RENMIN UNIVERSITY OF CHINA

FIAT S.p.A
Company Analysis
Anita Tang Ing Ing 2011190131 Lysa Wang 2011190125 Patricia Dias 2011190122 Dario Gipponi 2011190121 Yu Young Sun Roy 2011190134 18th December 2011

IMBA Accounting
Professor Kevin Zhu

0

Executive Summary
Fiat S.p.A. is an Italy-based international automobile manufacturing group with a centurylong history. With this analysis we want to discuss the company's present situation as it appears form the most recent annual reports (2009 to 2011) As we examine the company we can see that despite its focus being on commercial vehicles, it presents a strong product diversification: not only the group owns different car brands, but it also leads components production along with industrial vehicles and airplanes. Constantly seeking quality and performance, the company managed to achieve good results in the last few years, despite opening the century on the edge of bankruptcy. Starting with a classic SWOT analysis in which we identified the positivity of Fiat's diversified product portfolio and its focus on research and innovation, representing also the company's main opportunities for the future. We also spotted few issues that could threaten the future performance of the firm, especially when we compare it to its direct competitors. All these aspects are examined in detail throughout this report. After giving a quick summary of Fiat's economic history, we then proceeded to analyzing the last three available annual report which provided some interesting data, especially considering the company's recent demerging which happened between 2010 and 2011 reports and thus is covered here. Thanks to this analysis we were also able to get some forecast for the future. Although Fiat's performance has looked positive until now, when we went deeper in our work and started comparing it to its competitors (here we chose Ford, due to a bigger similarity of scale) we could see that the italian car manufacturer always places last. This is easy to see by looking at different ratios. With all the company's positive and negative aspects in mind, we were finally able to draft some investments recommendations, focusing them on brand consolidation, market consolidation and technology advancement. 1

Table of Contents
Executive Summary ......................................................................................................................................................... 1 Table of Contents .............................................................................................................................................................. 2 1 FIAT S.p.A................................................................................................................................................................... 3 2 SWOT Analysis......................................................................................................................................................... 4 2.1 Strengths............................................................................................................................................................ 4 2.1.1 Diversified business portfolio .......................................................................................................... 4 2.1.2 Strong research and development ................................................................................................. 5 2.2 Weaknesses ...................................................................................................................................................... 5 2.2.1 Lack of scale compared to peers ..................................................................................................... 5 2.2.2 Product Recalls ...................................................................................................................................... 6 2.3 Opportunities................................................................................................................................................... 6 2.3.1 Growth through strategic joint ventures..................................................................................... 6 2.3.2 New Model and products launch .................................................................................................... 7 2.4 Threats ............................................................................................................................................................... 8 2.4.1 Competitive pressures ........................................................................................................................ 8 2.4.2 Risks associated with international markets............................................................................. 8 3 FIAT S.p.A. FINANCIAL ANALYSIS ................................................................................................................... 8 3.1 Income Statement .......................................................................................................................................... 9 3.2 Balance Sheet ................................................................................................................................................... 9 3.3 Cash Flow ....................................................................................................................................................... 10 3.4 Recent Performance_2010 results ....................................................................................................... 10 3.5 Recent Performance_2011-1Q ............................................................................................................... 11 3.6 Outlook ............................................................................................................................................................ 13 4 FIAT S.p.A. PERFORMANCE ANALYSIS ....................................................................................................... 14 4.1 Fiat’s Competetive Standing ................................................................................................................... 14 4.2 Ratio Analysis ............................................................................................................................................... 15 4.2.1 Profitability .......................................................................................................................................... 15 4.2.2 Assest Turn Over ................................................................................................................................ 15 4.3 Fiat vs. Competitor Scale .......................................................................................................................... 16 4.4 Declining Credit Ratings ........................................................................................................................... 16 5 Investments ........................................................................................................................................................... 17 5.1 Automobile Investments .......................................................................................................................... 17 5.2 Economic Investments .............................................................................................................................. 18 5.3 Technology Investments .......................................................................................................................... 19 6 Summary ................................................................................................................................................................. 20 7 References .............................................................................................................................................................. 21 8 Appendices............................................................................................................................................................. 24 8.1 Appendix 1: FGA revenue & operating profit trend ...................................................................... 24 8.2 Appendix 2: FIAT S.p.A. Income Statement 2007-10 Incl. 4-yrs Trends/ Figures ............ 25 8.3 Appendix 3: FIAT S.p.A. Income Statement Last 4-Quaters Incl. Trends/ Figures ........... 26 8.4 Appendix 4: FIAT S.p.A. Balance Sheet 2007-10- 4-year Trend Figures Incl. .................... 27 8.5 Appendix 5: FIAT S.p.A. Balance Sheet Last 4-Quarters Incl. Trends/ Figures .................. 28 8.6 Appendix 6: FIAT S.p.A. Cash Flow 2007-10 Including Trends/ Figures ............................. 29 8.7 Appendix 7: FIAT S.p.A Recent Performance 2011 –Q4 .............................................................. 30 8.7.1 Table 1: Latest results – FIAT S.p.A. ........................................................................................... 30 8.7.2 Table 2: Latest results – FIAT Group.......................................................................................... 31 8.7.3 Table 3: FIAT Group revenue by division (%)........................................................................ 31 8.8 Appendix 8: Fiat vs. Ford – Industry Analysis ................................................................................. 32 8.9 Appendix 9: Fiat vs. Ford – Profitability Comparison ................................................................. 32 8.10 Appendix 10: Fiat vs. Ford – Asset Turnover ............................................................................. 32

2

which operated for more than a century. the company is active in the automobile components sector through their production of advanced manufacturing systems. business.com. are Lancia.p.p.p.A. Alfa Romeo. Fiat S.3% increase over FY2009. The company aim to achieve best-in-class performance which is to create the highest performance level and used as a standard or benchmark in the industry (BusinessDictionary. They have produced approximately 97 million passenger cars and light commercial vehicles and 12 times various of its car models have been named “Car of the year”.3 billion during the fiscal year ended December 2010 (FY2010).A is a best-known international group as a leading automobiles manufacturer.A.1 FIAT S. It was reported the trading profit of the company was €1. The company headquartered in Turin.2billion of net profit.924 employees during the year end of 2010 and 5% increase over year-end 2009.1 billion during FY2010 and €0.p. The company recorded revenues of € 56.p. They employ 199. The successful mass market car brands under Fiat S. airplanes and thermo mechanics.A.com. The company not only produces commercial vehicles. Fiat S. telecommunications equipment. produce and sell cars for the mass and luxury market. grows and creates their value by supplying innovative products and service for globalizing their business activities and maximum customer satisfaction.A Fiat S.2011) The company has a clear focus in the automobile sector that they design. engine components. Fiat Professional and Abarth brands as well as the well known Ferrari and Maserati brands for their high aim market. (FIAT S. 3 . but also on construction machinery. the company had strengthened their liquidity to €12. metallurgical products.2billion in FY2010. Italy which carried out industrial and financial services activities in the automotive sector through companies located in approximately 50 countries. In addition.’s goal is to be a credible and reliable company with their value of “delivering what we promise” as business fundamental. a 12. 2011). (www. Moreover.2011).p.A.

9% in FY2010.p. However.A. CNH manufactures and sells agricultural equipment such as tractors.p.p.023 million in FY2010. competitive pressure and risks associated with international markets could be crucial threats that need to be developed to shield the business.4% year-on-year.incentives in major European markets. The division accounted revenue of €2. This portfolio shields the company from demand fluctuations and benefits from opportunities available in various dissections. The industrial business was stable compared with FY2009 which recorded €15 billion in FY2010. up 10.2 SWOT Analysis Fiat S. Maserati and Teksid. Fiat Powertrain. landscaping. Fiat S.538 million.A. is a diversified industrial group which the company engaged in the manufacture and selling of automobiles. commercial vehicles. agriculture and construction. Comau. primarily driven by CNH and Iveco. Lancia and Abbarth brands. has strong automobile division where they design. Alfa Romeo. produces and sells industrial automobiles such as buses.1 DIVERSIFIED BUSINESS PORTFOLIO The company has a diversified business portfolio that operates through several business divisions including Iveco. Fiat S. produce and distribute vehicles under the Fiat.3% over FY2009. Maserati.A. The rises of revenue are from the sales of light commercial vehicles. The division accounted 27% of total revenue with €3. The company has global recognized and strong established brand that helps to enter new markets. 4 . This division provides a wide range of products in mass excavation. agricultural. increase 16. 2010). components and construction equipment. A diversified portfolio shields Fiat against demand fluctuations in certain product categories and also benefit from opportunities available in various divisions. Ferrari. Fiat group automobiles. firefighting and special services vehicles. hay. Whereas Iveco division designs. an increase of 6.1 STRENGTHS 2. forage and crop production equipment. currency advantages and followed by the phase-out of eco.’s automobile division recorded revenue of €30. Ferrari.1 billion.1. (Press release Fiat group. In FY2010. Magneti Marelli. 2.

€86. environmental impact and traffic safety. mobility.6 billion).com.5% of net revenues for the Group Industrial Activities in 2010 (Fiat S. Caradvice.2 STRONG RESEARCH AND DEVELOPMENT As the company aim to achieve best-in-class performance.p.9 billion has been invested R&D which is equivalent to 3.p. studies and anticipate the needs of million of customers. experimentation.9 billion (Ford Motor Company 2011) Volkswagen: 126. testing on powertrain systems and electromagnetic compatibility. analyses and developing materials and processes. Their growth has been driven by the creation of innovative models. research and development (R&D) is one of the major key to play to lead and create their benchmark for the industry. and advance physical and virtual testing equipment (www. CRF is an international centre of excellence in research and it has approximately 900 employees. In 2010.8 billion euros ($171. Volkswagen has triumphed Ford Motor and became the most profitable automotive manufacturer. The main competitors such as Ford Motor and Volkswagen are larger in the size compared with Fiat S.8 billion It was found that Fiat lacks the scale compared with large automobile players in the market. 2.2. complete vehicles development. The company has 58 research centers in the world. All the R&D has been conducted through Fiat S. to develop innovative solutions that embody a 360 degree concept of mobility (Lamp. research centers named Centro Ricerche Fiat (CRF) and Elasis.2 WEAKNESSES 2.A.2. development technologies.1 LACK OF SCALE COMPARED TO PEERS Ford Motor: $ 120.A.A. The centre has over 800 employees located in southern Italy. CRF draws on a broad array of technical skills. 2011).. Volkswagen recorded revenue of €126.A Annual Report. It is used on sophisticated computer-aided design tools.8 billion 5 . CRF benefits Fiat S.p. It was reported €1. Whereas Elasis is one of the most advanced engineering companies in the automotive sectors which highly specialized on addressed technological innovation. 2011. csrglobe. 2011). 2010).p.1.

p. The latest product recall campaign was on their Chrysler division. The new plant is estimated to produce approximately 300 thousands of hydraulic components in a year. a division under Fiat S. 2.633 export models recently (Domain-b.2.000 Dodge and Chrysler minivans with the problem of a possible heating and air conditioning that could trigger the air bags to go off unexpectedly. it was reported that Magneti Marelli’s hydraulic component technology has been adopted by 6 . The advantages on having larger scale of economic are specialization to increase the company’s performance and gain bargaining power with suppliers.A. 2011).A.com. Product recalls indicate inadequate quality control mechanism followed by Fiat S. According to the Fiat S.748 vehicles in Mexico and 13.innovationzen.3 billion ($78. The joint venture is aimed at the production of hydraulic components which will be integrated with electronic control unit of Magneli Marelli system. 2011).p.A website.2011) in FY2010. For instance. and affiliated which will affect its brand in the market.p. has came out with new production plant with the result of the joint venture signed in January 2009 with Shanghai Automobile Gear Works (SAGW).p. is planning to expand its business by setting up several joint venture companies in different countries. 2011).3 OPPORTUNITIES 2.A.8 billion ($120.p. 3.9 billion) (VolkswagenAG.p. Besides.p.A.com. there were 39 recall campaigns during the year of 2010 and the campaign affecting 198. In addition. 2. (www.A.2 PRODUCT RECALLS Fiat S.($171.6 billion) (Ford Motor Company 2011) whereas Ford Motor recorded revenue of €86.5 billion) in FY2010 which is much lesser than its competitors such as Volkswagen and Ford Motor. Fiat S. Chrysler recalled more than 367.251 vehicles in Canada. had to recall a number of vehicles in recent times owing to various reasons.3.000 customers world widely (Recall campaign Fiat S. only recorded revenues of € 56.A. Magneti Marelli.1 GROWTH THROUGH STRATEGIC JOINT VENTURES Fiat S.. Chrysler also recalled 50.

A. a division under Fiat S. Fiat S. Magneti Marelli S. the group is well positioned to tap the opportunities arising from these growing automotive markets. This is a great achievement and special ceremony has been held at the company’s 7 . it was reported that Magneti Marelli’s hydraulic component technology has been adopted by 16 international carmakets which including 6 Chinese carmaker (PressRelease. CNH.p.p.A. The joint venture is aimed at the production of hydraulic components which will be integrated with electronic control unit of Magneli Marelli system.A.A. The new plant is estimated to produce approximately 300 thousands of hydraulic components in a year. New engine designed for both longitudinal and transversal application will be developed in Italy for production at FMA plant in Pratola Serra in the beginning in early 2013.16 international carmakets which including 6 Chinese carmaker (PressRelease. Abarth which is one of division under Fiat S. Magneti Marelli. This is a great achievement and special ceremony has been held at the company’s plant in Ankara.2 NEW MODEL AND PRODUCTS LAUNCH The company invested much in their research and development for producing new products and models to fulfill their customer’s needs and demand every year. launches three new models in 2011 at Frankfurt which including Evo Punto Abarth 500c. 2011).A. 2011). Besides.p. (www.p.p. joint venture with Koc Holding which is a leading manufacturer of equipment in Turkey has delivered 600 thousandth of tractors in 2011. Fiat S.p.A.com. has came out with new production plant with the result of the joint venture signed in January 2009 with Shanghai Automobile Gear Works (SAGW). 2010). Abarth 695 Competizione and Abarth 695 Tributo Ferrari. a division under Fiat S. a division under Fiat S.. With greater presence. For example. For instance.. In addition.A.A. Turkey (4-traders. CNH. In addition.3.MotorAuthority. 2. 2010).com. produced new Alfa Romeo engine in Italy in 2011.p. is planning to expand its business by setting up several joint venture companies in different countries. joint venture with Koc Holding which is a leading manufacturer of equipment in Turkey has delivered 600 thousandth of tractors in 2011. Magneti Marelli S. In addition.p.

With greater presence. currency. 2. trade restrictions.com.plant in Ankara. customer recognition and financial services. reliability. they are subjected to risks inherent to operating globally which is including the exposure to local economic and political conditions. the group is well positioned to tap the opportunities arising from these growing automotive markets.7%. Again. (FIAT S.4. These rival markets are highly competitive in term of external and internal factor of the company such as competitive advantages. positioning. these will affect on the company’s activities. components suppliers and construction equipment manufacturers. earnings and future prospects which will have serious bad impact to the business.1 COMPETITIVE PRESSURES The global automotive industry is highly competitive.4. financial position. The company not only faces rival competition from other international automotive manufacturers but also from global.2 RISKS ASSOCIATED WITH INTERNATIONAL MARKETS As the company has merged many projects in other countries. safety. 2011). like many of the other European carmakers. 3 FIAT S. 8 .4 THREATS 2. pricing. different countries rules and regulation and restrictions on repatriation of funds.2011).A. product quality. Such factors will affect the result in price discounting and margin pressures throughout the whole industry. FIAT Group Automobiles (FGA) had a successful period in the 1980s with operating income increasing every year from 1983 to 1989 and an average net margin during these years of 5.A. Turkey (4-traders. regional and local agricultural. import and export restrictions. this boom period was followed by a slide into loss during the Europe-wide recession of the early 1990s. distribution expenses. FINANCIAL ANALYSIS Like most of the other European producers.p. 2. multiple tax regimes.p. Unfavourable developments in any one of these aspects.

reporting operating losses in 7 years and achieving low operating margins (ranging from 0.3b (appendix 3).A.39% and it led to a bottom line growth from €90. primarily due to scrappage incentives and the fact that it benefited from the widespread switch to smaller. The lower ranking in terms of revenue than unit sales reflects the fact that a high proportion of the vehicles sold by FGA are small cars. the company reduced the percentage of sales devoted to cost of goods sold from 86.p. more fuel efficient vehicles. Compared to the same quarter last year. This was a driver that led to a bottom line growth from a loss of €838.2% to 2.A.2 BALANCE SHEET 9 .494mn to €35. helped by its Light Commercial Vehicle (LCV) business and sales in Brazil. The restructuring of both FGA and FIAT Group took several CEO’s come and go but under Sergio Marchionne. Although the downturn reduced FGA’s earnings it reported an operating profit for 2009.03% to 86. grew revenues from €9. the company reduced the percentage of sales devoted to cost of goods sold from 87. close to bankruptcy in the early years of this century. 3. Also. Italy’s largest private sector employer. FGA didn’t bounce back from that recession.33%. who became group CEO in mid-2004 adding the role of FGA CEO in early 2005. Most impressively.3b to €13.1 INCOME STATEMENT Year over year.0m to a gain of €520m (appendix 2). unlike most of its rivals. FIAT S.0m to €1. This long run of weak performance brought FIAT. the division seemed finally to have achieved a sustainable level of operation – just in time for a severe downturn.However. had been able to grow revenues from €32. though margins were weak. During the 10 years to 2005 it struggled to remain profitable. In revenue terms FGA was the 6th largest of the major European carmakers in 2010.11% to 85.610m in 2010. 3.p. Despite the ending of many such incentive schemes in 2010 FGA increased its profits. (See appendix 1).1b. FIAT S.9%) profitable only in the 3 years.

5b related to discontinued operations.1b. However. Lastly. generated cash by operating activities was €6. it is still in-line with the Automobiles industry's norm. non-current assets sale and financing activities related to FGA’s financial services companies outside Europe. an examination of near-term assets and liabilities shows that there are enough liquid assets to satisfy current obligations.p.6b in cash generated by continuing operations and of which €2.40%. Accounts Receivable are typical for the industry. inventories seem to be well managed as the Inventory Processing Period is typical for the industry. helped by buoyant results from all major divisions.p. of the approximately €3.Although debt as a percent of total capital decreased at FIAT S.4 RECENT PERFORMANCE_2010 RESULTS Reporting for the last time as a single entity. (Appendix 4). 3. with 30. However. exceeding its forecasts. cash from financing activities totaled €0.A. may have more financial risk than other companies in the Automobiles industry as it is one of the most highly leveraged with a Debt to Total Capital ratio of 68. Last. Last. Quarterly. at 78.A.A. 3.36 days’ worth of sales outstanding. with 21. inventories seem to be well managed as the Inventory Processing Period is typical for the industry.3 CASH FLOW For 2010.12%. FIAT Group reported higher 4Q earnings and a full-year net profit of €600m.5b and consisted of CapEx.911b (appendix 6). over the last fiscal year to 59. 10 . Continuing operations totaled €3. FIAT S. there are not enough liquid assets to satisfy current obligations and operating profits are not yet strong enough to comfortably handle the burden.28 days worth of sales outstanding.p. investment in subsidiaries and associates. Accounts Receivable are typical for the industry.83 days. at 55. FIAT S. Cash used in investing activities totaled nearly €4b during the year.94 days (Appendix 5).

9%. €(130)m – selling & admin. Teksid and Comau). Looking at the demerged group. The net increase of €137m was attributable to:  €210m – purchasing savings. At constant exchange rates.5% higher.4% in 2009.4%. mainly due to sales of the new GranCabrio. In 2010 it contributed 21% of group revenue. Trading profit was €24m. an increase of 26. the customization programme and efficiency gains.5 RECENT PERFORMANCE_2011-1Q 11 .1% compared with 2. The FIAT Auto division reported a trading profit of €607m up 29% from €470m. The increase was attributable to higher sales volumes. FIAT Powertrain.The automobile division reported a 6% revenue increase for the year to €27. €(14)m – price & mix. A total of 5. expense. Maserati.860m as a 3. mainly due to higher sales volumes helped by the new 458 Italia and 599 GTO and the continuing demand for the Ferrari Califonia. €(20)m – production cost absorption. revenue was just 0. 3.573 cars were delivered to the network during the year. €94m – lower R&D. a margin of 4. Ferrari reported 2010 revenue of €1. Brazil has become a very important part of FIAT’s business model. A total of 6.8% compared with 13.675 cars were delivered to the network during the year. an increase of 31%. €82m – others. a margin of 15. Magneti Marelli. Trading profit was €303m.       Maserati reported 2010 revenue €586m.5% in 2009.919m.2% fall in sales was offset by favourable currency movements. up 7. only marginally less than Italy. Brazil accounted for 25% of the revenue of the continuing operations (FGA plus Ferrari. €(85)m – volume.

6% though at constant exchange rates revenue would have been flat as a richer sales mix (higher LCV volumes and the success of the Alfa Romeo Giulietta) offset a decline in sales.       Maserati reported revenue of €135m. China became Maserati’s second largest market after the US. where FGA sales dropped by 19. expense. The net decrease of €23m reflected:  €24m – purchasing savings.Reporting for the first time since FIAT Industrial was demerged. €(25)m – volume. despite a decline in unit sales. FGA trading profit fell by 15% to €130m.3%. 12 . UK and Germany. €22m – production cost absorption.1%. Significant sales increases were recorded in the US. mainly due to the ending of an eco-incentives programme which had boosted demand for alternative-fuel vehicles – a segment in which FIAT has an approximate 50% market share. Group revenue was 7. Trading profit was €9m. That decline was mainly attributable to Italy. €(22)m – higher R&D. €(22)m – selling & admin. more than double the €4m reported for 2010-1Q mainly due to higher sales volumes. FGA reported an increase of 2. helped by double-digit increases for Ferrari. €19m – others. €(19)m – price & mix. Demand for such vehicles accounted for 31% of total demand in 2010-1Q but only 5% in 2011-1Q. Mageti Marelli and FIAT Powertrain. up 6. Maserati.1% higher. FIAT Group reported higher revenue and earnings for the first quarter. China.

Synergy benefits are forecast at €1. Trading profit rose 36% to €53m helped by higher sales volumes. Net profit at around €0. See Appendix 7 for further details.Ferrari reported revenue of €491m.500bn over the 5 years to 2014 of which just over half are expected to come from purchasing scale economies.2b.2 – 2. Liquidity expected at €18b. Reported net profit of €1.5b.6 OUTLOOK Prior to the consolidation of Chrysler the 2011 targets for FIAT S. FIAT’s new forecast for 2011 (with Chrysler contributing 7 months) is:       Revenue in excess of €58b.p.1b.6% increase mainly due to higher sales volumes and the positive contribution of the 458 Italia and 599 GTO. The two companies are already more closely integrated than Daimler and Chrysler ever were – in part because there are more opportunities for sharing of products and markets.0b.5b.       With the consolidation of Chrysler with effect from May 2011 and an improved performance by FIAT’s other business. an 18. The integration of Chrysler is expected to play a major part in FIAT’s future profitability.9 – 1. Trading profit of €0.3b. Revenue of approximately €37b. Trading profit of €2. 13 . Net industrial debt of €2. 3. Liquidity well in excess of €11b.3m units.7b.3b. were as follows:  FGA volumes of 2. Net industrial debt for consolidated Group expected in €5. Capital expenditures of €4.A. with continuing strength expected from Brazil and a European recovery from 2011-2Q. a more favourable product mix and strong results from the customisation programme.0 – 5.0 – 2. CapEx of €5.

Despite Fiat’s recent performance results (reporting higher 4Q earnings and a full-year net profit of €600m. the FIAT’s future performance will depend on its ability to finance debt repayment obligation and planned investments from operating cash flow. available liquidity.p. following downgrades by the major rating agencies. Any difficulty in obtaining financing could have an adverse effect on the company’s business prospects. Therefore the FIAT should find itself in the position of having to seek additional financing and/or refinance existing debt. any declines in sales volumes could have a negative impact on the cash generating capacity of its operating activities. Although the FIAT has measures in place to make sure that adequate levels of working capital and liquidity are maintained. FIAT is currently rated below investment grade with ratings on its long-term debt of Ba2 (with negative outlook) from Moody’s Investors Service.58 in 2011) Fiat still keeps lagging behind its competitors and market average 14 . Fiat has been subject to high competitive pressures from all areas of the automotive industry. What is worse. 4 FIAT S.5x falling below the industry’s competitive average.05 in 2009 to €0. As current global demands for the automotive industry continue to fall Fiat has been reducing its prices as means of competing with the market and insuring inventory turnover which is currently at 4. BB (with negative outlook) from Standard & Poor’s Ratings Services and BB (with negative outlook) from Fitch Ratings Ltd. exceeding its forecasts) and a reported increase in its share price (€-0. the renewal or refinancing of existing bank loans and/or facilities and possible recourse to capital markets or other sources of financing. earnings and/or financial position. PERFORMANCE ANALYSIS 4. Such price discounting and marginal pressures throughout the industry has had an adverse effect on Fiat’s ability to maintain or increase its vehicle prices (appendix 8).Among other things.A. including in unfavorable market conditions with limited availability of funding and a general increase in funding costs.1 FIAT’S COMPETETIVE STANDING As the automotive industry is highly competitive.

6%).2% loss in sales due to a positive shift in the exchange markets for the company. Fiat’s average level of return on assets indicates that there is need for the company to find affective means of utilizing its assets to generate higher income. compared to its previous fiscal years performance as its annual revenues are expected to grow from €35. who maintain higher than average returns on profit (3.2. price/ book (0. how does fiat’s performance rate when compared to the industry average and its leaders? According to its ratios Fiat maintains an average return on assets (1.e level of debt obtained as aresult of borrowing) compared to that of the idustry and industry leader Ford.1x) . Fiat’s price/ sales (0.6x). Given the fierce competition coupled with low demand within the automobile industry and the instability of the European market. and as previously stated Fiat’s auto division also reported a trading profit of €607m up 29% from €470m.97%). return on equity (13.0x) all sit below its competitor Ford’s recordings and at the lower end of the automotive industry (appendix 8).2 ASSEST TURN OVER In considering the below assest management ratios we are able to asses Fiat’s position in being able to manage its assets in a means that provides the company with maximum output given the investments made on its assests (i.4B by the end of 2011’s fiscal year and reach an estimated €75.2 RATIO ANALYSIS 4. 4.11%). price/ cash flow (3.9B in 2010 to €59. However.01%. returns on equity (755. (See appendix 9).04%) and an average overall return on capital in comparison to the market at 3.2.33%) and capital (4. In comparing Fiat’s total and fixed assets to that of the industry we can see that the company is not using all of its assets efficiently compared to that of the industry as its falls below the 15 . Fiat’s current market position could be viewed as unstable when compared to leaders such as Ford. So what does this all mean? Is Fiat performing well? In a way it is.1 PROFITABILITY Even though Fiat’s automobile division reported a 6% revenue increase for the 2010 fiscal year (€27.7B in 2012.with competitors such as Ford recording higher price earnings to that of Fiat even though both are at the lower end of the scale compared to that of the industry. In addition.860m) and was able to circumvent a 3. 4.

9m and had employees of 368.2 and Volkswagen 398. Given the Fiat’s average profit analysis and poor return on equity (13. Conversely.092 during the same period (Datamonitor.2. 4.5%) it can be said that Fiat is the latter of the two.933.1%. Toyota recorded revenues of $205. Ford $597. (See appendix 10).33% and a high volume of inventory turnover 16. either the company’s sales volume is high which has lead to an increase in accounts receivable or that the company is taking too long to collect cash from its sales. Ford also sits below the industry average in utilsing its assests.0x. Moody's cut Fiat from Ba2 to Ba1 with a negative outlook. and its lower than average inventory turnover rate (4.04%). Better financial management in debt collection is required of Fiat in order to maintain a healthy cash flow and allow for debt payments and investments.729. Fiat has now been rated below investment grade.000.515.4 DECLINING CREDIT RATINGS Following down grading from credit rating agencies post Fiats Chrysler investment. For instance during the 2009 fiscal year Volkswagen recorded revenues of $146. which was considerably lower to that of its competitors. Toyota and Volkwagen. this is supported when considering Ford’s extremely strong return on equity ratio which stands at 755.873. Fiat in that same fiscal year recorded revenues of $69.696.014. the Fiat’s revenue per employee during fiscal year 2009 was at $367. Fiat’s accounts receivable is adversly showing higher than average ratio of 14.4%.500.industry average with its total assests sitting at 0. It still however maintains a higher ratio compared to that of Fiat.295.7m and employed 320. Ford’s higher than average accounts receivable turnover could be attributed to a strong performance and high sales volume. from these two ratios it can be siad that Fiat is not utilising its assets to its full capacity to generate sales and produce revenue.3 FIAT VS. Its competitor.308m and had employees of 198. one of the highest amoung the industry.8m and employed 190. Furthurmore. indicating that the company’s accounts receivables is from sales are higher than average. 2010).7x and the latter at 3. This can mean two things. 4. while its main competitor Volkswagen’s ratings were affirmed strong at A-/A-2 by 16 .7462 which was again lower than its competitors Toyota $639.808 people while Ford recorded revenues of 118. COMPETITOR SCALE Market reports show that Fiat is lacking scale to compete with the markets large competitors as comany’s such as Ford.

Furthermore. Any further downgrading could have an adverse effect on the company’s position to borrow and increase cost funding which can result in a direct effect on the Fiats future earnings and financial position. so will the demand. For example. the joint venture that Fiat has established between Magneti Marelli and Shanghai Automobile Works have been pushing out positive results in producing hydraulic components. 5 Investments As stated previously in the paper. Therefore. at B2. the Light Commercial Vehicle is one type of model that helped raise sales in 2010. Thus.1 AUTOMOBILE INVESTMENTS Fiat group should continue to invest in the Maserati and Ferrari luxury brands to come up with new concepts and models. These components were 17 . For the year 2012. Ferrari launched two new models in 2010 that increased its revenue while Maserati’s revenue also increased due to the unveiling of a new model. accurate investments are extremely important. sales will increase each time and consequently. Fiat should also invest in developing new models because according to the 2010 and 2011 annual reports. Currently. 5. most of the additional sales came from the launching of new models. Fiat has had a considerably good year in 2010 and 2011 with profits from all major divisions exceeding its forecast. to insure consistent success in the future. the demand for this type of luxury good rises with time. some of the more profitable investments are recommended and discussed below. if Fiat continues to invest in developing new models. Fiat has 12 major automobile brands under its name with the most notable being Maserati and Ferrari. Ratings agencies such as Moody’s continue to affirm Fiat’s position as lagging behind its competition as it concedes to financial loss as a result of a slower turnover of new models compared with its rivals and are uncertain on its outlook as they cite increased competition in Brazil. With their prestige and popularity well established. one of Fiat’s most profitable markets. The main concern of rating agencies is that Fiat will have to pay more for loans as Chrysler already is lower. this is especially true in the company’s home country Italy which has had an adverse impact on Fiat’s sales. For example.Standard and Poor’s. Maserati and Ferrari are both strong components of Fiat and both reported increases in revenue in 2010. In addition to this Fiats profits in Europe have been on the decline where the economy is currently struggles to avoid financial crisis.

For example. Pushing for more than 51% of the stake would mean more control and power in the American vehicle market where Chrysler is the number 3 automaker. Fiat already owns 24. With the launch of the Chrysler 200. 5. This type of vehicle would extremely attractive to the middle-class because it is an affordable SUV that holds a family of four to five but has the look and feel of a luxurious sports car.5% over the last year (“Fiat remains king. sportier SUV (Stewart. Brazil seemed to have grown into an important part of Fiat’s business in 2010. Additionally. possessing a 53. which is up 15. Therefore. investments in Chrysler should also continue. building upon that good foundation can bring increases in revenue for the upcoming years. With the help of Fiat. With the success of the Chrysler re-launch. However. Fiat should also invest in different countries where economies are at different stages. It is shown that Brazilians have bought close to 30. Fiat has upgraded every aspect of Chrysler.000 cars just in June of 2011 alone. In July 2011. contributing to 21% of the group revenue. Chrysler’s image improved from a cheaply made oil tank to a sleeker. Chrysler’s sales have continued to strengthen and it’s mostly due to the 24% increase in global sales. the main recommendation is for Fiat to just continue investing in current projects and developing new models for current divisions under Fiat because it will increase its competitive advantages. it would be beneficial for Fiat to continue their investment in Brazil’s automobile industry (buy more stocks). Thus. thus saving the American Automobile maker from going bankrupt. 2011). bringing the total passenger market to 222. Since then. It would be extremely dangerous for Fiat’s future financial situation. Fiat would need to continuously 18 . 2011).5% of the stake. thus known as the American-made Maserati SUV (Ebhardt. faster. Fiat unified with Chrysler. Additionally. 2011). which is only a little less than Fiat’s home country Italy. with the help from Chrysler. Fiat’s revenue in 2011 is aiming towards an excess of €58 billion (Castonguay & Meichtry. However.adopted by 16 international carmakers indicating that investment in this project should continue to boost Fiat financially. Their main concept was to integrate luxury designs into an ordinary SUV. Furthermore.344 units. Fiat should avoid future downgrade investments since the Chrysler investment was already a downgrade. giving it a rebirth and lowering its debt.” 2011).2 ECONOMIC INVESTMENTS On top of automobile investments. This type of integration has proved to be very successful in America.3% of the Brazilian market and the car market shows no signs of slowing down anytime soon. They have already established a name and reputation in Brazil for their brand. Fiat should continue to invest in the concept of combining a SUV with a luxury sports car like the Maserati.

Furthermore. such as China. and Toyota have already incorporated solar panels to some of their vehicles to keep the car cool while the engine is off and to boost fuel consumption. China is a developing country right now. Audi. If Fiat could make Chrysler SUV models with solar panels incorporated in the roof. and trucks are not as popular as before (Stewart.keep up with its competition. Moreover. 5. This would be extremely helpful to their newly acquired American brand. the problem is not getting any better. Thus. 19 .3 TECHNOLOGY INVESTMENTS Presently.1% because of the end of an eco-incentive program that demanded alternative fuel vehicles. Chrysler. gas prices are high and people are more concerned about pollution and eco-friendly possessions than before. As the economy grows. Fiat should also invest in such technology to make their vehicles ecofriendly (buy solar stock). 2011). To keep up with its competitors. this is a great opportunity for Fiat to bring their alternatively fueled vehicles to China where they are already doing very well in sales with the Maserati. it would greatly boost their profits in America and help solidify Chrysler as a prestigious brand again. The typical American oil consuming vehicles. it seems that recently Italy has become a struggle for FGA having a drop in sales by 19. In America. in order to maintain its force in the Brazilian market. it is willing to soak up as much information and innovative ideas as possible. In fact. such as SUVs. like a growing infant. Fiat will have a magnificent platform for success in China than in countries that are already developed and accustomed to their ways. so does the number of wealthy people in China and their living standards. This indicates that FGA should invest more in developing countries where alternative fueled vehicles are in demand. Therefore. the entire European economy is in a decline and trying to avoid a financial crisis. Volkswagen. demand for eco-friendly cars is rising as gas prices keep rising. by creating new models and offering acceptable prices. Solar energy is an industry that is blooming right now and has become a phenomenon. so much market share in Europe is creating an unstable market situation for Fiat. As a result. China was the second largest market behind US in 2010. the demand for luxury goods also rises. Therefore. jeeps. The pollution problem in China is extremely dangerous right now and with such a huge population that keeps growing.

 economy (to have a strong position in new emerging markets like Brazil or China in order to contain sales drops caused by unfavourable situations elsewhere.  given the company's opportunities (growth through strategic joint ventures. We strongly recommend that strong measure are taken regarding investemens on:  automobile (to keep and expand its strong position in the high-end market and to consolidate and reestablish Chrisler's market in the US.  Technology (to continue and improve its position 20 . we can state what follows:  given the company's strenghts (diversified business portfolio.6 Summary Consequently from this analysis of Fiat S.A. to continue on the path of strategic joint ventures in important markets such as China). strong R&D) and weaknessess (lack of scale.  having analysed Fiat's financial situation and how it performs related to the industry's competitors. product recalls). also to exploit particular demands like alternative fuelled engines). launch of new models and products) and threats (competitive pressures. risks realted to international markets).p.

4-traders.h tml innovationzen.p. S. Retrieved from http://online.com/FIAT-INDUSTRIAL-SPA-7054290/news/FIAT-INDUSTRIAL-SPA-CNHJoint-Venture-TurkTraktor-Delivers-Its-600-Thousandth-Tractor-13813242/ PressRelease. 2011 from http://65. Retrieved from http://www.A. Retrieved October 27. (2011).com/2011/07/30/business/forcedmarriage-of-fiat-and-chrysler-yields-success. 2011 from http://innovationzen. Marchionne maserati made in michigan lets chrysler drive luxury suv: Cars. August 18). in the form of fiat.com.nytimes. (2011). Salvation at chrysler. Retrieved October 27. Magneti Marelli-SAIC Joint Venture in China: inauguration of the Jiading. Magneti Marelli S.A.com/en-US/media_center/FiatDocuments/2010/GIUGNO/0603-2010_CS_JV_MMarelli_SAIC_plant_inauguration_ENG. : New Alfa Romeo engine to be produced in Italia.html Fiat remains king of brazil’s booming car market. July 11). (2011). (2011). 2011 from http://www.175. : CNH Joint Venture TürkTraktör Delivers Its 600 Thousandth Tractor. G. 2011 from http://www. Fiat criticizes italian stock-market regulator.com/News/2011-07/fiat-remains-king-of-brazilsbooming-car-market.motorauthority.wsj. B. (2011). Retrieved October 26. J.pdf Domain-b.com/article/SB1000142405297020355410457700208122360867 6.html 4-traders.A.bloomberg.000 Dodge and Chrysler minivans over air bags problem. July 29).com/FIAT-SPA69342/news/FIAT-SPA-New-Alfa-Romeo-engine-to-be-produced-in-Italia13821468/ MotorAuthority. 2011 from http://www. Retrieved October 25.197/companies/companies_c/chrysler/20110805_minivans_over. T. Fiat S. The New York Times. Bloomberg. (2011.p.aspx?storyid=84676 Castonguay. Fiat Industrial S.. Chrysler to recall 367.nasdaq. (2011. NASDAQ.4traders.p. Retrieved from http://www.com/blog/2007/02/06/competitiveadvantage-economies-of-scale/ 21           .64. (2010).. Retrieved October 27. Shanghai plant.html?_r=2&pagewanted=all Ebhardt .com. (2011).7 References  Stewart. Competitive Advantage: Economies of Scale. (2011.fiatspa.com/news/1065733_abarth-to-launch-three-newmodels-in-frankfurt 4-traders.com. & Meichtry. Retrieved from http://community.com.Retrieved October 28. The Wall Street Journal.com. Abarth To Launch Three New Models In Frankfurt. 2011 from http://www.com/news/2011-08-18/marchionne-maserati-made-inmichigan-lets-chrysler-drive-luxury-suv-cars.

p.com. Business Description.p.lamp-project.A. Press Release Fiat S. Volkswagen AG the most profitable manufacturer in 2010. 2011 from http://annualreport2010.html http://www. (2011).eu/Consortium/crf October 27.com.Retrieved October 29. 2011 http://www.cfm?article_id=33916 VolkswagenAG. Recall campaign Fiat S. Retrieved October 26.aspx Fiat S.com. Retrieved October http://www.com/en/report-operations/researchand-innovation Ford Motor Company (2011). 2011 from http://www. Research and innovation. Retrieved October 27. fourth quarter net income of $190 million.. Background Information on Fiat S.com/definition/best-in-class. Definition. Information. 2011 from http://www.com/en/market%20valuation.(2011).volkswagenag.com/communities/driveon/post/2011/09/chrysler-riskslead-to-lowered-fiat-credit-rating/1 http://www.A.html http://content.fiatspa. Retrieved http://www. Retrieved October 29. (2011). Centro Ricerche Fiat.. ..html referenceforbusiness.ford.usatoday.com/enUS/sustainability/social_responsibility/clienti/interazione_cliente/Pages/campagne _richiamo. History.(2011).A. Fiat S.businessdictionary. 2011 from http://www.referenceforbusiness.A.html Lamp. 2011 2011 from from     AnnualReportFiatS.csrglobe.p.com/apps/pbcs.au/107121/volkswagen-ag-the-most-profitablemanufacturer-in-2010/ from       FIAT S.6 billion.p.fiatspa.html Caradvice.fiatspa.A.com. Retrieved October 28. 27.aspx BusinessDictionary. Retrieved October 28.p.autonews.Fiat%20SpA.(2011).p. 2011 from http://www. Retrieved October 28. Retrieved October 27. Fiat group. 2011 from http://annualreport2010.com/en-US/group/fiat_glance/Pages/default. 2011 from http://www.dll/article?AID=/20111104/ANE/11110993 5/1198#ixzz1ckhI15ZH 22    . (2010).00600E I.com/login/companies/fiat_group. Group 2010.fiatspa. Fiat at a glance.. 2011 from http://blog. Ford reports 2010 full year net income of $6.Company Profile.p.com/enUS/media_center/FiatDocuments/2011/January/CDA_FIAT_RISULTATI_DELL_ESER CIZIO_E_DEL_QUARTO_TRIMESTRE_2010_ING.(2011).caradvice. Retrieved October 28.A.com/notes/incomestatementdisclosures/sal esrevenue. (2011). pdf Csrglobe. (2011).A.com/history2/65/Fiat-S-p-A.infinancialsanalytics.com/article_display. (2011). Recall campaigns.

autonews.html 23 .com/apps/pbcs.com/apps/pbcs.dll/article?AID=/20110726/COPY01/30726 9804/1193#ixzz1ckgKdtpE http://www.dll/article?AID=/20111104/ANE/11110993 5/1198 http://www.autonews.    http://www.com/apps/pbcs.prlog.org/10747455-global-top-10-automobile-companies-industryfinancial-and-swot-analysis-published.autonews.dll/article?AID=/20110726/COPY01/30726 9804/1193 http://www.

AutoMotiveWorld.com 24 .8 Appendices 8.1 APPENDIX 1: FGA REVENUE & OPERATING PROFIT TREND Source: http://www.

2 APPENDIX 2: FIAT S.8.businessweek. 4-YRS TRENDS/ FIGURES Source: Company’s Annual Financial Report & http://investing.P.com 25 . INCOME STATEMENT 2007-10 INCL.A.

businessweek.3 APPENDIX 3: FIAT S.com 26 .P. INCOME STATEMENT LAST 4-QUATERS INCL.8. TRENDS/ FIGURES Source: Company’s Annual Financial Report & http://investing.A.

8.A. Source: Company’s Annual Financial Report & http:// investing.com 27 .businessweek.P.4 APPENDIX 4: FIAT S. BALANCE SHEET 2007-10.4-YEAR TREND FIGURES INCL.

5 APPENDIX 5: FIAT S. TRENDS/ FIGURES Source: Company’s Annual Financial Report & http://investing.P. BALANCE SHEET LAST 4-QUARTERS INCL.businessweek.A.8.com 28 .

com 29 .businessweek. CASH FLOW 2007-10 INCLUDING TRENDS/ FIGURES Source: Company’s Annual Financial Report & http://investing.6 APPENDIX 6: FIAT S.A.P.8.

7 APPENDIX 7: FIAT S. Notes: (1) Q1 is Jan-Mar. is change versus corresponding year-ago date (3) Full-year data taken from annual report may not reconcile to quarterly data due to restatements (4) Per Unit & Per Employee data include non-automotive op’s. P.A RECENT PERFORMANCE 2011 –Q4 8. Q4 is Oct-Dec (2) % ch.7.P.1 TABLE 1: LATEST RESULTS – FIAT S. Q2 is Apr-Jun.A. Q3 is Jul-Sep. 30 .8.

8.2 TABLE 2: LATEST RESULTS – FIAT GROUP 8.3 TABLE 3: FIAT GROUP REVENUE BY DIVISION (%) 31 .7.7.

FORD – PROFITABILITY COMPARISON Source: Company’s Annual Financial Report & http://investing.businessweek.10 APPENDIX 10: FIAT VS.com 8. FORD – ASSET TURNOVER 32 .businessweek.com 8.8 APPENDIX 8: FIAT VS. FORD – INDUSTRY ANALYSIS Source: Company’s Annual Financial Report & http://investing.8.9 APPENDIX 9: FIAT VS.

businessweek.com 33 .Source: Company’s Annual Financial Report & http://investing.

Sign up to vote on this title
UsefulNot useful