simply not appeal to buyers as it once did.

At one time, Europe - and above all Italy - was flush with Fiat's tiny city cars, which were ideal for this continent's narrow streets, built before fat motor cars invaded. The Agnelli family was the closest Italy got to royalty in the postwar period, with the style-setting patriarch, known to many as Gianni, its handsome monarch.

But success faded when trade barriers fell and tiny cars from Japan and elsewhere began to cut into the market. Fiat developed a mixed reputation and the brand image began its ugly slide.

The company hopes that its extended car crash is finally over, and that car-buyers will begin to assess their products in a better light.

"Some of our automobiles suffer from an image of crisis, which technically they don't deserve," Agnelli said.