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Fiat Loss Adds to Pressure on Deal -- WSJ

08/01/2020 | 02:48am

By Eric Sylvers

MILAN -- Fiat Chrysler Automobiles NV reported a second-quarter loss, putting pressure on the Italian-American car maker to improve its performance or risk a renegotiation of the terms of its merger with Peugeot maker PSA Group.

Like with most car makers, Fiat Chrysler's profit and revenue plunged in the quarter as lockdowns in its main markets halted production and kept consumers at home. But the company posted a small profit in North America, in part due to cost cuts in areas such as advertising and as it furloughed workers.

PSA, in contrast, posted a profit in the first half -- the French company reports earnings twice a year -- showing how Chief Executive Carlos Tavares's cost cuts and reorganization in recent years are bearing fruit. Mr. Tavares, who will become CEO of the merged company, has said the question of whether the merger terms will be adjusted can only be addressed when it is clear how well the two companies have emerged from the coronavirus crisis.

If the terms are changed, a possible option would be a reduction in the EUR5.5 billion ($6.5 billion) dividend that Fiat Chrysler is supposed to pay its shareholders before the merger closes. Fiat Chrysler reported negative industrial cash flow of EUR4.9 billion in the quarter and had EUR17.5 billion in liquidity at the end of June -- two figures investors are watching to gauge whether the dividend might be reduced.

Mr. Tavares "has been very vocal in making sure the [combined] company has all the resources that it needs to be successful and none of us really knows how 2021 really will develop," Fiat Chrysler CEO Mike Manley told analysts when asked if the dividend might be reduced so the merged company would start in a better financial position.

The original merger agreement also included a separate EUR1.1 billion dividend to be paid by each company to their shareholders, but that was scrapped in May due to the pandemic.

The pandemic has battered the earnings of companies across almost all industries and many executives have said that it remains too early to say how quickly a recovery will come. The U.S. and European economies notched record contractions in the second quarter. Some analysts have said that Italy and other European economies could take several years to regain the ground lost in the past few months.

Mr. Manley reiterated on Friday that the deal is on track to be concluded by the end of March, even with the European Union carrying out an extensive antitrust investigation. The new company will be called Stellantis and will retain the two companies' existing brands.

In the second quarter, Fiat Chrysler's net loss was EUR1.04 billion, compared with a profit of EUR793 million in the same quarter last year. Revenue fell 56% to EUR11.7 billion from EUR26.7 billion.

Adjusted operating profit in North America was EUR39 million, down from EUR1.57 billion a year earlier. The result beat Fiat Chrysler's Detroit rivals, with Ford Motor Co. losing almost $1 billion in North America in the April-to-June period and General Motors Co. posting a small loss.

Mr. Manley said that despite uncertainty over a recovery, he expects Fiat Chrysler to record a strong second-half performance. Results and cash flow had already improved significantly at the end of the second quarter, he said.

Fiat Chrysler said all plants in North America, Latin America and the Asia-Pacific region are operating at pre-pandemic levels. The company has been ramping up production more slowly in Europe over the past few months and is slated to reach pre-pandemic levels by the end of September.

The company said it hasn't faced any recent problems with its supply chain, something that hampered production earlier in the year when the coronavirus had engulfed China but hadn't yet spread widely in North America or Europe.

--Nora Naughton in Detroit contributed to this article.

Write to Eric Sylvers at eric.sylvers@wsj.com

 

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