Moody’s rating agency cut Fiat’s credit rating to reflect their closer ties with U.S. automaker Chrysler and the increased risk of a loss of market share in Europe and greater competition in Brazil. The rating was downgraded one notch to Ba2 from Ba1, with a negative outlook.
Moody’s said they might further downgrade the rating in the face of an erosion of Fiat’s market share in Europe, evidence that the management’s industrial plan is not working, a weakening of the group’s financial position or a deterioration in Chrysler’s performance.
Moody’s have a B2 rating on Chrysler, which Fiat have run since a 2009 bailout deal with the U.S. government, controlling the company with a 53% stake.
The U.S. agency said their downgrade of Fiat’s rating mainly mirrored the closer integration with Chrysler, “which could result in the two companies having to support each other in the event of financial difficulty”.
But Moody’s also take issue with Fiat’s relatively infrequent model renewal rate, which are considered to hamper the group’s competitive position as shown by its declining sales in Europe.
Fiat sales in Europe fell nearly 13% in the first half of this year, and CEO Sergio Marchionne has said he does not expect the European market to go well either this year or next. At the Frankfurt auto show last week, Marchionne also said he was reviewing volumes and the timing of new product launches because of the worsening financial crisis, but he has confirmed 2011 profit and revenue targets for the combined group.
Moody’s also pointed to risks for Fiat in Brazil, their most profitable market, due to weaker demand, increasing price pressures and growing overcapacity.
Standard & Poor’s, which cut their Fiat rating in February, also has a negative outlook on the company. By 2014, Fiat and Chrysler are targeting around €100bn in combined revenues, up from €58bn at the end of 2011, and sales of 6 million units.
