Analysts see risks for Fiat merger
Brazil sales in a slump
Fiat SpA appears to have cleared the last major hurdle to finalizing its merger with Chrysler Group LLC, but weak sales in recessionary Brazil could weigh on the combined company’s stock when it begins trading in New York next month.
“The operating business is a little bit of a concern at the moment because one of Fiat’s most important markets is deteriorating quite significantly,” said Sascha Gommel, automotive analyst at Commerzbank in Frankfurt, referring to Brazil.
“That’s a strong headwind that wasn’t foreseen earlier this year and there’s no clear sign when it will get better.”
Fiat has been the topselling automaker in Brazil for 12 years, but results have been deteriorating because of several factors, including a weaker currency, the end of tax breaks, high interest rates and declining market share. In addition, Brazil’s economy contracted 0.6 per cent in the second quarter, officially entering a recession.
Fiat’s shipments in Brazil fell 21 per cent in the second quarter compared with a year earlier. This was on top of a seven-per-cent decline in light-vehicle sales in 2013, when the country accounted for about 10 per cent of Fiat’s total revenue.
The merger with Chrysler has been in the works since Fiat took a controlling stake during the U.S. company’s bankruptcy restructuring in 2009. On Friday, Fiat said it appears there is enough shareholder support for the deal to go ahead.
It’s unlikely to have much impact on Chrysler’s Canadian operations, which include two assembly plants and a parts plant in southern Ontario. After a request for government assistance was abruptly withdrawn by CEO Sergio Marchionne earlier this year, Chrysler said it will stop making the Dodge Grand Caravan minivan — currently produced in Windsor, Ont. — but will continue to build the Town and Country in the Windsor plant.
Chrysler has sold more cars in Canada than any of its competitors so far this year, with sales up 5.3 per cent at the end of July. Chrysler Canada CEO Reid Bigland has also taken on an increasingly prominent role in the company, becoming head of U.S. sales and most recently head of the Alfa Romeo brand for North America. He also sits on Chrysler’s board of directors.