Friday, October 24, 2008

Fiat Offering Zero Interest Financing - Six years - to Boost Sales

The ANNOTICO Report

Fiat is offering zero interest financing over six years to encourage Italians to buy its small cars. That is how bad the situation is in the Italian, and for that matter, European car market.

Carmakers challenge Brussels

Financial Times

October 23 2008

Fiat is offering zero interest financing over six years to encourage Italians to buy its small cars. That is how bad the situation is in the Italian, and for that matter, European car market.

The Italian group also warned on Thursday that its net income could fall as much as 85 per cent next year if the financial crisis continues to depress consumer confidence and, inevitably, car demand. After all, most cars are bought with financing packages.

The warning sent Fiats shares crashing to around 6 from a high of nearly 21 barely 12 months ago. The Italian groups share price is now drifting close to its all- time low of around 4.5 when many thought Fiat was on the verge of collapse before chief executive Sergio Marchionne stepped in and revived its fortunes.

Fiat is not alone in watching its shares being hammered. All the other European carmakers have in recent days been suffering sharp sell-offs, pushing down the valuation of these groups  with the possible exception of Volkswagen  to unrealistically low levels. VW shares have also been plunging this week but partly for different reasons. Indeed, the shares of the German volume carmaker, which many now describe as Europes Toyota, are still about 70 per cent higher than at the beginning of the year, driven up by hedge fund speculators and Porsches takeover move.

Anxieties are certainly running high in the boardrooms of Europes large volume carmakers. Executives are all keeping their fingers crossed that the sales slowdown on this side of the Atlantic will be much more gradual and far less drastic than in North America. They argue that the situation is different in Europe.

Unlike their US rivals, European groups have not faced the triple problem of coping with the general financial meltdown, their own financial difficulties and the need to change their product range radically as Americans keep switching from SUVs to smaller, more efficient cars.

That said, the pressures on European carmakers are mounting on several fronts. Those reliant on emerging markets such as Brazil, India, China and Russia, are now starting to feel the effects of a downturn in these regions as the financial crisis and the economic slowdown spreads there too. Those, such as Fiat, which have managed to offset the car sector decline with continuing demand for their farm machinery and civil engineering heavy vehicles, are starting to worry that the financial squeeze in the US will also hit these businesses.

European executives are hoping that the inevitable recession will be short and sharp. Reviving consumer confidence remains the main issue. But during the last industry crisis a decade ago, car manufacturers had to deal with high rates of inflation. This is not the case this time and most expect euro rates to fall gradually to around 2 per cent.

The producers of small and more environmentally friendly cars also believe their downsized product ranges will give them a competitive edge in coming years.

The industrys grim prospects have sent car companies on both sides of the Atlantic clamouring for state help. Washington was the first to agree to rush to the rescue of its domestic carmakers. European executives, in private at least, concede that Washingtons intervention is perfectly understandable given that US carmakers are now on their knees. But if things are still no way as dire in Europe, why are the European car manufacturers calling for even more state financial support?

The reason has little to do with the current market situation. It is rather one of those typical confrontations between European industry and the European Commission. European carmakers feel Brussels seems to be out of touch with the hard realities of the market. They argue that the draconian plan Brussels is trying to push through to reduce CO2 emissions is a luxury the industry can hardly afford. If the Commission insists on going ahead with its tough new regulations, then the industry says Brussels should put up the money to enable it to adapt, or shut up.

http://www.ft.com/cms/s/0/22f4bd7c-a133-11dd-82fd-000077b07658.html?nclick_check=1

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