Alfa Romeo and Chrysler delays cast cloud over Fiat

Reuters

By Jennifer Clark

MILAN (Reuters) - Italian carmaker Fiat faces potential delays to its two main strategies - relaunching its upmarket Alfa Romeo brand and taking full control of U.S. unit Chrysler - putting a question mark over its ability to tap into any European market recovery.

And in a move that could add to investors' concerns, Fiat chief executive Sergio Marchionne on Friday cancelled his appearances at the Frankfurt car show on the eve of the event, due to "last minute unforeseen business commitments." He also did not turn up to watch Fiat-owned Ferrari challenge its rival Formula 1 teams at the Monza Gran Prix race on Sunday, as scheduled.

Europe's car market has been hammered by years of austerity. But signs of life in even some of the long-suffering southern European economies have raised hopes that demand might finally start to pick up next year.

Fiat's response to the crisis has been to announce a range of new models for Alfa Romeo in a bid to grab a bigger slice of the more robust and higher-margin luxury car market, both in Europe and particularly Asia and the United States.

It is also aiming to take full control of its profitable U.S. unit Chrysler to gain guaranteed and quick access to the cash flow and technology it needs to compete in a global market.

Sources familiar with the matter, however, say plans to start building the main models in the new Alfa Romeo range in Italy next year are facing delays.

And an agreement to buy out Chrysler's minority shareholder has become hostage to the outcome of a battle in a U.S. court, which could push the deal back to 2015.

"The two drivers of this story are Alfa and the Chrysler merger, and we've had very little news flow in recent months," said a fund manager who owns Fiat stock, declining to be named.

"I am expecting the speed of investment to pick up from now on, because if you want to have an adequate pipeline for next year you need to get moving now."

One analyst said the two issues might be connected, with uncertainty over the timing of the Chrysler deal possibly having knock-on consequences for investment decisions.

"It seems a lot of decisions are hanging upon what they do with Chrysler," said UBS automotive analyst Philippe Houchois.

"Once they have a deal and a price and have worked out how to finance it, they can decide what to do" in other areas.

"WAITING AND WAITING"

Fiat's (MIL:F) stands at this month's Frankfurt car show will be short of new products, while mass market competitors will grab the limelight with previews of possible new models like Ford's S Max people carrier, Opel's tiny gullwing Monza, Citroen's C4 Picasso minivan and Peugeot's 308 compact.

It's not that Fiat has been idle.

It has moved out two new models of its top-end Maserati sports car and the first of the new Alfa Romeo model lineup - the limited-edition 4C sports car - is expected to start production at the end of this year.

However, Marchionne has yet to sign off investment in the plant expected to build the likely biggest sellers of the new Alfa Romeo range, the executive E-Segment and the mid-sized Giulia, putting a question mark over whether the models will hit the showrooms next year as planned.

"Marchionne seems to be waiting and waiting for something to take place in the stars," said IHS Automotive senior analyst Ian Fletcher. "He's going to have to do something soon."

Fiat insiders play down reports that possible technical changes to underpinnings of the new Alfa Romeo range could cause delays, although the company hasn't denied them.

"It's a matter of building the best car," said one person with direct knowledge of the plans.

Another person familiar with the situation said the design for E-Segment had been approved, and that it was on track to be unveiled towards the end of next year, as envisaged.

While a successful Alfa Romeo relaunch is key to Fiat's recovery in Europe, its merger with 58.5-percent-owned Chrysler is probably even more important given the cash flow and technology it is expected to bring.

Fiat's stock market value has been "frothed up" by the perceived benefits of the deal, according to Citi analyst Philip Watkins. He rates the stock a sell.

However, the company's goal of sealing the buyout as soon as next year suffered a setback at the end of July when a U.S. judge ruled that a contract dispute with Chrysler's minority shareholder Veba should go to trial.

The judge's ruling may trim an estimated $500 million from the Chrysler buyout price tag, investment bank UBS has estimated, cutting its estimate of the value of minority share Veba's 41.5 percent stake to $4.0 billion from $4.5 billion.

But it looks like the process could now drag on into 2015 and beyond. Veba has requested a trial take place no later than mid-2015, according to court filings, while Fiat is asking for a May 2014 start date.

(Additional reporting by Laurence Frost in Paris; Editing by Mark Potter)

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