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Friday, 21 June, 2002, 15:06 GMT 16:06 UK
Car makers warn of tough times
Fiat's Melfi plant
Fiat has been losing market share, even in Italy
Two of the world's biggest car makers, Fiat and Volkswagen, have warned that the already dormant automotive market will continue to decline this year.

Fiat, struggling with slumping market share and the recent resignation of its chief executive, said its core Italian market would slow by 15% this year.

The firm confirmed that it would have to cast its net wide to achieve financing, and may have to spin off various non-core units.

Germany's Volkswagen finances are a good deal sounder than Fiat's, but it nonetheless warned that it might not maintain unit sales at the five-million-vehicle mark achieved last year.

Unlike Fiat, VW said its profit outlook should not deteriorate further.

Fiat's breakdown

All the world's major car makers saw sales slow in the past couple of years, as the global economic slowdown dissuaded consumers from changing their vehicles so often.

Some have defended market share by slashing prices and offering more generous credit terms.

Gianni Agnelli
Gianni Agnelli cannot let go
But Fiat, until recently one of Europe's most ambitious firms, has been hit hard.

The company has been forced into a 3bn-euro (1.9bn; $2.9bn) rescue package with banks, after revealing that its sales were down almost 23% year on year.

Paolo Cantarella, its chief executive, left the firm unexpectedly early this month, amid talk of a boardroom rift with honorary chairman Gianni Agnelli.

Ciao, Fidis

In testimony to a parliamentary commission, new chief executive Paolo Fresco confirmed that the firm was considering the sale of finance arm Fidis, but said that long-standing partner General Motors had first refusal.

Selling a 51% stake in Fidis would chop about 8bn euros off Fiat's gross debt of more than 30bn euros.

The firm is also looking to earn some cash from the flotation of its sportscar unit Ferrari later this year.

But even optimistic projections from the firm say the flotation will raise only about 750m euros.

Fiat has been the subject of repeated rumours over the fate of its core car making business, which could be the subject of takeover interest from rival firms.

On Friday, German giant DaimlerChrysler denied reports in the Italian press that it was running the slide rule over Fiat.

Product problems

Volkswagen, both bigger and healthier than the Italian firm, was until recently among the likely bidders.

The VW Phaeton
VW has too few new models to shout about
But the company has been hit hard by the slowdown in the European market, which has been more severe than some had predicted after 11 September.

Robert Buechelhofer, VW's board member in charge of sales and marketing, told journalists in Vienna it was hard to gauge whether VW would achieve last year's unit sales level.

West European car sales fell 8% in May and are down almost 4% so far this year.

VW is reckoned to be at a low point in its product cycle, with many key models - such as the Golf and Polo - starting to show their age just as rival manufacturers launch new brands.

At the end of last year, the company vowed to shake up its brand portfolio, after appointing former BMW boss Bernd Pischetsrieder as chief executive.


Companies

Background
See also:

10 Jun 02 | Business
20 May 02 | Business
16 May 02 | Business
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14 May 02 | Business
13 May 02 | Business
03 May 02 | Business
12 Mar 02 | Business
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