NF500 / western europe

Fiat SpA CEO Sergio Marchionne has announced that orders for the new Fiat 500 had exceeded 57,000, a mere 20 days after it’s official launch even on 4th July.

During a broad ranging conference call held after Fiat reported that second-quarter net profit more than doubled, Marchionne said Fiat has an official target of selling up to 60,000 of the new 500 model in the calendar year 2007, and sounded buoyed by the early demand for Fiat’s new baby;

We’ve had an incredible response to the 500, both in Italy and elsewhere.

Marchionne also said the Polish plant where Fiat is making the 500 currently has capacity to produce 120,000 vehicles a year, but reiterated earlier statements from inside Fiat by saying that;

I hope that some recent efforts we’ve made to cut out bottlenecks can help raise output to about 140,000 a year.

The Fiat boss stated he was confident that operating margins for the car wouldn’t be negatively affected by ongoing wage negotiations with a labour union at the Polish plant where the baby Fiat is produced.

Acknowledging the plant’s central role in Fiat’s plans, the NSZZ Solidarnosc union is seeking a 100% increase in the basic monthly starting salary at the plant, and has threatened to organize strike action for September to press home its claim if negotiations fail to produce progress.

I’m not going to comment on wage increases. We will respond to the unions. We think we have ways to mitigate any extra costs that might arise. It shouldn’t impact profitability.

Said Marchionne.

Making the car in Poland’s low labour-cost economy allows Fiat to make more profit on the car than would be possible if it were produced Western Europe. During early negotiations with the Polish union held last week, Fiat agreed to pay workers new bonuses equalling close to €1m as it seeks to head off the risk of disruption.

It will certainly be interesting to see how Fiat manage both the wage negotiations and production capacity in the coming months.  Production in particular is an interesting dilemma, we already know Fiat plan to produce soft top and Abarth versions of the new Fiat 500, with talks of a Station Wagon and/or SUV being considered too.  These extra vehicles will surely generate more demand and interest, further testing Fiat’s ability to juggle supply and demand for a premium “tailored to suit” vehicle.

The dust has barely settled in Turin following the launch event for the new Fiat 500, but the Fiat Group have every right to be partying once more as it reports revenues for the second quarter of fiscal 2007 grew 11.5% and net profit rose by 90%. These figures are driven by strong operational performances in all its major industrial businesses including smart use of shared technology in it’s automotive division to drive down production costs.

For the second quarter, Fiat Group’s revenues increased to €15.18bn (US$20.97bn) from €13.61bn a year earlier. Quarterly net income surged to €627m from €330m in the corresponding quarter in 2006. Trading profit for the quarter totalled €946m, up by 43.6% from €659m in Q2 2006.

The automaker also reported net debt dropped below €1bn ($1.38bn) to €873m ($1.2bn) for a decrease of €404m ($558m), despite payment of more than €500m ($691m) in dividends and share buybacks.

The Automobiles business, which accounts for some 80 per cent of the group earnings, posted revenues of €6.8bn, an increase of 12.1% from €6.05bn a year earlier, as global sales volume grew 12.2% to 578,700 units. Segment trading profit for the quarter increased by 119% to €193m.

The OEM states that sales volume in Western Europe increased by 3.8% to 360,600 units. Due to the success of the Punto, Panda and Bravo hatchbacks and its Ducato and Scudo vans – deliveries remained at high levels in nearly all countries. The OEM’s market share reached 31.5% in Italy and 8.2% in Western Europe. In key markets outside Western Europe, penetration improved in Brazil but fell slightly in Poland.

Iveco generated quarterly sales of about €2.86bn, which represented growth of 25.2% over the €2.28bn of a year earlier. Segment trading profits for the second quarter increased by 37.42% to €224m.

Revenue at the CNH business unit increased by 16.3% to €3.3bn during the second quarter, due in particular to an increase in volume of combines and higher horsepower agricultural tractors. Segment trading profit for the quarter also increased by 27.5% to €348m.

Second quarter revenues in the Components and Production Systems business totalled €3.5bn, a 7.2% increase over the second quarter of 2006. Sales increased by 15.8% at FPT Powertrain Technologies and by 11.2% at Magneti Marelli, while they were down by 31.2% at Teksid mainly due to disposals (Meridian Technologies in 1st quarter 2007) and by 11.3% at Comau, due to the overall weakness in its trading environment. Second quarter trading profits at the Components and Production Systems business increased by 41% to €146m.

During the 1 January-30 June period, Fiat Group’s sales revenue increased by 10.3% to €28.9bn. The group’s trading profit for the first half of fiscal 2007-08 totalled €1.54bn, an increase of 57% over the year earlier period. Net profits for the period increased by 108% to €1bn.

The Italian conglomerate states that its first half results are fully in line with its 2007 targets and provide a solid base to pursue the growth and margin expansion path set out in the 2007-2010 industrial plan.

For the full year 2007, Fiat group aims to earn a trading profit of about €2.7bn with net income expected to be between €1.6bn and €1.8bn. The group says it will continue to implement its strategy of targeted alliances in order to optimise capital commitments and reduce risks.

The Fiat Group returned to profitability only as recently as 2005, thanks to a strategy of targeted alliances and focus on the core business.

Fiat will no doubt be hoping the new Fiat 500, which shares components and it’s production plant with the Panda and forthcoming Ford Ka, will help boost the company image, and profit margins further going forward into 2008.