Fiat to float Ferrari to cut debt

Fiat hopes Ferrari float can help turn around car business

MILAN, Italy (CNN) -- Italy's Fiat plans to float its Ferrari sport and racing car business after posting a loss of more than half a billion euros.

The 103-year-old Italian industrial company made a loss of 529 million euros in the first quarter, compared with a net income of 193 million euros a year earlier. Sales slipped 4 percent to 14.1 billion euros.

Its struggling car unit, Fiat Auto -- 20 percent owned by General Motors (GM) of the U.S. -- posted an operating loss of 429 million euros from a loss of 16 million euros in the 2001 quarter. Fiat Auto dragged the group into the red in 2001 for the first time since 1993.

Fiat's launch of a new midsize Stilo, the catalyst for a much hoped for revival, has failed to galvanise European consumers. Car sales fell 11.2 percent between January and March as rivals like Peugeot win market share.

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Fiat, which is struggling to bring down its debt to 3 billion euros by the end of 2002, said net debt ballooned to 6.6 billion euros, up about 570 million euros from the end of 2001.

As part of its plan to reduce debt, the company said it would float Ferrari by the end of the year and raise additional funds for its combine harvesting and tractor manufacturer CNH Global. The company also said it plans to "accelerate" last year's turnaround plan with "substantial selloffs'' in the first half of this year.

"We expect these two transactions to generate proceeds of at least 1 billion euros and, in case of Ferrari, a large capital gain." Fiat Chairman Paolo Fresco told shareholders.

Turin-based Fiat owns 90 percent of Ferrari, while the remainder is held by the Ferrari family. Fiat, which is controlled by Italy's power industrialist, the Agnelli family, said it would maintain control over Ferrari after the stock market listing.

Fiat hopes to breakeven at the operating profit group level in 2002 but Fresco said he did not see a "substantial reversal'' in the trend seen in the first quarter in its main markets.

The operating figures are disappointing and the situation is compounded by the fact that the debt position deteriorated in the first quarter,'' Xavier Gunner, an auto sector analyst at UBS Warburg in London, told Reuters.

Fresco said Fiat's recovery plans should return the auto unit to profit by 2004, as the company realizes a total of 2 billion euros in synergies from its alliance with GM, the world's largest carmaker.

But many analysts say the writing is on the wall for Fiat Auto and the company should exercise an agreement to sell its remaining 80 percent stake to GM.

"The end game is to sell out to GM," Hilary Cook of Barclays Private Clients told CNN. "There are too many players trying to win customers in the mid-sized market."

Fiat's stock, which has underperformed the Dow Jones index of European auto stocks by nearly 35 percent since the start of the year, rose 1.2 percent to 13.32 euros in Milan afternoon trading.