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Tuesday, 14 May, 2002, 13:27 GMT 14:27 UK
Fiat to float Ferrari
Ferrari 360 Spider sports car
Fiat will keep majority control of Ferrari
Fiat Group plans to race out of its financial problems by selling shares in sports car maker Ferrari by the end of this year.

Italy's industrial giant said it hoped to raise at least 1bn euros ($900m; 624m) altogether from selling shares in Ferrari and in the tractor maker CNH Global.

Fiat Group unveiled losses for the first three months of this year that exceeded the gloomiest forecasts from auto industry analysts.

Falling sales and rising losses at Fiat Auto, its core car-making business which produces the Fiat, Alfa Romeo and Lancia brands, hurt overall group profits.

Big losses

Executive chairman Paola Fresco told the annual shareholders meeting in Turin that the group would tackle its debts by speeding up its asset sales.

Fiat Stilo
The new Stilo brand is selling poorly

Fiat Group sank into the red with a net loss of 529m euros between January and March, compared to profits of 193m euros for the same period last year.

Analysts had predicted a loss of between 275m and 400m euros.

Fiat Auto's operating loss widened to 429m euros from 16m a year earlier.

Fiat Auto's sales were down 11.2% in the period compared to year-earlier.

Its poor sales contributed to a 4% drop in sales for the group - whose interests run from aviation to insurance - to 14.1bn euros.

Behind the curve

Fiat Auto is grappling with a restructuring involving new brand launches, 6,000 layoffs and the closure or reorganisation of 18 plants.

It relies heavily on selling cars in the highly competitive European market and has a dominant market share only in Italy, where it sold 36% of cars bought last year.

Elsewhere in Europe, Fiat Auto commands less than 5% of the market.

The firm hopes to benefit from its alliance with US car giant General Motors. "A formidable porfolio of synergies" should bring savings of 2bn euros by 2005, Mr Fresco said.

Debts in reverse?

But its net debts rose by about half a billion euros to 6.6bn euros during the January to March period, undermining a pledge to halve them to 3bn euros by the end of this year.

"The operating figures are disappointing and the situation is compounded by the fact that the debt position deteriorated in the first quarter," said Xavier Gunner, European auto analyst at UBS Warburg in London.

Mr Fresco promised the group will "make substantial progress" in cutting its debts this year.

"We expect these two transactions to generate proceeds of at least 1bn euros, and in the case of Ferrari, a large capital gain," said Mr Fresco.

Giovanni Agnelli
Fiat patriarch Giovanni Agnelli is battling ill-health

Fiat plans to retain overall control of Ferrari, even after a partial public listing.

Ferrari Maserati is 90% owned by Fiat, while the rest of the company belongs to the Ferrari family.

Agnelli ill

Several solutions to Fiat Group's problems have been talked about in recent weeks.

But possible sell-offs of chunks of the business took second place to interest in the health of Giovanni Agnelli, the patriarch of the founding family which owns 30% of Fiat.

Mr Agnelli revealed last last week he was receiving treatment for prostate disease and would miss the group's shareholder meeting for the first time since 1943.

Fiat Group's shares skipped upwards on the news, not least because Mr Agnelli is known to oppose the sale of Fiat Auto to General Motors.

Shareholders reckon such a deal is more likely if the honourary - but still powerful - chairman lets slip the reins.

 WATCH/LISTEN
 ON THIS STORY
Gail Edmondson, Business Week Magazine in Rome
"It's the end of an era"
See also:

13 May 02 | Business
Fiat's future in the spotlight
09 May 02 | Business
Fiat chairman has prostate disease
08 Mar 02 | Business
Fiat builds brands to beat debts
28 Feb 02 | Business
Fiat suffers loss
02 May 02 | Business
Fiat ponders Ferrari sale
05 Jan 01 | Business
Ferrari float hopes stall
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