S&P downgrades Fiat over weak demand, rising debt

Rating agency Standard and Poor's (S&P) has lowered its long-term corporate credit rating on Italian carmaker Fiat SpA to 'BB-' from 'BB', reflecting the weak performance of Fiat in Europe and the decline in profitability and cash flow.

Meanwhile, the outlook is stable due to counterbalancing cash generation in Brazil, 'adequate' liquidity for expected cash uses, and a rebound at the Chrysler unit.

It had placed Fiat on CreditWatch, with negative implications, on 6 February 2012.

The announcement came after the Italian auto giant said its net profit in the first quarter soared 10-fold to 379 million euros ($500 million) thanks to its US partner Chrysler, without which it would be in the red.
''We expect substantial excess mass market auto manufacturing capacity in Europe and weak demand in Fiat's Italian home market in 2012 to weigh on profitability and cash flow'', S&P said.

It has also revised its assessment of Fiat's financial risk to 'aggressive'from 'significant' due to rising net debt and expected significant negative free operating cash flow.

''We believe Fiat will continue to suffer from industry overcapacity and underutilisation of its production sites in Europe over the next few years'', S&P said adding that the expected substantial overcapacity among European mass market automakers, weak consumer demand, and strong competition will weaken profitability and cash flow in 2012.