Fiat Consolidates, But Risks Remain
Italian car manufacturer Fiat is to take full control of diesel engine manufacturer VM Motori . BMI believes that Fiat is attempting to consolidate its operations in Italy, as part of broader efforts to stem losses in Europe.
It is currently a 50:50 joint venture (JV) between Fiat and General Motors Company (GM). The plant, based in Northern Italy, supplies engines for a number of car models, including the Jeep Wrangler and Jeep Grand Cherokee. The financial value of the deal has not been disclosed.
Fiat aims to end losses in Europe by 2016, and has taken a number of cost-cutting measures in the region, including new model releases (s ee 'Fiat Credit Rating Downgrade Commensurate With BMI View', February 27 ). Further, it plans to increase production of Fiat and Chrysler cars in Europe to 2mn cars annually by 2016, up from a planned 1.2mn in 2013. The automaker hopes to better utilise production capacity in the region and focus on higher-margin models in order to stem losses. BMI believes that this acquisition of the remaining stake in VM Motori is part of broader efforts by Fiat to consoli date its operations in Italy.
This broader strategy may be at risk, however. Fiat has put new projects in the country on hold as it pushes the government to adopt reforms that will help manufacturers with clearer work rules after Fiat's labour contracts suffered a setback in Italian courts. BMI maintains a bearish view on manufacturing in Italy, and believes the government needs to undertake a number of reforms to make the labour market internationally competitive.