Stellantis NV (STLA) 2004 Q2 法說會逐字稿

Ladies and gentlemen, welcome to wonderful and a hot (inaudible) today. For those of you who came here earlier I hope you enjoy the test drives as much as the housewives, hopefully in the same order. As you can see, we have very busy schedule tonight.

We will all strive to stick to the allotted time, so that we can begin timely our conference call at 5 o'clock. Before we begin, let me just we remind you that we may be making looking-forward statements today and these are covered by our Safe Harbor provisions filed with the SEC on our 20-F.

Couple of our housekeeping rules, please all procedures would be held in English and switch off your mobile phones please. I would start immediately by giving microphone over to Mr. Marchionne, Chief Executive Officer of Fiat and we will start right away. Mr. Marchionne, the spotlight is on you.

Good afternoon and welcome. This is the agenda that I am going to try and follow today. I am going to spend as little time as I can on the areas where my colleagues will speak especially on the businesses that are represented on the podium. The issue of the financials will be handled by Gubitosi, when he does his second quarter review. I will give you just a snapshot view but I will give you my assessment of what I have been able to gather from the analysis of the business operations of Fiat Group as a whole, of Fiat over the last 60 days and I think I can give you some pretty good indications of where I think we like to take the business going forward certainly in terms of targets for 2007.

I think it is there to say and there is only slide of this, so I am not going to try and teach you history, but I think that it is very fair to say that today there is a relatively high degree of clarity about what the group is about, it is an automotive group. We are heavily skewed towards Europe but I think there are some businesses as you will hear today both in terms of Iveco and CNH that have great potential on their truly global businesses. It does have unfortunately a recent history of unsuccessfully trying to fix its businesses. We are levered, we had to call on capital twice in the last two and a half years and I think it is fair to say and this is based on history because I wasn't here, that we did hit a low point in terms of our corporate life in 2002. but there has been substantial improvement since. As you well know, I am the fifth CEO in two years, so referring this as being an unduly frequent leadership change maybe an understatement. But certainly I don't think it has led to a great degree of stability in terms of both management focus and sort of strategic direction.

The second quarter highlights and there is only one slide on this and Luigi will pick it up from here, we have had strong revenue growth 6% on continuing operations. I think we have had positive operating income of 18 million which is a reversal from a relatively hefty loss last year of more than a 100. We continued to see improvements in CNH...

(AUDIO GAP)

... we do have a sound cash position of about 7 billion euros which is substantially higher than they were a quarter ago.

We have done in the last 60 days has been a pretty intensive analysis of the relaunch plan that was presented to you in 2003 and we have had operating performance and operating plans reviews across all of the businesses. If I shut up, she can translate. Try now. Thank you.

We have carried out an assessment certainly on a preliminary basis of the quality of the leadership teams in place. We have met with all the major banks and I have had the occasion to spend about a day-and-a-half with General Motors mainly in connection with our industrial alliances, but we have had an opportunity to discuss other matters in general and I will give you an update on what the position is on those issues as we go forward. Now let me give you the sort of the positives of what I found in the group. I think the shift from the conglomerate nature of the sale (ph) certainly going to back up to late nineties early 2000s is clear. The group is absolutely focused on automotive activities, there are other main, there are other interests, including the (inaudible) our position, which are not of strategic interest and medium to long-term and therefore in some fashion we will accept this. I can confirm to you that I think the 2003, relaunch plan is certainly strategically sound and we now know that we have the financial resources to complete. I think that as you will see do have a significant opportunity to improve operating performance across all of the businesses including the ones that have had a positive performance in Q2 of '04. We do have some areas of technology leadership such as in diesel engines and I think from those of you that have driven the Mazeratis and Ferraris outside and certainly those of you who have watched the race yesterday we do have an undisputed leadership in the luxury end of the market.

Now the restructuring efforts that were outlined in 2003 are substantially complete at least in terms of the big pieces as I will mention as we speak about although there are no additional closures of plants envisioned as a result of our revisiting the relaunch plan and will deal with that issue in detail as we go forward. Unfortunately there are more negatives on these slides than there are positives. I think that the 2003 plan was strategically sound but the timelines were unrealistic. I think the ability to turn around Alto as quickly as the plan envisioned is certainly not doable. More fundamental than this its initial I will come back is as we go back forward the organizational structure that was put in place to deal with the challenge is fundamentally and totally inadequate and so I will talk about this as we go forward. I think Mr. Demel will outline the details as he does his presentation also but I think its an issue that the need should be addressed and addressed quickly and I think we have and I will give you the details of that realignment as I speak on Auto later on.

As is true of all these initiatives that are intended to sort of reset the base line for a business, sometimes we forget the fact that there are competitors in the marketplace and that whenever you realign businesses you have to somehow position the plan to deal with the unexpected which is what the competition will do. So I think that it was unfortunately lacking for the assessment that I saw. The organization itself the whole of Fiat Group and especially Auto and especially the central functions that are used around the organization are very much inward looking. I think that there are unfortunately not enough managers that have had substantial international experience and the thing that bothers me most is the fact that none of our businesses at least until today had recognized the commitment to operational excellence as being the key element of our corporate objectives going forward. No desire to benchmark which is probably the - either the cause of the consequence of our unwillingness to accept operational excellence has been the target.

The house is incredibly complicated. I can tell you I am still learning how to maneuver through. It is really a phenomenal web of structures which I think we need to simplify, this is not just meant in terms of corporate hierarchies but in terms of how we do business. The central function the ones who sit in Milvato (ph) have an unclear role. It has been my experience that they should always serve a service function back to the businesses and I am not sure that that was clearly understood at least until today.

Certainly the house is very slow to react and to decide. It bothers them of all the issues on here the fact that there is been limited renewal of leadership at the N-1 level. People underneath people like Demel and Monferino and Alapont the change has been limited and certainly has not been deep enough and the other fundamental problems the leadership and the assessment of leadership has not been at the heart of the renewal and I think that just justifies why in a lot of ways we have been late in delivering what we promised.

Let me the upfront with the issue with Fiat Auto. I think you have all seen the models outside I think there has been incredibly good acceptance of the new products, certainly the cost reduction plan as in accordance with our own internal timelines and all of the industrial joint ventures General Motors included are running well. Having said this I think that the business itself suffers from what I call self inflicted industrial complexity. We have intentionally created a web of structures around the business itself that is making it very difficult to manage. There is no operational benchmarking against the competition. We have always been in recovery mode and therefore benchmarking is irrelevant, it has been driven by engineers not because of that's a bad thing but because of the fact that it has been the primary driver or focus of the house and certainly not enough attention has been paid to brand image as the key element of the remaking of Fiat Auto. The more troublesome issue is that the business has been arranged around BU's and business units as valuable an instrument (ph) we are in managing industrial operations if not used properly can cause a huge amount of inefficiency and these have. We have created a suboptimal production and platform choices. We have been structurally confused about how to get that done, however, sometimes in a competing way across the brands the investments have been made in an unrealistic market growth and penetration expectations, missed investment opportunities where we effectively did not invest enough and on time. It has always have been a push strategy where they have in the market pull demand and as much as we keep on saying that we are committed to developing our dealer network very little money has been spent on his issue. The organizational structure is dysfunctional and more troublesome, it's unaccountable or was. And the volume growth has been lower than expected because competition which was not seen as being part of the relaunch plan has effectively played its effective role in eliminating the benefits of a relaunch plan.

This is a 10 year chart of historical returns on sales. I am not telling you that's the only financial benchmark that we should be using but it is an indication of the level of steady decline that this business has had and this is Auto only against what I call a relatively healthy performance from our competitors. It is the only company today benchmarked against the ones you see at the bottom that is effectively losing money. And so when you come in as the CEO facing this issue you are going to have to ask yourselves a fundamental question and that is whether the industry itself is one which is ever going to be able to earn a return on capital or whether it is something structurally dysfunctional about the way in which we run it and how we move it forward. With that sort of preempting the conclusion on my presentation I am convinced that the fundamental problem of Fiat Auto as an organization is a leadership one. It is not one that impacts on our ability to compete against the mass of competitors that you see on the chart but more fundamentally that regardless of whether you think that the industry itself allocating capital wisely or not at least vis-à-vis our competitors we should be performing as well if not better than they are. Mr. Demel introduced the new organization or at least announced the new organization to his Auto troops this morning. This is what it looks like it is an attempt at flattening out the decision making process of Fiat Auto. We have effectively blown up the business unit concept and broken it down and to much simpler components. This is effectively a 3D matrix organization chart where we separated the brand and commercial side of the business with central functions such as manufacturing and supply chain engineering design and quality and we have also created fundamental responsibility for the development of platforms and holding the platform managers or the platform leaders accountable for P&L results and that's the fundamental shift for the way in which the house has been run. The people on the commercial and brand side, their sole responsibility is to effectively design a commercial network that's going to make the brand itself successful. They are also entrusted with the ability of designing the product portfolio and effectively pitching their portfolio within this complex, within this matrix in a environment that allow for optimal choices to be made at Fiat Auto level and not at BU level.

The benefits as I mentioned are the fact that you are creating tension between the market and customer focus on the cost which it sits on the platform we do need to substantially strengthen the commercial and the marketing bias in this the ever recurring sin of over allocating capital and Fiat Auto should stop as a result of the concentration and the focus on platform management. Decision making process is going to be hopefully much faster and we are also because of the width and the breadth of the structure is going to allow some young talents to rise. Unfortunately I don't mean this to be a disrespect for commenting about age, we just don't have enough young blood sitting at the table and I think that the opening up of the organization is going to allow that to happen.

We have made some progress. I don't want you think that since I showed up we had done nothing. This is even before I arrived we did manage to replace two big functions one in quality and the other one for the first time in network development both of these are ex-Fiat people. They have come from the outside I don't mean ex they have been here and left, they have come from the outside world and I think they are going to bring the required level of impetus having had and gathered experience from previous institutions, from our competitors effectively.

Let me deal with the issue of capacity I am actually bored on (inaudible) from having read analyst report that tells me that Fiat is the most underutilized capacity structure in the world. You know I have been around this business long enough for the last 60 days to know that this is the most abused concept that anybody has ever seen. It depends on how you define capacity and I think that to the extent that there is an uneven treatment of this concept I think we ought to be very, very careful about characterizing Fiat Auto as being certainly in terms of the European context as being the least utilized of the infrastructures. I think partly it is a legacy issue because our own people keep on thinking back of the good old days when we used to sell 2.6 million cars while reality is that we don't and I think that you know sort of reminiscing about the past is not going to help the future I think it is done I think we are beginning to deal with the capacity issue in real terms and acknowledging what it is and I think there is no doubt that the house itself is over committed to particular models and particular series and to the extent to that that capital of commitment has been made and it is not been realized then the question of our capital usage is on the table but it doesn't deal with the issue of capacity utilization. These are two separate concepts and I think we need to get from very clearly apart one from the other. It does ignore all the announcements that I have seen ignore in restructuring efforts so that went on to be perfectly blunt we could not manufacture if we wanted to the number of cars that I have seen we should be able to do with capacity as at the levels you think it is. We just don't have the staffing or the infrastructure to produce them. So there is a real limited ban today about what our capacity utilization is and I think that anything that assumes that we can go in excess of 2.2 million cars today given what we have I think is making a phenomenal mistake.

The other issues that I think most of the issues will go away is the new paint line regulations come into force in 2007, that by itself is going to be a redefining use of our capacity because of the restrictions of use of solvents and paint lines and I think hopefully by that time we will - apart from the fact hopefully we would have reached our goals. But I think the issue the industry regulations themselves will clarify the matter. The last point is not inconsequential I think that we are going to be absolutely clear on this there are no plant closures on the Italian side. I think we will continue to drive the companies and the plants for competitive performance and operational efficiency but no closures are foreseen.

Let me deal with the issue of General Motors and how we see it? I think the industrial alliances themselves are quite sound, both in terms of the power train and the worldwide purchasing initiatives certainly the power train as John Demoigne has mentioned in his own conference call that GM is not progressing in terms of the efficiency as we hoped but we are making progress in terms on moving that organization on and we do expect the problem could be rectified within the next six months. And the last issue which is also non-consequential is the fact that joint platform design working is continuing and I think its going to benefit both organizations. Dealing with the issue of the so-called infamous GM Put, I have left a number of factual statements on here. I mean the Put was pit in place in 2000 it was naturally expected to expire in 2009. The whole deal of the Put which is Fiat SpA has the right to put the shares of Fiat Auto to GM and to have that put value as a result of a pretty detailed process that involves using investments banks. Last year General Motors and Fiat agreed to sign a standstill agreement that effectively suspended both parties' contractual rights for a period of a year and extended the Put as resolved by a year. So the Put now expires on the July the 24th 2010. That Put is in our view a valuable and valid instrument. We spend time with counsel. We are absolutely convinced that if it is exercisable on its terms and we see no financial or industrial logic to sign an additional standstill agreement that will either prolong the Put itself or extend the standstill period within which either party cannot take action. Therefore starting January 2005 the Put will become exercisable on its terms and that doesn't meant that Fiat SpA is going to use the Put against GM it just means that it looks at it as being an exercisable instrument to be used at its discretion if and whenever it feels it appropriate.

I am not going to spend a lot of time on these businesses I think it is better to listen to Mr. Alapont and Mr. Monferino. I am probably going to skip most of these slides and get back to some other issues, which I think are probably more important. I call this slide, I struggle with this for a while but I think probably the best way to describe the next phase of Fiat's evolution is in terms of its commitment to execution. I think that you know to the extent of that we have been able to dust off all the strategic and operational plans that have been put forward by rather intelligent people I think the thing that's missing substantially is the inability to close. Closure, execution the ability to deliver on commitments has not been the strength of Fiat in the past. The commitment that this management team is making very clearly to you to the board and to ourselves is to cure that anomaly. There's absolutely no reason there is no structural reason why this house cannot fire on all cylinders. And I think that what we are going to talk about here is the commitment to get that done.

First thing we are doing is that we are creating a Group Executive Council I am sure you know the compensation of the committee is. It is designed to deal with probably the thorniest issues that impact the operation of Fiat as a whole not just Auto, it is designed to deal with capital allocations, it will review all business operations it will continuously assess the external environment and therefore assess the opportunities and threats that the group faces as a whole and it is probably the best environment within which to share best practices. The more important part of all this is that it is the first piece of a process which is designed to setup a social operating mechanism within Fiat which is drastically different than the one that we are currently using. There's been very much of an hierarchical chain of command approach that of running of Fiat and this needs to stop. There's been too much power that has been sitting in particular pockets of the organization for totally unjustifiable reasons. We need to open up the whole house and the process of decision making so that people that do make a difference that can matter can influence the end result. This is the way in which Group Executive Council will be structured. Its got operations on the left these are all the major businesses within Fiat and we have got a limited number of people coming from the right all of whom are intended to be there in purely support functions.

HR finance and so on other than finance may have stood with issues associated with it has a very - all of these people have a very clear responsibility to ensure that the people on operation succeed and so that is truly a fundamental rethink of the way in which we operate. Those of you who have dealt with me in the past fortunately or unfortunately have seen this slide before. We have started a process of leadership assessment and if you look at the back of your presentations there is very clear delineation of what we consider to be a good leader in terms of values. I am not going to bore you with this concept today. It's something which I had been working on and refining on for the last 10 years and it's probably been the only thing that's made all my efforts in the past successful. So we are going to go back and we have refined it even some more now to try and adapt it to the Fiat environment or at least show the fact that that I have matured in the assessment of some these issues. We are going to be assessing all of the Group Executive Council's direct reports in the next 30 days. They are all going to be done by the end of August.

As you can see from the chart people who are not in the yellow or green zone are fundamentally in danger because of the fact that they will bring about leadership renewal and they will do it pretty quickly. I thin we do need to change and change drastically but we do need to change the management feel and structure of this house and we need to do this at leadership level to ensure that we get the right results.

The commitment by us as a management team is to achieve best in class performance by 2007 and I screwed Auto from all of this because of the fact that Auto's cycle is so drastically different from everything else that we have seen and the fact that we are starting as far back in the train as we are in terms of the commitment to the development of the network to investing funds in the protection and the build up of the brand and it's ability to distribute, that for us to sit back and unrealistically expect that by 2007 we will be best in class performers is nonsense, it's not believable.

Whether the house gets close to that standard by 2007 is something to be seen. I think absolutely true that the other businesses the components, the vehicles, CNH are capable to close that gap and get there in relatively rapid period of time. The analysis of our performance and the development opportunities within each business is purely going to configured in terms of the competitive framework which is certainly that has been missing from the house. And the biggest task that we have is to ensure that we select and install leaders who reflect both our leadership values, the ones I have outlined at the back of the pack and ones that have been able to perform and show the greatest potential to perform.

I think that we need to stop sprinkling resources about in this group I think that we tried to do too many things with too little capital but there are somethings that do need to have an aggressive plan of action I think the network re-building is absolutely crucial to the future of Fiat Auto and I think that to be squeamish or to chince (ph) on the amount of capital that is going into this process is going to be counter productive. I think that the Fiat Auto is not full potential and it will not be until all the legacy issues are worn away. The over investments that we have made in some series - the fact that we have made some bad strategic calls in the past would eventually come out of the system. But I think that that coupled with the fact that platform and components convergence takes a long period of time as you will hear from Herbert is going to prevent us from getting to that best in class target by 2007. So 2007 and I mentioned this that all this data is done under accounting GAAP Fiat Auto 2 to 4% operating margins speak of the cycle CNH of 10, the vehicles 7.5, components at 5 to 7, all of which translates itself to a bottom line of 1.4 to 1.8 billion and assuming full conversion of all convertible instruments will end up with 1.1 to 1.4 euros per share.

In terms of the variance itself I mean you love the stuff of analysis which because ends up being quite nicely in your reports. As impressive as it is, I can tell you now that the chart is wrong. Its our best attempt in assessing where the parts of margin will come from the thing about his management team is that it is committed to find that in the event of one of the parts does not materialize and the heart of this exercise is really allow a leadership team to try and lever al the resources it has to try and make the numbers to which it is committed. You will see that we are extending on a year-over-basis there is substantial amount of money in R&D, network (ph) level this is specially true in Auto where I think we have chronically committed less and less capital than required.

In terms of the financial targets 2004, group outlook break-even on operating level - the break-even that was expected for Auto in 2005 is not going to be achieved in 2006 actually it will be positive in 2006. We will still have net negative results at group level in 2005 and that represents together with the shift in operating break-even for Auto, the two areas of change from the original strategic plan for today, the re-launch plan. 2006, 500 million or in excess in terms of bottom line positive group cash flow and positive Fiat operating income and operating cash flow. I want to close with these comments, we make no apologies about the past, we are what we are and we were a chronic under performer very much in would focussed on responses to capital and capital allocations and prone to quick fix this to find the easiest way to try and cure a problem, I think the new organization the one that they were trying to form is of today is one which is willing and able to embrace competition in a very open way and we are absolutely confident that we have both the financial and the human resource capabilities to bring this about and therefore I will leave you with one concept which is commitment to execution and to leadership as the theme for Fiat going forward. And then move I would like to pass you to Mr. Gubitosi who is going to bore you with a lot of numbers.

OK, good afternoon and lets get to the boring part. The numbers, I think Sergio already gave you a snapshot, revenues are up about 6% and we got that positive of (inaudible) result, so lets go into line by line starting from revenues. As you can see, our 6% it's in line with the first half but as compared to the first quarter we got a strong acceleration in Iveco and CNH and CNH would be more so if we were to look at it in dollars. Fiat Auto for the reason we have said before is limited to 2.6 and a large component on that is coming from external markets outside of Europe. Ferrari, a 17% increase because of the flat report and we also seen with progressing components.

If you look at our tractor progresses we are making indeed a significant progress even in this quarter although this has been held back by Fiat Auto. We expect to continue to see progresses for the two next quarters across the board and to be able to reach break-even as we say. This is again one of those variance analyses we like. As a group obviously its an aggregation of the variance analysis, so we won't spent much time as my colleagues afterwards will go into make more effects on their businesses.

But surprised to say that we got good volume and mix especially at CNH and Iveco as well as the price income mostly out of CNH and we did spent more in research and development coming from mostly from Fiat Auto while the CNH result translated from dollars into euros had been the main course for the 18 million divergence. With others its basically about half events of less accretive like less incentive received or some real estate trading, most of it is provisioning for (inaudible) credit and stock as well as some more anti-cost and other provisions. In terms of the businesses Fiat Auto that's basically inline with last year as to continue operation I think Mr. Demel will explain you more about the Auto performance and CNH coming up strongly as you can see again the dollar holding back the result when we translate into our accounts. Iveco good performance and with components it's mostly (inaudible) which having a good growth in sales and margins. Ferrari while in reduction from the figures scored is still suffering from R&D expenses and the lower dollar.

Going from operating to net, investment income its 33 million about half of this is the result of 49% interest we are Fidis Retail, the joint venture with banks and you don't see anymore the volatility which the presence of dollar was giving with the mark to market of equity holding in the end. Financial charges is 229 million, in this you have 8 million after the additional effect of the GM equity swap you might remember from the previous quarter as well as there is 14 million foreign exchange loss. It is otherwise inline with the guidance we gave you before. Extraordinary expenses are mostly restructuring expenses which have been booked in the quarter as expected.

The pretax result looks therefore lower but that's mostly due to the fact that in 2003 we recorded a significant gain resulting from the sale of Toro. Taxes, 111 million of which about almost 80 are cash taxes the less are the use of deferred tax assets.

Talking about cash flow, I think we went through the operating income and the financial charges. In the taxes and others we see the effect of changing funds is mostly the change in the Fiat fare and the warranty funds and other provision as well as sale of certain assets coming out of specially operating leases offsetting the cash taxes. The D&A it is still somewhat higher than capital expenditure. However we do see this trend reversing in the second half of this year. Cash flow was positive, this is also due ot the fact that we saw more receivables this quarter mainly out of CNH posting its revenues we will see in the next slide. We haven't seen yet the result of the Melfi stoppage as we shall see in the next slide this is going to come in the third quarter.

Cash flow per operation therefore it is - from operating activities a positive 356 million against 400 million negative last year. Non-operating cash outflow gave 143 million while the consolidation of the division in (inaudible) is changes scope of negative 51 million. So the cash flow for the quarter is 162 million. In the quarter we increased our gross debt because of the mostly bond issued out of CNH as well as utilization of warehouse financing as we shall see later and the cash and marketable security at quarter end was almost equal to the one we had at the beginning of the year.

So we are back to the 7 billion in cash and marketable securities. Let's talk about working capital. I think we gave you guidance before and we confirm that that in the second half of the year the working capital will have soared and this chart shows you how this has seasonally done. We have an additional reason why we are convinced that this will occur and is the fact that we will have in the third quarter the effect of the lower payments derived from a loss of production in (inaudible).

As you may recall, we tend pay our suppliers 120 days and therefore at present may, will be, the lack of payments due to the April and May stock adjust would be registered in July and August. Finally, we complete the quarter with fairly low stock especially at bill of inventory the stocks are pretty low compared with the same period in last year.

In terms of financial services and industrial, basically we gave you the traditional split in order to allow you to make calculation between industrial and financial services. Our financial services debt is basically unchanged from March. Lets talk about our liquidity analysis, I suppose some of you are familiar with this chart that basically there you will see that our cash (inaudible) securities is increased to 6.9 billion, as we saw before.

In the mean time our short-term bank debt is basically remained unchanged, in fact is slightly up. For the colleague of yours who asked me this every quarter, yes, we did roll over all the debt that expired. Then we have utilized warehouse facilities that's basically due to CNH (ph) that's a committed facility, which allow CNH to build up receivable portfolio, which then tends to be bundled up and sold into ABS and that's 900 million, which will be transforming on ABS in September with no particular changes in the rest with exception of the current portion of medium term debt, which now includes the Italenergia alone.

As I said before, sales or receivables goes up to 6.6 billion in the quarter. In terms of so much everything, in the next 12 months we have about 4.2 billion maturity of bank debt of which about 900 is part of this (inaudible) (02.20) that I was mentioning before. Capital market, in the next 12 months is basically composed by 1.5 billion of exchangeable bond, which is been repaid on July 9 so there are 500 million approximately left most of which is an (inaudible) DL (ph) (02.39), which is for almost a 100 million which mature in June. So, we have no more maturities between now and June 2005. Other debt is basically unchanged from previous quarter it's mostly towards non-governed and non-financial institutions like governments for about 150 million and the rest to a number of companies including Chamois (ph) for joint venture in smaller ones.

Italenergia, it's maturing in May 2005, as you know, that this debt is no recourse to us as we have put on EDF. Finally about our liquidity, our liquidity continues to remain invested in very short dated instruments with higher ratings and in fact to ensure the maximum liquidity. With this I will finish and I would call Herbet Demel to the podium.

This is quite unusual we are ahead of schedule. So, we think that we might be taking some questions before we begin with Mr. Demel. We will take some questions before we begin with Mr. Demel.

Hello, can you hear me? It's Xavier Gunner from UBS. Your Capex figure, looking through your cash flow, it seems to be very low, were at 3.8% in industrial sales. We compare that to your peer group, which is probably about 50% higher than that, I guess the question is how sustainable is that given that actually you need the product to win, you need the operational leverage actually to get your margins the proper 1% that we were talking about. We have seen the impact in the second quarter, how much damage can be done when you been just 40,000 units. So, is that sustainable?

Can you hear me?

Yes.

Well I think I'd say that the pace is going to increase in the second half of the year and that capital expenditure will be higher than depreciation. So, we are increasing our investment. How ever I think that what Sergio mentioned before, it's extremely important that not only we invest but we have to make sure we invest in the right places and we review the way we allocate. So, trying to leverage out of those investments and to get the most out of what we are investing. So, yes we do believe.

Xavier, Josef here. I think that the first half Capex number is not reflect able of the Fiat group going forward and I think that if you were to benchmark it against our competitors, you should take that norm as being indicative of what Fiat would do. I am not sure your number of about twice our number being the right number given our mix, but I think you are broadly inline where were the future will set. I will try and give you snap your answers to your questions you just asked. Any more?

John Lawson right here in the front.

John Lawson of Citigroup. Is the standstill agreement with GM on the put option still in place then? I mean you are clearly taking much harder line here. If it is in place, does it actually have any content, you know?

There you got me intrigued, what does it mean does it have any content?

When you supposedly negotiating between now and the 15th of December nothing is happening at all now?

No and lets go back. The standstill, we just suspended all contractual rights on both parties between the time that it was signed and January '05. Starting January '05 when the standstill flows away then the put is exercisable upon its terms. So, I mean whatever content it had prior to the standstill it still has it. It's just not exercisable by us until January '05, that's what it says. But the coming January'05, the put is exercisable on its terms, there is nothing preventing us from using it.

I guess that we thought there was some sort of discussion going on but you are unilaterally saying there is nothing to discuss?

That's not what I said. What I said was that the put is execrable on its term. I am not trying to be cute here, the put is exercisable on its terms in January of '05 and I don't, I know nothing today that would suggest that that is not going to be the case in January'05. In other words that the put will become exercisable as of that date, is that helpful or?

That's fine.

And I am not sure, I am taking a harder line, I am just reflecting reality.

Its Albrect from Goldman Sachs. You have got a couple of balance sheet events coming up, the particularly the Italenergia alone and the 3 billion mandatorily convertible where you clearly have rights to take action but the counter parties, on the other of that, might not want you to take action and the sort of the question is, are those deals going to be renegotiated at some point? Are we going to see push back from those counter parties where you might be willing to renegotiate, you know, same push out of the, push out either of those loans or push out the mandatory convertible further?

Well I mean there are two particular pieces of paper that we are talking about, one is on the Italenergia side and the other one is in connection with the mandatory convertible. To this extent that there is any attempt and there is nothing on the table to back. So, let me sort of clear that issue off. There are no discussions going on about moving anything. To the extent there were to be a discussion about postponing and moving it, there is nothing that Fiat would do for which it would not adequately financially compensated. Nothing, is that clear?

In other words that sounds like you might be amenable to renegotiation as long as you are compensated for?

I am amenable to nothing. The only thing I am saying is that one, I have had no positions following this, that has required us to consider on the postponement of anything and b) to the extent that it were to be even remotely appealing to Fiat. You will have to be adequately compensated for that push and certainly the equity content of anything that will get pushed will not lose its quality. It was born as equity and it will die as equity in some fashion until and if and when the group does what it does in terms of promises. So, lets not minimize the impact of the convertendo, it is what it is.

Martino De Ambroggi, Euromobiliare Sim. You are giving us target for 2007 but can we have some more color on these facts you have in line in order to get it? Thank you, I mean 2005, 2006, going forward?

I think I was clear, I think I am sorry. I may have missed it but I think I made some comments about '05, '06 and '07, '05 is still negative, slightly '06 is positive in excess of 500 million and '07, is the numbers that we show. So, I think we are showing progression this is not going to be an overnight miracle of us selling more cars in 2007. I think it is going to come from a collective effect of our businesses not just Auto improving performance and except for Auto if that to be matching or exceeding best industry returns. It is going to take some time. The other businesses both Iveco and CNH are in a much better shape to get this done than Fiat Auto. So, there is nothing which is structurally preventing them from doing it, they do have great range of products as you will hear from my colleagues and I think that the investment cycle and what is gone on from a leadership standpoint in the past, is this going to put them in a position to be much more effective competitors than Auto. Auto is going to take longer.

And if I may to anticipate question for Mr Demel, is for second quarter result for Fiat Auto. So, if I exclude Fidis, if I exclude the Melfi strike affect despite 10.6% increase in volumes the absolute improvement in terms of EBIT reduction of losses is 80 million euros instead of a 180 million euros recorded in Q1. So, could you tell us it bit more on it.

Why don't you give Mr. Demel the time to show you his slide. Then may be you can hammer him then?

I wasn't dissipating.

That's fine.

We are willing to be hammered.

All right.

(inaudible). Your vision of future inside management structure sounds it is got all the fewer people in it than history. Can you confirm whether or not we are going to see some serious white color headcount reductions?

I think we are going to see a significant improvement in the quality of the leadership for this house, whether it implies white-collar reductions, I do not know.

Sabine Blumel from Banca IMI, London. I would like to come back to capital expenditure question, second quarter was also extremely low much below last years level. So, would you say that Fiat Auto in the Fiat group has actually --?

[AUDIO GAP]

But I don't think that we are intentionally underinvested and I think that in the past there have been large mistakes that have been made in terms of commitment to particular series and models of cars, which are not going to be economically recoverable. You know, we know today and I think this caused a lot of dislocation in terms of the P&L and it is initial that we are painfully aware of it is going to guide the capital commitment process that this house makes going forward. I think that the exuberance with which some of these investments were made in the past is going to have to be toned down in view of what our market positioning is and I think it is easier to incrementally invest than to write-off. Is that answer your question?

No, not quite.

Why don't you get him to answer the rest if thing.

What is that you are, I mean you have committed your thought to, roughly 2.5 billion capital expenditure pattern for the next three years. So, this still stand which bring to it a little bit closer to your competitors who are profitable so.

I think the 2.5 billion is inline with the competitive framework and I don't think it s outside the box and I think it is enough to drive the sales forward.

So, the stands, so you would like to go below basically?

No unless we cannot see any wise use of the capital. I mean these are forecasted projections based on what we are going to do with models, (inaudible) (03.39) and so on and all of these are subject to our ability to intervene and reduce it if we cannot warranty expense. So, I caution everybody on this issue. Yes, we have forecasted the three years out but I think we do have some opportunity to tone it down the event of forecast in how much we realizes we expect.

I think we will take one more and then we will go back to presentations.

Yes good afternoon, (inaudible), JP Morgan in London take one more and then we go back to presentations.

Yes good afternoon Philippe Houchois, J.P Morgan in London. You mentioned equity earlier. A question for you one is could you confirm whether the 13 million options granted to Mr. Marcello has been pretty much cancelled since he left the group and could you since you follow that transparency could you tell us what Mr. Marchionne what's your structure of your composition going to be and how would you think to achieving the targets you present today? Thanks.

The market sort of best of my knowledge I mean the board discussed this in my absence, which I think, is a valuable thing. But is it market options are not being cancelled. And my equity participation is totally linked to be achievement of these targets...

(AUDIO GAP)

...result and what is you could more in that respect and on a broader level if I look at your financial activities, would it be possible, have you considered doing more of a see this retail type of you know spin-off or so on or is there something in the quality of the residual receivables that will make it more difficult to do that.

OK. First question is how do we do it. We appreciate the announcement like we are good at it. Now as looking at that Sergio not at you? It's very simple. We have agreements with conduits for example most of the increases with CNH. It goes up this level of receivables and they buy more. There are limits obviously but they are well above what we are actually producing. Secondarily you might have also noticed that dealer receivables have gone down so that parts of the reduction in dealers as well as we have reduced everything that we did not think was strategic. With regards to other alternatives like Fidis(ph), I don't think we have a specific plan but we think about alternatives all the time, financial services is important to us and well to all manufacturer and we think continuously about what are the alternatives that we have and processed strategically what's best to do.

OK. I think Herbert, can come to the (inaudible)?.

Good afternoon ladies and gentlemen. Thanks at the beginning for disciplined driving. Because it's not totally cosmetic that 200 people are driving a lot of cars and all the cars are empty. Going to my presentation you know that Fiat Auto has four different brands. Fiat is a brand, stands for a volume maker especially in the smaller segments. Fiat has a lot of sympathy in the market and with the customers but nevertheless in the late 90's and to early 2000's they are relative volumewise and brand imagewise so, we have to bring that deck again 2003, was for sure one first step in dependent that you see here and that has nothing to do with me, was launched healthy is a quite highly accepted vehicle and has a big success in the market was throughout the year last year and if we do all our cars like Fundais (ph) then 2007 would be easily achieved. There is a second brand LANCIA which is for sure niche mark, very concentrated in Italy mainly is consisting of vehicles derived from the Fiat vehicles and has a high level of commonality with a Fiat Lictos(ph) and nearly 90% of the LANCIA network is shared with the other brands of the group. Then we have ALFA for sure the most inspirational brand. It's sportive brand it's internationally best renown brand with for sure a potential for a premium brand but at the moment we are where we are and you will see later what we intend to do. And last but not least the life commercial brand it is not properly a brand but it gives us an important part of our revenues and profit contributions and we are running passenger car derived light commercials and we are running like commercials together with Peugot in the main segment. Looking shortly to the frame in the 2003 numbers 2003 four brands registered 1,850,000 units and you may see on the left side the split nearly 85% of our revenues is coming form the vehicle side, Fiat LANCIA nearly 60%, ALFA 15% and Light commercials 12%, 7% come form financial services and 8% from after sales. If we look at the revenues by regions, we are having 46% of our revenues out of Italy, which is not too high, it's an absolute number but relatively too high. We are having 37% and the rest of Europe where we have to grow 7% Brazil and 7% rest of the world. We are by far leading the Italian Market and we have a very strong position in Brazil and Turkey.

Going to the first half results and the quarter comparisons you see that we slightly increased our revenues in the second quarter compared to last year 2.6%. And we increased our revenues first half to second half by 7%. So, there was a strong first quarter and was at last -- this year against a weaker one last year. You may know that there was a generally flat last year then there was a stronger one last year and not a strong one (inaudible)and others this year.

The result of the second quarter may for sure not make us content. We did not produce roughly 100,000 vehicles in the last four months partially, voluntarily to adjust stocks, partially non-voluntarily because of the military strike. If we look to the second quarter and we go through an analysis Q2 2003 to Q2 2004 and you may see that the biggest portion was due to the strike more than 50 millions negative impact of the wealth strike. If we look to the trend of price-volumes mix direct materials and other manufacturing cost and you see that we continue a trend that we showed also in the last quarters. We spent more money in research and development to prepare for the future launches. We spent more money for growth (inaudible) and network investment and I will come to that later on which is for sure good spent money and we - if 30 million impact of provisions major is guaranteed and obsolete material. If we compare the quarters of the last three years then we see for sure they are unsatisfactory operating performance but improving since 2002 and even if the second quarter is not as good as we may have expected and you may have expected we are expecting a substantial in the second half of this year.

Going to cash flow, the cash flow in the second quarter improved against the second quarter of last year. If you look first half 2003 against first half 2004 you see a nearly flat cash flow and what we want to show you here, we entered this year with high stock and then we consistently brought that stock down which led to a high level of trade payables because we are traditionally paying with 120 days payment terms and if I tell you that we reduced 100,000 production in the last 4 months you may see that here. So we are only inline with last year in the first half but we assure that we will have a positive operating cash flow in the second half of this year. After this brief tour through our recent performance let me now update you on our ongoing efforts to return Fiat out to success and profitability.

Improvements, we have a good acceptance of our new products. The (inaudible) last year has had orders of 470,00 units in the range of 12 months, the new panda is gaining profit 250,000 for orders they are still on 95 and the in the year up to now 59 it was launched very late last year beginning, this year. So, we are quite inline with our expectations. Product and general mix is also inline with expectations. We are in the product mix even a little bit higher than we expected and we improved our channel mix. So the zero kilometers were reduced, the fleet sales were reduced while competition increased European retailers and fleet sales. So we went to a much healthier channel mix.

Cost reduction is totally inline with the re-launch plan. The industrial, joint ventures (inaudible) power trading and purchasing are running well and we have a first marginal improvement of quality per section. What does it say? Its not actual quality that has to improve faster but we have to entered into the channel of average competition, maybe we are not belonging yet to the better ones in competition but some of highly attractive vehicle manufacturers have gotten worse than we are. We are continuing that trend by people and by consistence and be sure that we will reach at least an average of competition within a short timeframe.

There is (inaudible) the volume growth was slower than expected due to tough competition. The margin pressure on older models is continuing. The industrial complexity still an issue and I will lead you through that in much more detail later on. The dealer network continues to be underdeveloped. So, there were a lot of measures done but they were more tactical than strategic measures and I also will guide you through some actions that we are planning for the dealer network. The organizational structure is dysfunctional as Sagio Martiono (ph) has already said and we will show you that in the chart and with explanations and we therefore still will have a small operative loss in 2005 but we are expecting a positive operating income and operating cash flow for 2006.

Let's look to the markets shortly. Western Europe grew in the first half 3.3%. Fiat Auto grew from 6.9 to 7.2 in the second quarter and from 7.5 to 7.6 in the first half. So we succeeded to increase our market share in an increasing market. If you want to see the extra Italy numbers then it is roughly flat still but we also reduced stocks heavily and zero kilometers outside Italy and therefore look forward that we can start to slightly grow still this year compared to last year.

Italy, market growth 3%, second quarter we went from 27.0 to 27.4, full half 27.7 to 28.4 so we are consistently growing also in Italy by, on the other hand as I told improving mix and improving channel mix. If we look to competition in the Western European ambient then you may see that the Japanese and the Koreans gained more or less 1.6% market share while the average Europeans lost 1.8. We gained 10 basis points and had a volume growth of 5% in Europe compared to a market growth of 3.3%. So, we see a first signal of starting to grow again which also has positive effects to the position of the brands that we have.

Major markets, Brazil market growth close to 10%. We grew slightly in the second quarter but in the first half we left 1.4 points for competition. We did that voluntarily because the incentives and the prices in the end of the last year were the incentives high and the price is low. We finally ended the year with a leadership in Brazil but giving a little bit of pressure out, we were much, much healthier than we were last year. Turkey had an enormous growth of the market in the first 6 months due to a fleet renovation program that's already more or less cancelled. We had a highly growing market and we also succeeded in the quarter and in the first half to increase our market shares. So for history, what are we intending to do in the future and how do we see market in the future? We planned that Italy will stay flat and we intend to increase our market share from 28% last year to 30.5% 2007, which is still a challenging plan but on the other hand quite more conservative than what you may have seen in the last times.

Western Europe, slight growth 4.7% year-by-year and we intend to grow our market share by 10%. This is for sure feasible, we have to adjust some network issues that we have in and I will show you later on and I don't see any problem to grow our market share in the outside Italian-European surrounding. Brazilian markets intends to grow, we will keep our market share more or less stable as I told you fighting too much for market share in Brazil is not the healthiest way to do business. Light commercial market is nearly kept flat and we intend to increase our market share by 5% of the 11% in the next half(ph). So we have relatively conservative market exemptions and the expected market share growth in Europe does not seem to be over stretched. How do we intend to do that? The segments A, B, C, D, E maybe I will shortly explain it A is Panda and Seicento, B is Punto and luxury salon, C is Alfa 147 and Stilo, D is Alfa 157, H is specialties coupes and convertibles, I-off roads, L0 B-derived MPVs and L1 C-derived MPVs. And you see the segment weight here, then our segment share, the segment trends to grow and then our launches within the next years that you will still see in more detail later on.

So we have launched a highly successful Panda in the A segment. We are in the absolute majority in Europe in the A segment but the segment weight is relatively modest, small, so even being highly successful you may not grow market share considerably. We have launched an Epsilon in the B segment where we have quite a reasonable market share in Europe but the Epsilon is a niche product, so therefore you don't really grow. And you know that we are not only happy with our market penetration in the C segment in the Stilo but we are confident that we have reached a stable position in that segment, then with new launches we can again increase our participation which is also important for our brand positioning.

Then we intend to launch a Fiat product in the D segment, not for making big volumes, but to restart to position the brand to a higher brand perception. Then H is Alfa specialties, coupes and convertibles. We are launching two products in the I-segment where we are not present yet. The L0 is the - there where we have 15.1% of market share in Europe and we still may grow that because we have started in the beginning of the year and the L1 is Multipla where we also have just some weeks ago launched a facelift. Here you may see the launches of the Fiat Lancia brands. You will see that we are launching two new cars average per year ...

[ No continuity ]

Renewal of the products in 2006, you may see this concentration also with competitors, most of the competition is focussing new launches of light commercials on 2006 and we will nearly renew the whole product range in 2007. Products for sure, most important part of a vehicle manufacturer but the second important one is also network. We have so close network gaps in Western Europe, everything what you read here seems simple but it has to be done.

Going into a little bit more detail, you may see the network gaps that we saw by the end of last year, so we missed 192 areas in Europe where there was no Fiat dealer, in areas in the sense of significant areas and we closed roughly 40 of them in the first six months, Alfa we closed 30, Lancia we closed 24 and Fiat light commercials we closed more or less another 30. So we are closing the open points and we intend to be ready, you are never ready but close to zero in the timeframe of 2006. How, is relatively easy I want to tell you in two examples. If we take Germany, Germany has a size of 3.2 million new cars and is for sure for us at the moment still the most difficult market, Germany and France are our still most difficult markets. We have a Fiat brand market share of 2.1% and if we would close these red points that you are seeing here then we would automatically gain 10,000 cars just having the average German market penetration also in those area which represents more or less 15% of share increase in Germany. So we are consistently working here. There is another example for France where we easily can increase in Alfa penetration.

General dealer perceptions of activities, we will reduce the number of dealers of Fiat until 2007 by 15%. Seeing the volume increase that we have planned we will have a throughput about of about 30% per dealer in higher volume than to date. We tend to increase the Alfa dealers by 10% because we expect an Alfa growth that is much larger so you see that we are also - they are expecting a 30% increase per dealer, dealer meaning owner, its not the outlet, it is the dealer is the entrepreneurial person.

Lancia, slight reduction of dealers and slight increase of volume per dealer and in the light commercials we are going into two directions, one we are increasing the number of professional dealers and we are reducing heavily the number of generic dealers. Other activities, cooperated entity if you see the appearance of Fiat dealers at the moment, they are not really highly attractive. So we have started a program and by 2007 we will have covered more or less 90% of all the Fiat Lancia here and Alfa dealers with a common identity and with an attractive appearance. We have initiated already last year a so called Retail Performance Initiative where more than 40 people of us with some consultants are going dealer by dealer and we took the selection of the weakest one, analyzing them making action plans with them and controlling them. Most of them are reacting highly positively and also successfully and some of them will not be recoverable but also this is an important piece of information. We are introducing electronic web-based links to our dealers, e-link is divided into service link and into sales link. One is to improve services and to also improve the profitability of the service stations of our dealers, the other one to allocate for that to be inline with the customers to tell them when they can get their cars. So more or less a facilitator of services between the dealers, between the dealers and us and between the service stations and us. We have rolled out a program and we expect that all dealers will be linked by 2006.

Then after the dealer portion we are going into the more technical portion. We have still 13 platforms at the moment, which is considerably more than our competition is. So we have a high technical complexity, which also leads to by tendency not low costs. You see and Sergio Machionne has told that already that the cycles of the vehicle industry do no allow a fast adjustment. The Punto is the first big step which will be done together with GM in the Corsa platform and then we are step wise converging our platforms but there is a faster way and may be not a so effective way that can be done in parallel. We are also lacking a lot in component standardization. So if you see our seat structures, we have 14 seat structures, Toyota has 4. If you see our horns, we have 44 horns and others live with 5. So we launched a lot of troops that are consistently working in component standardization in order to get earlier benefits out on the side.

We are doing the same together with GM on the power train side. Your are seeing that we are reducing that we are reducing gasoline families from 8 to 6 and we expect a 100% increase in volumes per family in 2012. We increased slightly the number of diesel engines because we expect that Diesel attractiveness will still grow with a 50% increase in volume in the timeframe from 2004 to 2012 and we are still keeping the families of transmissions constant. What you are seeing here in relative numbers is not representing our volumes because we are purchasing some transmissions and we are also selling engines and transmissions to third parties. This is the cost portion as far as technical complexity is concerned. Going to the manufacturing footprint and Sergio Marchionne already told you, our problem is not capacity use of the footprint. Our problem is the technical diversity on the cost and is partially plant allocation of products. You may have heard or you may know that, we have produced the Punto actually in Mirafiori, Melfi and Termini Imerese and you may have heard that we decided that we produce the future Punto in one plant only. And by allocating platform-wise and product-wise, better to the plants, we will for sure have a quite reasonable cost benefit in future.

Coming to organization, if we lack something in Fiat auto then this is velocity; velocity in decision and also velocity in execution and consistency in execution. And we, therefore decided to have three clear differentiated organizational parts, it is three-dimensional matrix. First, the brands and there commercials, they are responsible for brand positioning, brand development, marketing and sales and have to have a customer focus, a market focus and a competition focus. Then in the upper parts, you see, the vehicle segments, so Mr or Mrs. PL Siro (ph) is responsible for all the products from whatever brands they are from in these segments. While the brands are responsible for profit and loss of the brands, the product lines are responsible for profit and loss of all the products, there are heading in their line.

If you go through the key cross functions on the right, they are more or less traditional functions that you find at the other vehicle manufacturers as well and then in the lower horizontal line you see stuff of Fiat auto. Everything is done in order to increase technical synergies, to increase component standardization, to make execution faster and to go where we intend to go, which I will show you in the next slide.

This is what we are planning to do until 2007. We are planning an improvement of operating results by 1.6 billions, and if we take the major columns, volume growth is, has a relatively low contribution to that, a 3% to 4% volume growth year-by-year, but not consistently over the years. There may be some flats (ph) and some ups. Mix considers much more, but we are going into a D-class Fiat, we are renewing the D-class of Alpha Romeo. There are some additional SUV's coming in. So we are quite confident that this mix assumption is more on the conservative, than on the aggressive side. Price and discounts, may be discussed much more, because we are parting from a blend, where we assumed that there is no price increase in the market, and where we assume that the incentives for the cars year-by-year are growing consistently and where we assume that we are positioning the cars relatively low. So this is more or less a sort of risk provision, if competition would be stronger than we have assumed then this light blue bar would be necessary. Then there is direct materials; direct materials, which responds more or less for half the block. There is a lot of technical activity that I told you, technical cost reduction. There are many design-to-cost activities on their way, for example, analyzed all our excels, and found a potential of roughly 10%. We went into breaks recently, into electrical and electronical, so there is a lot of technical cost reduction in there and for sure there is also commercial cost reduction in there but to a lower portion of what you see here. What also is important, that we have to change our supplier footprints step by step, we are at the moment purchasing 12% out of emerging countries and we should double that within the next three years. Then we have manufacturing and logistics partially done by volume, partially by productivity. Advertisement and network investments are growing; one to restructure the network and the other one to increase our brand presence in the market. Used cars, there is for sure a potential to improve our used cars performance and finally G&A portion of structural reductions. Doing all that, I can summarize and say, although on an unsatisfactory level there is a consistent improvement since 2002 in a tough competitive environment. We are continuing to renew our product and these will boost momentum, also the brand values are growing, so today Fiat brand perception is already considerably better than it was one year ago and two years ago. Dealer satisfaction has improved, customer satisfaction has improved and we have to keep that on to increase our brand positioning.

Product mix is increasingly focused on higher margin and cash generation. I told you mix, I told you new products, I told you niches and we are some months behind our initial plan to go to an operative zero but there will be still a small operative loss in 2005 and finally we will have a positive operative result in 2006 and a positive operative cash flow in 2006. Thank you very much.

Since we keep doing good, so we will let you have coffee break. We will resume at 4, on time. We will see you later

(BREAK IN SESSION)

OK, can we start again? You don't seem to be very interested in CNH, you are trying to shorten my time. I have a deadline at 4:30, so if don't start - good afternoon. My presentation is of course subject to the usual Safe Harbor Provisions and the numbers you will see today have been prepared using the peer accounting principle and not in - they are not in US GAAP as usual CNH is presenting, because today we are presenting as part of the Fiat Group.

OK, CNH as you know, I hope, is a world market leader in the agriculture tractor business, in the combined business, in the aid tools and we are one of the leader in the construction equipment business and specifically in the light equipment, we are again leader in the world. We have also a third business that is our CNH capital business, it is one of the largest capital equipment finance company managing over $12 billion in assets, and you can see on this chart some of our flag ship products. CNH in 2003, totaled $10.7 billion sales, we earned $259 million operating income, and looking forward we have significant opportunities for margin improvements generating increased cash flow. We will talk about that in a minute in the second part of this presentation. We have an empire (ph) at presence, global presence with North America representing 40% of our sales, Western Europe a little less, a little more than a third and we have a significant presence also in Latin America and the rest of the world. The rest of the world for us is mainly China and India.

I like this chart a lot, because this chart is showing the competitive position of this company, as you can see in all the major regions in the world and for all the product lines that we are producing and selling, we are holding the number one or number two position. North America we are number two, in fact has combines in Western Europe number one in tractors, number two in combines and if you add up all these numbers at worldwide level CNH has a number one position in tractors, combines, Bacall (ph) order, number two in skid and number three in heavy construction equipment.

But more important behind this position this number is the market share that we have. When we talk about tractors we have more than 25% market share worldwide market share. When we talk about combines 36% is our market share, this means that one out of every four tractors sold in this world is carrying either this Case IH or The New Holland Brand and one out of three combines in the world is coming out of the CNH factory, its quite a strong competitive position rate.

Here is a quick look at where we have been during the last four years, since the merger. In 1998, two years before the merger because the merger took place at the end of 1999. We were or the two companies let say Case Corporation and New Holland on a pro forma basis were close to $12 billion sales, at the beginning of the merger the first year of the life of this company 2000, we went down to 10 billion. Three major reasons for that, first one, 1998, was the last peak of the agriculture and construction equipment business, so the peak of the cycle. So, as you can see in the shaded area behind the bars that is showing the industry of the agriculture North American tractors and combines together just to get you an idea of the cyclicality of this business. We have lost a significant volume of sales due to the industry trend and we have the bottom of this cycle in North America in 2000.

The second reason probably you recall that we put together the two companies we have been obliged to divest a lot products because we were consider by the anti-trust authorities to have dominant positions in those segments and that's the second reason. There is a third reason that you can easily imagine, that is the disruption that usually we may have when you are driving a merger of this magnitude as we had to manage at the time. So, we have quickly recovered this level of sales, we closed 2003 at the level of 10.7 billion and if you look at the right side of this chart we have been able to go from the 265 million that was the pro forma 1999, so the date of the merger to the current $419-$420 million operating income level.

Lets look at this $150 million improvement that from 2065 to 419. It seems it may look like its more accomplishment, but behind there lies many contributing factors. Due to the industry volumes loss for the divestitures and so on, we have lost roughly $400 million in margins. We had some problems with the pension and medical costs in the US, you know very well the problem that happened, roughly 230 million the negative impact at our operating income level, some losses in our CNH capital business in the financial services, The good news is represented by the synergies that we have been able to achieve merging the two companies, so roughly $700 million and another contribution, important contribution the new products that we started to build as soon as the merger took place based on the common product platform strategy that you may recall. So we have seen a bit of history so far, let us look at 2004, and the current performances of this company. You can see here the first half results, we have been able to increase significantly our sales in the first part of 2004. We are at 6.2 billion compared to a range of level of 5.3 of 2003. It is close to $1 billion increase in sales. It is roughly 17%. 10% if you exclude the currency effect, because moving European sales into dollars you have this effect of costs.

And if you go to the right side of this chart, you can see the improvement in the operating income from the $195 million operating income level of 2003, to the 361 that we achieved in the first half of 2004. All these numbers are operating income in Fiat account principal before goodwill amortization and you know that our goodwill amortization is roughly $160 million. More import effect that we have been able, our equipment operation's net debt has declined by roughly 90 million, due to $180 million cash generated by the business and roughly $90 million of investing activities in the period. If we try to understand where we have made this improvement, this chart is explaining the key driver of this improvement. We had of course a significant benefit from volumes, roughly $60 million, a huge benefit from pricing 95 million mainly driven by the new products that we have launched since the day of the merger. The cost reduction initiatives played another significant role, another 65 million, and also our financial services activities improved, roughly 24 million compared to last year. So this is mainly the picture that we have in looking at the improvement. More important all our businesses, the Ag business you can see that on the right side of this of this chart, construction equipment and capital, all of them contributed to the improvement and I am pleased to say that for the first time again, we have our have our construction equipment business profitable. So the turn around that we started two years ago, the big headache we had with the construction equipment seems to be starting to close the gap.

OK, so what that does mean as we look forward into the CNH future. I am pleased to report that our merger integration plan is essentially complete, this year it will be completed. I am sure you recall the key point of this integration plan. Our dual brand strategy, Case and New Holland are two key brands. The common product platforms based on which we have basically renewed most of the product range of this company. The manufacturing footprint rationalization that has been almost completed. You remember we started with 60 plants and we are now - will be at 37 with the closure of the remaining plants this year. Also we have closed most of our parts depot around the world. We have almost completed the systems and the process integration, and we have completely tolerated focus (ph) the activity of our credit company CNH Capital on our captive business. So what that means? The dual branch strategy has been established in the market. Our dealers have accepted finally this strategy, you know that the beginning it was a little bit of a problem, concern about the inline competition, these kind of things, it is over. Now these two brands have clearly typically are serving two different customers so is established. Common product platform worked very well. We have basically renewed 80% of our product offering and will be completing that this year and the first six months of next year. We have now a lean light industrial system, and you know that is important in a cyclical business like the one in which we are in.

We have also a lean structure because our SG&A ladder is running at the level of 8% of sales. 8% is really probably one of the best in the industry, and our CNH Capital is now back on a significant level of profitability. So if we have to assess the business as it is right now, we can say that we can build up on many strengths and these are the major strength that we can clearly realize we have. Our global presence, we have a very well balanced market share, you have seen the chart before. We have basically renewed almost completely the product range, and we have the freshest, newest, product range in the industry today. We have a very light industrial system and a lean corporate structure. The financial service business is growing and is growing also in profitability. We have a fantastic new engine family, we call it NEF, with very original name, new engine family that was developed with Iveco and Cummins and is today one of the few engines able to match and meet the requirements of tier-3 and tier-4, you know that tier-4 is going to be a very difficult target for everybody. This means there will be very few engines in the - who are able to do that. And we have arranged really a wonderful alliance with Cobelco and Sumitomo in the construction equipment business to support our brands with those hydraulic excavator technology.

So we think we have in front of us a lot of opportunities to improve continuously improve our bottom line. And we have listed here the most important one, and I am going to talk about that in a minute, basically strengthening our customer and dealer support, achieve the best in class product reliability, reduced the cost of our product, we still have some opportunities. We have a lot of opportunities in what we call global sourcing, I am going to tell something about that. We have to reduce, that is an objective we have the capital employing in our business, and we can continue to develop and grow the business of our CNH Capital. All these objectives because we want to be at the end of this plan the best in class company in the industry and there is no reason why we should not be able to do that. We already did that once, with New Holland many years ago, we should be there also with CNH very soon.

Let us look at this major objective. All the objectives that we have listed have two major if you want sub objective, one is growing our margins through revenue enhancement and cost reduction, and the other one is to reduce the capital employed in the business. Reducing the capital means for us having a return on assets much better than the one we have today. First of all customer and dealer support, the plans we have for the next three years is

Two questions please. Firstly, you mentioned in the slides about 800 million or so of Fiat Auto improvement is to come from the supply chain of 2007. There is only 100 million that shows up in the platform conversation, there is not a lot of change in the numbers of (inaudible) family. Can you give us the better sense as to where that supply change cause reduction is going to come from to a degree it is in house and how you have to keep that? The second question is that you mentioned earlier that you spread capital to thinly, can you describe if there is a scale and where you see capped allocation changes whether you are committed to sub brands like Lancia and so on. Thank you.

Let me deal with the second question and I will pass it back to. I think the common is by the fact I think while the worse thing is that you can do when you allocate capital is not finished what you started and so to the extent that you got the priority list of things every ay, every year that you need to get done, every time you get them started, yo don't finish them. And so while the issues that we have brought for example in capital on the loose sense, but if you look at the network development of Fiat Auto, you know brilliant ideas ask me how much money has been seriously committed to this process and the answer is very little. Because that amount, those funds have had to compete with a variety of other needs of the house arguably had. Whether those are real needs or perceived needs is another issue, but I think to the extent that you commit to a process you need to finish it and you need to be as (inaudible) by getting it done and so this question of commitment and the level of commitment that has been made by the house is crucial, I will pass it back to.

Sir before you pass it back, can you give some idea please from where the capital is going, where its going to and what set of scale of reallocation would be?

In general or in terms of Auto?.

In Auto.

That last thing I want to do is start opening up old wounds here. I think that when you look at the size of the investments that have been made probably in the last four or five years in this house in expectations or particular volume growth that is not materialized. It is probably had been one of the biggest sources of value destruction inside Fiat Auto and we are still paying as far as referred to as being negotiations (ph) that have never cleared and so, we need to clean those up and we need to approach capital on a more realistic way to seize particular volume expectations as being realistic in the market that we find. I think that everybody should recognize that there is a brand issue in connection with the Fiat Cars. There really is, as much as I think that we are doing a great product. For whatever reason, the market is not associated itself with the brand in the way which we like and I think as a result all of this, I think we need to be incredibly cautious going forward about how much capital gets banked and it needs to be targeted successfully for the duration for those things are important and I am not trying to avoid your question, but you are asking me for specific issues and this is a day-to-day ranked issue. The first capital allocation that I saw for 2005 was 25 a third higher than it is now and Herbert cut it back by a third without a lot of effort. I think the house is just a capital happy. It has got a big trigger on capital without accountability and I think we need to change this on the 800 million.

May be I can answer the 800 million. The 800 we are purchasing volume of roughly 12 billions a year, so 800 million would be slightly be low 7% in a timeframe of three years, which in the first instant is not extremely higher. Then, I said we are running platform convergence in the (inaudible) in the time range, which is a big project. Then, we are going components standardization and then I said from roughly 12% purchased material out of emerging countries to roughly double so late say 25%. If you take the three together, the portion of commercial saving would be low, so you can be sure that we shoot internally for higher material savings in order to show you 800 million.

What you expect a substantial reorganization of your supply chain, which has a heavier domestic component for example to try to get them more focused in client performance there?

The answer to your question is yes.

OK. Thank you.

We have no further questions at queue at this time, if you would like to ask a question from the telephone audience, please star one now, thank you. We will pause for a moment to give everybody an opportunity to queue for a question.

Good afternoon. Michael Carter from ING. I think you have set yourself some very challenging targets in all the divisions, but perhaps the biggest challenge of all is the network development, which has been I think a theme of Fiat you are saying without any investment, but for the last 13 years or so, I have heard the arguments of boosting volumes, getting into better locations etc, etc at this stage after 14 years, what is the value proposition that Fiat offers in entrepreneur to open up a dealership with you when perhaps his choices are to open up with Japanese or Korean house or some of the other, another European house. Why should he open a dealership for you and at the end of the day, your success in terms of volumes is going to come from having good quality dealers?

Maybe shortly. If you see the first six months of this year, then you see a first growth in the range of 5% and I said in the beginning of my presentation, we are undoubtedly having an impact of many years of decline also on the dealer level. If you see dealer satisfaction in the (inaudible), if you see independent surveys and if you talk to dealers. Their preparedness to go with the Fiat Auto brands is growing considerably. First, because of what we are doing and what we are tending to do seems to convince them and secondly because some of our competitors are doing much worse in the last years and months. So, we have no problem to get entrepreneurs or to let dealers change to our brands of course they are local ones, but there is not the general one.

I think we recognized from our dealer profitability and I think the one of the issues that this group faces is that we can't keep on pushing the same broom until, I think there is a question about what the dealer proposition looks like and needs to be rethought and rethought quickly. Because we are competing for space with other auto manufacturers, we will need to be able top convince them that investing in our brands and our products is going to deliver an appropriate level of returns. I am not sure we have done with a concept. I know there was some work that was done at least a paper level .Then, I said we are running platform convergence in the (inaudible) in the time range, which is a big project. Then, we are going components standardization and then I said from roughly 12% purchased material out of emerging countries to roughly double so late say 25%. If you take the three together, the portion of commercial saving would be low, so you can be sure that we shoot internally for higher material savings in order to show you 800 million.

What you expect a substantial reorganization of your supply chain, which has a heavier domestic component for example to try to get them more focused in client performance there?

The answer to your question is yes.

OK. Thank you.

We have no further questions at queue at this time, if you would like to ask a question from the telephone audience, please star one now, thank you. We will pause for a moment to give everybody an opportunity to queue for a question.

Good afternoon. Michael Carter from ING. I think you have set yourself some very challenging targets in all the divisions, but perhaps the biggest challenge of all is the network development, which has been I think a theme of Fiat you are saying without any investment, but for the last 13 years or so, I have heard the arguments of boosting volumes, getting into better locations etc, etc at this stage after 14 years, what is the value proposition that Fiat offers in entrepreneur to open up a dealership with you when perhaps his choices are to open up with Japanese or Korean house or some of the other, another European house. Why should he open a dealership for you and at the end of the day, your success in terms of volumes is going to come from having good quality dealers?

Maybe shortly. If you see the first six months of this year, then you see a first growth in the range of 5% and I said in the beginning of my presentation, we are undoubtedly having an impact of many years of decline also on the dealer level. If you see dealer satisfaction in the (inaudible), if you see independent surveys and if you talk to dealers. Their preparedness to go with the Fiat Auto brands is growing considerably. First, because of what we are doing and what we are tending to do seems to convince them and secondly because some of our competitors are doing much worse in the last years and months. So, we have no problem to get entrepreneurs or to let dealers change to our brands of course they are local ones, but there is not the general one.

I think we recognized from our dealer profitability and I think the one of the issues that this group faces is that we can't keep on pushing the same broom until, I think there is a question about what the dealer proposition looks like and needs to be rethought and rethought quickly. Because we are competing for space with other auto manufacturers, we will need to be able top convince them that investing in our brands and our products is going to deliver an appropriate level of returns. I am not sure we have done with a concept. I know there was some work that was done at least a paper level and in our products is going to deliver an appropriate level of return. I am not sure we are done with that concept I know there was some work that was done at least the paper level of what they should look like, but were not to the position today to give you a slam dunk proposal that says from now on, you know, one out of two pictures which is be one by a Fiat brand, I agree with you this is a big issue and I can't comment for the last fourteen years. I can comment on the last two months. We have talked about it, but I have not seen, you know, we need to get into this really heavy now. Because I agree with you it does depend it is not just the quality of the product it does depend on trajectory to distribute and right now we are weak and so we need to be aggressive and address it and by the way I am not sure that all the resources intellectual resources to get it done inside the house. We have already brought a guy in from the outside to help us with this I think we need to bring in more.

Jerry (Inaudible) I have got a question on position, you said earlier that as for you there is a valid and valued labor, I can see all your works and on the other hand GM seems to have a different view on this point. So, could you on the one hand manage to negotiate about the goods and on the other hand continue to have neutral preparation and to buy the printer development from the chain platform if at the end of the day you really have to fight with GM about the goods?

Well, if at the end of the day, the point of issue is on the table today. So, we are working on the industrial alliances and we continue to make progress in terms of moving both organizations forward. The comments I am not sure that I used the language that you said valid and valuable. Is that true I mean that is my understanding that they may have a different view. The only way this issue is ever going to get resolved ultimately is I mean in January 2005 when you look at this thing in its purest form both houses will be sitting there in a position to action. As I know from at least not directly to me but GM has hinted in the past that they might want to litigate some of the actions that we have taken in connection with the goods I think its part of the SEC disclosure that they made in connection with the instrument and as of January 05, Fiat SPA will be up in a position to exercise its legal rights. All these things when you look at them I mean both of them you look at the structures and not nice propositions. I mean for other company and so you have to wait until these issues progressed and I think until there is a common understanding of what the potential desires of both parties are and to be honest to this day other than threatening to ring fence and deliver ideal low things in SEC documents. I have not seen any constructive proposals to move the thing on, so, until that happens we continue to work on the industrial alliances I think we are committed to making them work, we like them. But you know, the port (ph) and Fiat SPA has a right to protect itself at all times and to ensure that it extracts the maximum possible value of all the things that it owns including the port (ph). The port (ph) was negotiated in good pace. You knows it is unfortunate the markets have changed since 2000. So it happens open into the books they are long, markets change so life goes on. Does that answer your question.

Thank you.

It is Adam Johns from Morgan Stanley just another question on the foot option from a slightly different angle looking internally within the Auto division itself, and it is a question for Mr. Demel as well. How much of this has this been a distraction, I mean you mentioned legacy issues and your desire to bring younger more vigorous leadership into the division of about a little bit above $200 million versus '03 and operating cash flow?

We consider the operating cash flow operating income plus depreciation amortization less Capex should be above exceeding $600 million. Expectation for the plan, 2005-2007, we will be at the end of this plan at consolidated revenues above $13 billion and we will be have operating income level excluding good will amortization of 10% of sales. This is a number that we consider the right number for a good industry level, you want to say a peak, we can consider that a peak may be not the peak but for sure at a good market level and if we do that we should be able to be with a company able to do at least 6% at the trough at the bottom of the cycle, so to be in a very good competitive position and I think with this number we could be really the best in class company in the industry. If we would be able to of course to realize this 10% of operating income our cash flow also will be in the range of 10% of our sales.

OK, this is CNH, what CNH did in the last 4 years, what we will do in 2004 and what for sure we will be able to do in the three years of the plan in front of us. Thank you.

... special vehicles, you have fighting (ph) you have off-roads and defense and then very strong powerful engine product ranges and power trains. Being global we have strong international operations and we have separated the customer service and the financial services. Just to get an idea on who we are in terms of numbers and we will take 2003, our revenue was 8.4 billion, 1.6 billion were light commercial 2.9 medium and heavy, 1.2 buses, we did about 700 on our special vehicles that is on niche area that we have. More than 2 billion in engines and power trains and then 1 billion for the financial services and 1 billion for the customer services. In terms of regions as you know we are strong player in Europe, 5 main countries Italy represents for us like 30% of our revenue but then very important France, Germany, Spain and UK and the rest of Europe is counting for around 20%. We have the 4% for...

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... with around 100 countries around the world and we have like 600 either dealers or importers. What is our strategy for a profitable growth? First of all this is a major change that we have done with new management to focalize on the market and the customer and to do it by having the strength in product technology, safety environment for us is more for more than words means bringing safety for the vehicle and for the people and environment because for our fleets that is fundamental, but as well quality excellence, you have limited price and to be global in the market with driving force, if we do all that and we supported with customers services and financing services that again is fundamental for us, we are very convinced we can generate profitable growth and of course satisfy our shareholder.

The so with numbers, we come from a very tough three years where the industry had a hard time but especially vehicle we had a real hard time and we had turnaround the situation the second quarter but as well the first quarter of 2004 has been important for us and you see a continuous progress. First quarter we did 6.1% -- 6.2% of increase in revenue and then the second quarter we had 11, that would give you a 8.7 on the half year, what also is very important if out look in fact on the operating income we did 45 in the first quarter and 101 on second quarter, which means more than 2 percentage points in the first quarter and 3.3 in the second quarter and cash for the quarter we did 98 and 124, give you 222, which is 44 million more than the previous half year of 2003. you will see that our provision for the rest of the year were we are quite combined that with the orders that you have seen and the backlog that we have we will end between 8 and 10% increase for the revenue and we will keep progressing in an important way both in operating income and in cash.

Here you see the half year, of course in this case 2004 represent our real best selling year when you compare the (inaudible), which is in the case of 2003 but not 2002 because still (inaudible) was in the group was sold at the end of 2002 and represented about 600 million by unit to deduct for from the 2002 numbers. The profits that we did both on operating income and cash flow is something that we will like to consolidate and to do it fractions, as you see here we are analyzing the quarter and the half year and you will notice - you have to notice that not only we had a growth of 8.7 but you will seed two greens that normally in a market is a choice whether you go for (inaudible) or you go for pricing and we want for both, we grow but then we have increased prices by 37 million in the first half and as you could see it was in both quarters which would give you a clear idea that we are doing it in consistent basis and of course we contributed to the profit with 51 million on cost reductions.

What are our strength? We have a global product range both for vehicles and for engines, that is the strength and also we have renewed practically the range in vehicle financings and we are well positioned now in the market. We have a very fast growing power train and as you know the new ignition regulation in Europe, in North America, in Asia Pacific where ever you look are very important and our engines are ready and later on I will be more specific on that already for the year '04 and even for the year '05.

We have developed a lean enterprise and lean management and we are developing now a more global company in terms of sales and manufacturing footprint. But we have very important opportunities in front of us. We need to re-in-force our global presence, why because still our sales are in a large way focalizing Europe and we wanted to redevelop in Asia Pacific and South America and for some products like the engines we are start selling now in the States.

Especially I would like to strength our heavy duty. You will see later on that light and medium are areas where we are selling well in fact in some of tem we are leading but heavy duty we need to develop the market and we need to make sure that our strategies have got track of the year really much with the volume with the sales, the technology that (inaudible). Then we need to improve the quality, everybody needs to improve their quality but we need to improve the perceived quality because our products today are very performing when they - when the customer test it they like it but still we need to make sure that we turnaround any miss that we have from the from the past. We need to keep in enhancing our distribution network and also very important we need to make sure that our profitability that is growing as you saw 3% volumes in the last quarter keeps going that well to match our peers and our best in class competitors and we are confident that we can close the gap.

Where we in terms of the global market? Our product range is located between 2.8 and 40 tons, in reality our strength is between 3.5 tons and 40 tons, but it doesn't matter where you do the cut you will see that we are always on top 10, we are about 7 in the world on light, we are a little better, on the medium we are 8-9 and similar position on the heavy.

Let's look now on the other areas and then I will come back to Europe, which is our main market. In terms of buses we are number 2, on 5 (inaudible) we are number 2 in Europe, and I have give an idea of North America but we do not sell in North America in defense again is mainly Europe and we are in the top 5 and then diesel engines we are in the top 5 of the world and that means that we will be selling this year more than 425,000 engine out of which we assemble in our vehicles around 40% and we sell to others 60%, and that will be very important for the future because the new regulations will make it necessary. In Europe we will start with the light, it depends where you do the cut, as I told you our main product range is above 3.5 tons, if you do it between 3.5 and 6 tons we have 16.7% of the market, we are second and even if you do it at 2.8 tons we are in the position number 7-8. In medium we have been for three consecutive years the best selling truck manufacturer in Europe and this year still we are going ahead with a couple of points on Mercedes. This - in heavy where as you can see we are around the 11% and we are the smallest but in reality there is like a couple of percentage points to catch with the others except Peugeot (ph), Renault and Mercedes and we think that with the new Stralis and with the all the product range that we will conclude to do this year we can do so and we can close really the gap. In terms of buses we have a similar position in Europe that we have worldwide we are second but as you could see second with the large difference and we are planning to maintain that.

Why we are confident that our growth will keep going? Just show you Western Europe commercial vehicles but a you know in our business we take the orders and then we deliver the products between around 6-8 weeks later ands as could see our other portfolio and our backlog is very important. We have been running practically about 20%, that means that we are pretty confident with the forecast of having a growth between 8-10% through the year.

Now, how we see the market? I tod you about 2004, if you look 2004 and 2007 we are forecasting a growth about 6%, which locate us in a very good position on the world wide overall growth for this period of time and how we are planning to doing, again, reinforcing our global presence in Asia Pacific and South America and also concluding the restructuring that we are doing with this (inaudible) both for product and for manufacturing locations. Then we also are pushing very strong our fire fighting, we are exporting all over the world except North America because federal regulations are different and also we keep a very solid defense activity. Regarding the Iveco motors we are already well placed but we think that with the new regulations we will be even stronger and we are going to keep growing to be in this top (inaudible) age.

Very important for us will be to keep enhancing our dealership and our market image and the challenge that we could have in terms of the products that we sell through a government or through municipal administration is that we see a little bit of challenge on the battle but that good be changing from to year.

Lets talk now of our technology. For us technology is very often is related with regulations and as well you need to see that our customers are running business, they are not individual, always citizens who buy a vehicle, that is a percentage normally on this small percentage but more and more is with owners or even if they are no fleet owners they are organized in groups of transportation. Therefore its very important that we do strategically the changes of our products inline with those change of requirements, and the next one come '04 which is for 2006 and we will have the restyling of the daily and new range will be in 2009-10 which is where Euro-5 will be coming on regulation. Europe cargo we have finished the launch 2003 and 4, you will see very well in timing for the Euro4 and the new range again we are planning it for the same period of 2009-10. Stralis was truck of the year we launched all the different models in the last couple of years, now we are in full ramp up and the marketing reason is very well and we will platform again for the Euro5 that will be ready and you will sit in another for the Euro4.

In the case of the buses, the City Plus will be done and launched in 2005 and the Europlus, which is the coach for tourism it will be one year later. On engines as you could here, we produce engines between 2.3 litres and 40 litres that means between 90hp and 200hp. Most of our engines 76% go to the outer market era for commercial vehicles or light or medium RV culture. But as well we have this 20% of our RV-culture and we are launching now two arius((ph) that is two important niches where we are growing fast on is power generation and the other one is marine. But advanced technology and system integration for us is more just poor pure terminology it's just bringing more efficiency to the fleet owners and more efficiency control and management to the driver of the truck. Euro4 and Euro5 will be important and those of who come to Hanover you will see that the full product range of vehicles of Iveco will have a Euro5 compatible and Euro4 vehicles there that we will be able to start delivering and selling if the customer wanted on first quarter 2005 although officially the recommendation doesn't ask still 2006.

Also Iveco has a very strong leading compressed natural gas and that is a type of energy that we see more and more especially for human transportation. To give you an idea the new transportation for many regions now is the mandatory in gas by the local governments or in China the new Olympic games will be mainly with natural gas, you will see plenty of that as well when if you come to the Olympics here in Torino. We are progressing quite well on hybrid vehicles and in fuel cells ...

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...as system backups where you can monitor in or night vision all these are the technologies that we are putting on the market. Finally the productivity on the road, for us communication on the road is not navigational telematics of course that is included as communication on the road is monitoring and managing the supply chain monitoring and managing the driver having areal time online communication between the vehicle, the driver and the back office, the fleet owner, the customer, planning the service, using the time that stop the truck to bring it to the service and optimizing all the cost of the vehicle.

Global growth, we are operating in China since '93 but we have been present on light commercial vehicles and buses and small diesel engines. Now we are discussing a joint venture for medium-heavy and medium-heavy diesel engines as well. In India, we want to keep spending and growing our relation with Hinduja Ashok Leyland. Eastern Europe we have some position, we have more than 60% market share we are in the top three in most of the countries and the Euro25 will even help us even much more to develop and grow there. In Russia, we have current discussion for potential alliance and commercial agreements and finally in S. America what we have done this year is to localize the medium and heavy in Brazil which for us was a penalty cost on being competitive because we were not sound in Bausubas((ph)). We are now and that means that we are going to see growing our revenue.

This global customer service is a very fundamental area for us because as you will see later service is one of the big assets that the manufacturer has to convince customers and not only we have wireless workshop technology productivity assistance but if you buy any power products any place around the world you can call 24 hours per day, 7 days per weeks, 365 per year and we in your own language we will give assistance we will tell you where go or how to do whether it just the problem that you have with transportation or is he her own pay book and that is the fact of always improving services that we are giving to our customer. The perceived quality was as I told you was one of the challenges, as you could see first of all on the product and this is done by customer satisfaction index that is an independent agency while competition has been rated fairly lower in 2003. We have increased pipelines and we have really have closed the gap that is regarding the product and with all the new products coming into the market we are confident that in 2004 will be even much better.

Regarding services for the first time in our history we are above the average and very close to the best in the market and as I told you in our business is the product it's the vehicle it's the service is all the package together that makes a fleet owner or a customer to make the decision to buy our products. What are our targets for 2004 and 2005 in terms of cost efficiency? Productivity we are targeting between 4.5 and 5%, right now we are around 4.6 we are well in target for 2004 and of course we plan to be for next year's. The productivity needs to be then reflected in the sales per employee and we are planning to grow from 290 to 360,000 that will be plus 25%. SG&A we are timing now from 7% to 5% very important and then will put additional investment in R&D and the global purchasing total cost we are reducing 3% independent of having years like where the steel or the cast iron is affecting us. But we are taking ovens' reactions for composite for that and guarantee this minimum of 3%.

And then we are localizing at least 1 billion double percent- 30% in the in the best low cost countries where we are producing like China and India and South America. In terms of capacity light commercial vehicles at as you know the bowling (ph) is going very well. We are running at 95% two shifts, that means we still have - we will need to run the other shift medium and heavy we have done very good agreements now with the local unions in the two plants that we have and what we have done is to focalize all the capacity in one shift which optimizes the cost that we are running heavy duty and anyhow the labor is above 7% in those plants and now we are running at more than 80% in one shift. we are running to have a deity (ph) and then you have the labor is above 7% in those plants and now we are running at more than 80% in one shift, buses 80%, the engines is 95 and of course from some areas we are working three shifts. We are planning between now and 2007 to restructure four plants.

Regarding Capex as I told you we have renewed a lot of our models but we need to prepare the 2009-10 and of course we need to also make all the vehicles compatible with Euro 4 or 5 and the other requirements, that is why we are maintaining like 2.5% in these three year cycles and what is important that allow us to maintain Capex substantially inline with depreciation and to have the maximum optimization on the cash while we are supporting both the product technology and the manufacturing.

Financial services is becoming more and more key in our business, 80% of everything we sell, we sell it under financing and as you see there is an evolution going from the old type of financing that was pure monthly installments to real service financing where they have using for leasing and even more and more as you see through the years on (inaudible) where we are giving not only the full service but supplying the vehicle at any demand of conditions, and what is important and very interesting is the more you go South, the more you bring South to your accounting, the more you bring to your result and therefore, we are growing in those areas and that means that not only we are making more profitable our products but as well more profitable our total operating. And as you see we are growing, we are growing faster even with our revenue that means that we are doing better and better on the financing services.

What about the next three years? We believe that what you have seen on 2004 first half year, you will keep seeing it for the next coming quarters and for the next coming years that is why we are forecasting a year-over-year growth of 6.6%, which gives us over a 10 billion euros, but if you do the - the numbers you will see that is practically $11 billion. Same thing on the operating income where by 2007 we are planning to reach a 7.5% operating income and in terms of cash, we will like to do four times what we did last year and the first six months with 222 for 2004 is very encouraging.

To summarize the sharp turn around that you have seen on the first half is deficit, but we will carry on with our strategy. 2004 and 2007 numbers that you saw in the previous page show you continuos but progressive and strong improvement both on growth, revenue financial performance and cash generations. I said it before but I would like to leave it like final message, we want and we will strength our global presence, we will do it with all the products, we are going to do leanest of price with best cost competitive products in the market. And very important if you come to Hannover (ph) or if you were today around the track you have seen that Iveco with technology, with quality and if you go to the dealer you will see with the service. All this will enhance our dealership, we will improve the packages that we are proposing, we will satisfy the customer and we will generate profitable growth, thank you.

Thank you Mr. Marea. We have been extremely discipline today, which is quite unusual, so, we will start immediately the Q&A session. Let me just remind you, we will be taking calls from the outside too. So I would suggest to start by I am asking a couple of questions from the room then we will go through the conference call and then we will see how that goes.

(inaudible) of Dexia Securities (ph).

Go ahead, (inaudible).

Two questions. First of all both are related to (inaudible). First of all if you assume that this year's operating loss could be around 800 million euro and if we look at your target for 2007 the implied operating profit would be 800 million out of an estimated lets say revenues of 24 billion at that time, which implies a 3% margin, and I would very much like you to see if this is to be seen as a peak margin, do you see it as a satisfactory margin for it must produce like the Fiat and if we could improve that margin how could you get there? Second question on the joint ventures with GM. You mentioned twice that those two ventures were running well, so I have actually two questions, so could you quantify the savings that you have achieved in first half of this year and what would be their contribution to the estimated turnaround that you expect that Fiat Auto by 2007, and second related question do you GM (inaudible) and the size the fact that they are industrial inefficiencies especially at the Powertrain joint venture and I was wondering whether you intend to restructure or streamline that business and what could be the cost associated with that, thank you.

If I can just deal with your margin question and auto, I am not sure that I agree with all your maths. For you - I am not sure everybody is awake now. The -- on the Fiat auto margins question, I am not sure I would follow all your maths but lets agree for a moment you are probably inline. The target that we showed was between 2 and 4% margins by 07 that is below industry standard by a stretch. For a business like this one and if you know I have -we had some internal discussions about what the target should be and I don't want to start pre-announcing what post also have been targets are, but I would ask you to take a look at the chart that I showed earlier, this show the ten year performance of auto companies, and I mean they were inception only picked because they represent the right comparative box within which we should be matching or competing. And so -- lets wait for then I think its going to be a tough call any way for us to get to the two to four given fact that we are still bleeding, also losing money, so I think those are commitment to turn it around, you saw those spreads of improvement its 1.6 billion over 3.5 years and that's a big number. I know it looks quite nice when you put it on bar charts. So another thing to try and get it done is also. I am trying to find out where this - the number of synergies that we got from a joint venture with GM is I think we are trying to get it back. But I will come back to this question. The - sorry somebody is typing an answer and this is a very fancy system here trying to tell me what- its about 1 billion each by 2007 so its 2 billion and total since inception. So but it goes back to 2000. It's 2 billion combined with both of us a billion on in terms of numbers over the seven year spread. Does that answer all of your questions? Sorry.

No, the second part of the question related to the inefficiencies in the Powertrain joint venture? And whether there's going to be any more restructuring charges?

I think as part of the realignment over the Powertrain business, there will be more. I think some of them are built into our forecast for 04. You can see how quickly we bring about the rationalization on the plans. This is an initial, OK I think the total number, I am going to hazarding a number here, but I think the total number of cash charges over the period of '05-'07, which under will be classified as extraordinary and the returning GAAP is -- yes, that is would be helpful.

There won't be anymore extraordinary charges as from 2005, at the moment I think --.

Under the returning GAAP--?

About 500 million.

How much?

500 million.

These are cash.

Part are cash, part are not, about 300 cash.

OK, does that answer your questions, 300 million worth of cash charges coming through which is a combination of all things including the Powertrain side?

Chauma Miller (ph) from Bank (inaudible), two questions I may ask, first on your balance sheet. Could you tell us what the true underlying gross net, that is for Fiat Group. You know if you were to exclude the Powertrain but include securitization of CNH etc. And my second questions, would you have any targets for Fiat in Musarati (ph) we haven't spoken about, Ferrari and Musarati. Thank you.

Thank you. Mr. Luca will be (inaudible).

OK, we were (inaudible) to the death. I think you may want to discuss that through financial services and I think these are numbers that you seen in the slide. I think those are the numbers then we may want to include, I think he took about securitization, I think we told do that we have sold 6.6 billion of receivables and if you look in our press release, you will find quarter after quarters all securitization activity that occurs.

Does that answer your question or not?

I mean if you want I can do the math for you, but you pick.

Does that answer your question or not?

May be I mean an add-on question, form the investors point of view how would you treat this off balance sheet that are in fact (inaudible). Thank you.

OK. The way all manufacturer treats receivable is basically when you sell the car to a dealer, he will sell it typical to your finance company. We do sell some of those to the bank directly because it is cheaper for us. So probably if he were to put it back worked put it bank that under IAS (ph) is likely to occur at least partially. That would happened instead most likely -- complete in analysis for most likely dealer financing would go

There is an issue about the way in which I think we have been - having we have been to stress standards we are going to be about sort of the component pieces of that. Whether we reflectively complaint with what I call the standard format of our competitors and the way in which they do this is unclear to be honest and I think that's one issue and I think that as Luigi mentioned we will come back to this by the end of year.

The second question, which I think is important is that from the financing standpoint, when you look at the amount of financing that's required across all the business including CNH and Iveco not just being the Fiat side, Fiat also signed. I think it will very helpful if the group had developed a more consistent approach to financing that we have and I think one of our challenge was that we have got going forward as the effect of restructure or something that meets the industrial needs of us and thus provide the cheapest way of financing the process. In terms of the questions about Ferrari Musarati I think the plans are have to continued to develop both France Ferrari is dong very well as you know. Musarati hasn't best of the substantial amounts of money in both - -mainly in terms of our (inaudible) in terms of bring up new models and I think we need work a way for the volume ran about on the Musarati side as far seeing the benefits of all this but certainly there are -- the model line up for Musarati someof which you have seen out there but there is also the new (inaudible) and the new convertible that are coming out I think it's in 2006. I think that is kind of round out the range of products in the market and I think that Musarati as well on his way to coming back. I think they need time, it is volume issue right now.

I have two questions one is for Mr. Marchionne, the other one is for Mr. Dermat. The first one on the group strategy, you said you had some non core business like (inaudible) can you tell us what's the criteria for the Fiat Group to see what the business when whether it's a core 1 and it is not a care 1, and if come out exceed (inaudible) entering this core business description. The question on (inaudible) is on the financial services, coming back to this bench marking that it looks like to be like name of the game, your competitors have a big junk of their profit coming from financial services and actually, it's the highest margin of the divisions. You do just 7% of your sales on financial services. Do you see these as a strategic issue and are you going to address it? Thank you very much.

I am not trying to prevent (inaudible) from answering the questions, but the answer to our last question is yes. We can go out from here but I think it's a big issue. Its unfortunate that our competitors are making money on the financial services, its being the main driver of profit. But to the extend that we are not on the level plain field on this issue, it's a big issue for us, so we need to come back in aggressive. That's way I make reference to the fact I think we do need to find on more complete answer for finance and requirement of our industrial side then the one that we presently have which from time-to-time bilateral and certainly I think complete and so we need to spend more time on this and hopefully we will get an answer by the end of the year. The answer to your first question above whether - how do I determine whether a business is core or not, but what I tell you that these businesses Luanzi (ph) made reference to (inaudible) have been the victim what I call large amount of industrial balance that having to pull up for sale and then picking up for the block and so on. I think that there is a point in which as a leader in organization like this you must stop abusing the house and I think you know investment bankers have had a great day here putting things that for sale and taking them off to market, (inaudible) has being up for sale, (inaudible) has been for sale, Texa has been up for sale, and we did sell parts of Texa that had been (inaudible) and perhaps we would not have sold. So lets just finish with this. They are all intermittently connected to the automotive side. (inaudible) is recognized worldwide as being a large component suppliers in its markets and the same is true (inaudible) providing technology solutions the same is true for Texa in terms of engines. I think we need to help everybody on the table here to try and get the auto business back on track. As long as they keep on performing and is described to be best in class performance I have a much less concerned about strategic purity that you do you know. So think lets just stop whacking the business here. Lets make some money for a change.

Its Xavier Gunner here at UBS. Let me just clarify couple of thing on this receivables, you talk about that of the change of IAS when it comes on balance sheet, is that actually going to change the interest because your interest cost is - its not - we are looking here at about a 100 million a year. Now if you assume an interest rate of 6 - 7% that implies a market value of your debt burden in excess of 10 billion euro. So question number one if this - this kind of receivables were to move. Let just assume that some of that charge associated with that moves above the EBIT line if you are going to work into working capital. That's question number one and I guess the follow on from that is - difficult one for you to answer as suppose but the logic of CNH, you said just now about running round the table to improve Fiat Auto. Actually CNH does not do much to help Fiat Auto what it could do though was to be sold that reduce your debt burden in fact knock it to zero and you have no interest charge and then you go back into cash (inaudible) and cash generation much more quickly.

Do you want to take the first question?

I'll take the first one. The answer is no there is no change in interest cost. If you want to do math, its simple its you take - there is a slide that can help you, we did the last time, I do it again. 12 billion at about 5.5% to 6%, cost of receivables is 4%. Cash yields less then 2%. Then we have the cost of (inaudible) other fees and income for about 100 million and you get today to the number. If you want, we can do later again on the slower phase.

Second with IAS, we will see I think the concept there is that if you keep an interest, which is typically over collateralization, then you might think people are still interpreting it. We are consulting also within the industry to understand because that's a industry wide issue I mean how to interpret that. Again, this gets technical may be we can discuss this separately if you want, but there will be no change in terms of interest cost.

The answer on the CMA side I mean I will give you the short cut answer, the first one is that I think even if you were right on the sale side it's a wrong time - the wrong time to sell CNH. You have heard Palo's presentation about what he wants to do with the business. I think we still a large amount of un-exploited spread between ourselves and certainly be here on the (inaudible) side. The construction equipment side is going to take some work I think in terms of positioning I think Palo's (inaudible), but just purity in terms of value accretion to Fiat it's the wrong time. Having said this, I am not convinced that the CNH does not belong to Fiat. I think when you look at the engine development that has happened between Iveco and CNH, which is really at the heart of the platforms going forward for both of those businesses and they have been done in conjunction with (inaudible). That type of interaction across the industry will is possible. I think the Fiat is a group that has been absolutely horrible in extracting them that everything has been forced at because of the fact that they tried to run stand alone business and they never looked at the credibility across synergy. So until that issue gets put back and until the issue of timing goes off, I am not sure that I really in the game. Palo do you agree, it does not want to be sold. Is somebody turned them off?

We are not talking about synergies that (inaudible).

(inaudible) Pieratto with GM. Price was thin for France especially in North America, it would have been unbearable. This is an estimation one thing Sergio was talking about the engines, we can talk at something about parts. So, really lot of things that opportunity to exploit. Any case I am the manager, so I have my duties to improve and fix the problems.

Can I come back, there is one more issue. If we are successful as I think we will be bout creating the right environment for Fait in terms of (inaudible) issue, I am much less concerned about discretion about the strategic directly. I think that the house will just dry for value and if we get it done, we get the right bunch of leaderships then I think we will just get it done. I do not look for the fit I mean I don't think its in the card unless we were overview that the business that we own are strategically weak and need to be fixed and CNH's is the case especially. There is not one valid argument any body could offer that will suggest to me that I need to spin it off in order to create value. It would be better when somebody else hands, so do not worry about it. Its not a merger of necessity.

[OPERATOR INSTRUCTIONS]

And we will now take a question from Pietro Gasparri from Banc Akros, please go ahead sir.

I have two questions please. Firstly, you mentioned in the slides about 800 million or so of the Fiat auto's improvement to come from the supply chain of 2007. Its about 100 million that shows up in the platform conversation, there is not a lot of changes in the numbers of parenting family. Can you give us the better sense us to where that supply change cause reduction is going to come from, the degree has been how and how you execute it? The second question is that you mentioned earlier that you spread capital to spin thinly, can you describe if there is a scale and where you see capital allocation changes whether you committed to sub brand that (inaudible). Thank you.

Let me deal with the second question and I will pass it back to. I think the common is by the fact I think while the worsening is you can do when all of your capital is enough finish where it just started, and so that you can extent you got the spirality list of things every day, every year you need to get it done, every time you gets started, yo don't finish it up. And so why are the issues that we have got for example in the capital and loosens, but if you look at the network development of Fiat Auto, you know brilliant idea has been how much money has been is used to commit this process and the answer is very little. Because that amount those funds have had to compete with the variety of other needs of the house arguably had. Whether those are real needs or perceive needs is an another issue, but I think that to be extent you commit to a process you need to finish it and you need to be (inaudible) by getting it done and so this question of commitment and the level of commitment that has been made but ours is crucial.

Can you give some idea please from where the capital is going, where its going to and what set of scale of reallocation with these?

In general or in terms of Auto.

In Auto.

Last thing I want to do is start opening up all the rooms here. I think that when you look at the size of the investments that have been made probably in the last four or five years in this house and expectations of particular volume growth that is not materialized. It is probably had been one of the biggest sources of value destruction and (inaudible) and we are still paying as already refer to has being legacy issues that have never cleared and so, we need to clean those up and we need to approach capital on a more realistic way to cease particular volume expectations are being realistic in the market that we fine. I think that everybody should recognize that there is a brand issue in connectin with the Fiat Cars. As much as I think they were doing a great product. For whatever reason, the market is not associated itself with the brand in the way which we like and I think as a result all of this, I need we can to be incredibly cautious going forward about how much capital gets banked and it needs to be targeted successfully for the duration for those things are important and I am not trying to avoid your question, but you are asking me for specific issues and this is a day-to-day issues (inaudible). The first capital allocation that I saw for 2005 was 25 third higher than it is now and Herbert cut it back by a third without a lot of effort. I think the house is just a capital happy. It is going to a big trigger on capital without accountability and I think we need to change this on the 800 million.

May be I can answer the 800 millions. The 800 we are purchasing volume of roughly 12 billions a year, so 800 millions would be slightly be low 7% in a time frame of three years, which in the first instant is not extremely higher. Then, I said Then, I said we are running platform convergence in the (inaudible) in the time range, which is a big project. Then, we are going components standardization and then I said from roughly 12% purchased material out of emerging countries to roughly double so late say 25%. If you take the three together, the portion of commercial saving would be low, so you can be sure that we shoot internally for higher material savings in order to show you 800 million.

What you expect a substantial reorganization of your supply chain, which has a heavier domestic component for example to try to get them more focused in client performance there?

The answer to your question is yes.

OK. Thank you.

We have no further questions at queue at this time, if you would like to ask a question from the telephone audience, please star one now, thank you. We will pause for a moment to give everybody an opportunity to queue for a question.

Good afternoon. Michael Carter from ING. I think you have set yourself some very challenging targets in all the divisions, but perhaps the biggest challenge of all is the network development, which has been I think a theme of Fiat you are saying without any investment, but for the last 13 years or so, I have heard the arguments of boosting volumes, getting into better locations etc, etc at this stage after 14 years, what is the value proposition that Fiat offers in entrepreneur to open up a dealership with you when perhaps his choices are to open up with Japanese or Korean house or some of the other, another European house. Why should he open a dealership for you and at the end of the day, your success in terms of volumes is going to come from having good quality dealers?

Maybe shortly. If you see the first six months of this year, then you see a first growth in the range of 5% and I said in the beginning of my presentation, we are undoubtedly having an impact of many years of decline also on the dealer level. If you see dealer satisfaction in the (inaudible), if you see independent surveys and if you talk to dealers. Their preparedness to go with the Fiat Auto brands is growing considerably. First, because of what we are doing and what we are tending to do seems to convince them and secondly because some of our competitors are doing much worse in the last years and months. So, we have no problem to get entrepreneurs or to let dealers change to our brands of course they are local ones, but there is not the general one.

I think we recognized from our dealer profitability and I think the one of the issues that this group faces is that we can't keep on pushing the same broom until, I think there is a question about what the dealer proposition looks like and needs to be rethought and rethought quickly. Because we are competing for space with other auto manufacturers, we will need to be able top convince them that investing in our brands and our products is going to deliver an appropriate level of returns. I am not sure we have done with a concept. I know there was some work that was done at least a paper level and in our products is going to deliver an appropriate level of return.

I am not sure we are done with that concept I know there was some work that was done at least the paper level of what they should look like, but were not to the position today to give you a slam dunk proposal that says from now on, you know, one out of two pictures which is be one by a Fiat brand, I agree with you this is a big issue and I can't comment for the last fourteen years. I can comment on the last two months. We have talked about it, but I have not seen, you know, we need to get into this really heavy now. Because I agree with you it does depend it is not just the quality of the product it does depend on trajectory to distribute and right now we are weak and so we need to be aggressive and address it and by the way I am not sure that all the resources intellectual resources to get it done inside the house. We have already brought a guy in from the outside to help us with this I think we need to bring in more.

Jerry (Inaudible) I have got a question on position, you said earlier that as for you there is a valid and valued labor, I can see all your works and on the other hand GM seems to have a different view on this point. So, could you on the one hand manage to negotiate about the goods and on the other hand continue to have neutral preparation and to buy the printer development from the chain platform if at the end of the day you really have to fight with GM about the goods?

Well, if at the end of the day, the point of issue is on the table today. So, we are working on the industrial alliances and we continue to make progress in terms of moving both organizations forward. The comments I am not sure that I used the language that you said valid and valuable. Is that true I mean that is my understanding that they may have a different view. The only way this issue is ever going to get resolved ultimately is I mean in January 2005 when you look at this thing in its purest form both houses will be sitting there in a position to action. As I know from at least not directly to me but GM has hinted in the past that they might want to litigate some of the actions that we have taken in connection with the goods I think its part of the SEC disclosure that they made in connection with the instrument and as of January 05, Fiat SPA will be up in a position to exercise its legal rights. All these things when you look at them I mean both of them you look at the structures and not nice propositions. I mean for other company and so you have to wait until these issues progressed and I think until there is a common understanding of what the potential desires of both parties are and to be honest to this day other than threatening to ring fence and deliver ideal low things in SEC documents. I have not seen any constructive proposals to move the thing on, so, until that happens we continue to work on the industrial alliances I think we are committed to making them work, we like them. But you know, the port (ph) and Fiat SPA has a right to protect itself at all times and to ensure that it extracts the maximum possible value of all the things that it owns including the port (ph). The port (ph) was negotiated in good pace. You knows it is unfortunate the markets have changed since 2000. So it happens open into the books they are long, markets change so life goes on. Does that answer your question.

Thank you.

It is Adam Johns from Morgan Stanley just another question on the foot option from a slightly different angle looking internally within the Auto division itself, and it is a question for Mr. Demel as well. How much of this has this been a distraction, I mean you mentioned legacy issues and your desire to bring younger more vigorous leadership into the division, but it is bit awkward position when you are trying to grow business and at the same time have a device whereby could trigger a change of ownership of the division at the same time. Do you see the middle management within the Fiat Auto Division is this is a concern to them going forward and how important is to you from January 2005 to just really move on with this sooner rather than later from an organizational and motivational stamp point?

Let me answer the first question apart of the question and then I give it to Herbert to give you the answer in terms of the impact for the organization. Our first and foremost objective in this exercise is to create an enduring level of change in Fiat Auto. We do want to and are committed it to restoring Fiat Auto to profitability. That is an unwavering commitment, which is totally unconditional on our willingness or ability to exercise the put. We are industrial players of the end of the day and that is what we do for a living. We run businesses and we run them profitability. The put is an instrument that is available to Fiat SPA as a part of large tool of strategic choices, which a candidate who wants to exercise if and when it wants between now and 2010. To try and second guess the strategic postioning of Fiat SPA anywhere between now and the next six years, I think it is foolish. There are ways in which you can prevent the bomb from ticking off and who ever who has the bomb ticking in their pants are to do whatever it is relevant to get it done. I do not have it. The only thing we have is the put in our hands to trying be able to do whatever with we like. Until this issue is resolved in a way which recognizes the impact on both organizations, I mean in no position to answer your question nor to I think that it would ever distract the management structure, the ripe leaders from running a business a hard and bringing this back to what it means to be (inaudible).

I leave it to Herbert to decide whether he wants to say more Herbert agrees.

It is Paul Griffiths from Goldman. Mr. Marchionne you characterized the company in your introduction as a phenomenal web of structures governed in a hierarchical fashion with a high level of management turnover and the company sold a lot of assets as well and

Scary picture like a horror story is it

That is not a comforting characterization from an accounting perspective.

Why?

A phenomenal web of structure is a complicated structure.

No, I was talking about operating structures I mean the way in which the decision-making gets done. I will have a single doubt about the accuracy, the consistency, reliability, or strength of the numbers, do not confuse of those issues.

That was my question.

Oh please, If that what is what you understood, no. I sleep nights.

Good. Second question.

Not much, but I do.

Can use to review the time line by which you are converting fully to IAS.

January 1, 05.

OK and are there any other securitizations aside or the balanced sheet items that might come into play of balanced sheet structures, pension issues that might come as a surprise to the community as your convert to IAS.

Can you hear I think we are completing

Can you hear me

Yes.

We are completing (inaudible) and I think by the end of the next quarter I think we will be able to be more be more and more real in the sense that we are revising pension fund especially but specifically with the pension fund I think every thing we had CNH and is is already disclosed there. I think what we were find to do is to see how worse it its there. I think that there should not be anything anymore surprising. You will find everything will be disclosed in our account and financials you know if you look at our 20For annual reports and so on, its all in there. There are major exclusives in the positions I mean in a group a level. So I do not think that you know we are not going to all o followup a sudden find that we had something that was unbooked somewhere, everything is close enough. Therefore there will be some adjustments. The actual IS shift is going to be earnings positive you know it would not make anymore cash but will be earnings positive.

Sabina Blemel from Banca IMI in London. I would like to ask some more questions on the Fiat Auto restructuring because especially the dealer development of dealership network in Germany, France, it's a key issue but you did not have the proper or the right product yet you still you have to wait for new B segment you have to wait for a new C segment product, do you see any delays for the building up dealership network, well how can you attract entrepreneurs to join your network and on the side of mix, yes, surely you will sell more C and D segment cars, but the question is how do you actually position your brand, particularly Fiat brand to also achieve higher pricing. I mean the Steela was a more than competent but it had the wrong brand for the high level of equipments.

First, I told you before that Germany and France and a nondistended also in this order. The tool markets vary more to do in many other markets. Getting just to Germany we have closed 15 open points in Germany in the first half. So you are getting dealers there. Then we use some months to clean this talks of the dealers and we changed mix. So even be France for example or Germany we are not growing there, yet. The private customers volume only one is growing. The rented car business is by tendency going down while the competitors are doing the inverse at the movement and we are step by step making the dealers healthier, existing ones. On the other hand, we have a broad phenomenon that is also easy to understand. Since we sold may more cars, many years ago, all the dealers, our nation, sales companies as well as ourselves had to adjust our over fixed portion to reality. And this has continuously happened so saying what we said before about dealer restructuring and dealer network development and telling you what I told...

(AUDIO GAP)

...in the top five of the European B segment cars. So, I don't have to wait for a new Punto because there is a Punto that in the last year has had 470,000 orders. The Steelo Forsho (ph) is not the brightest example that we have. On the other had the Steelo is solid, the Steelo as a product is OK, it did not fulfill initial expectations. But the Steelo is positioned quite well and will carry us for the next years. The (inaudible) is a positioning instrument as a car and does not suit for extremely high volumes. That suites for comfort postioning and of course the next Punto also comes. So may be this answers your second question and brand positioning is something that is a bunch of flowers that needs 100 of activities consistently done in rather to enhance the brand positioning. Usually we are working at these at 70 flowers and we will add another 30 in the quarter.

(inaudible) Capital International Research. Could you comments on the relationship between (inaudible) family group, the (inaudible) and then Fiat Group?

(AUDIO GAP)

-- I think not (inaudible) since to my colleagues as such, suppliers are now reporting rather consistently than GM and Fiat are acting separately asking for different quotation for instance. I would refer also that you stress that it is pretty well and that you expect to extract a lot of synergies from that. We have very often noticed actually the reason why you are differently is that you wish to protect some Italian based suppliers whereas GM is more focused on a more aggressive globalization strategy, this is question one. Question two relates to your strategy of one platform, one plant and I wonder how I can reconciliation that with the fact that one of the main problem you are facing today is the very low capacity utilization rate of your Casino plants where you are manufacturing one product, if doesn't work and you will carry this products for at least two to three more years?

(inaudible) able to with the local professional and to the extent that of the impacts of General Motors. There is no doubt that there are local issues, which have got historical basis or relationship between Fiat and the supplier base. I do not think that the situation has been historically getting worse and I think it (inaudible) certainly at the timing was the joint venture was put together on purchasing so I have not seen based on what I know we have increased detachment for the world wide purchasing initiative. Having said this there is no doubt certainly based on what I know the General Motors

Detachment for the world wide purchasing initiatives. Having said this there is no doubt that it is certainly based on what I know the General Motors were trying to externalize their purchasing beyond the Italian borders, which is not something the Fiat is normally used to. It is going to take time before this dealing could between local suppliers and Fiat were happen. It can happen overnight because of the economic dependency that has been created on our (inaudible) as part of this relationships. But they will weigh themselves out, they will come under overcast and on the second issue (inaudible).

(inducible) that this dealer is to be the only one on the platform and if we concentrate the Punto in one plant we do not say at the same time that there will not be any other vehicle in the plants so you can well in source of doing one platform one plant.

That's really interesting somebody just flashed on the screen, during 2007 Casino should be nearly (inaudible) glass of wine and tobacco, it is just to make everybody happy here.

(inaudible), Lehman. Mr. Marchionne, I enjoyed your assessment of the situation DSOs I was wondering about your views on the industry, the automotive industry. Question 1: do you think this is an industry that has does or will its return on capital and second which is related one. Given that several of your competitors in Europe are reporting profitability measures under the pressure. If I go back to your slide of peer group profitability, so your benchmark profitability. Do you think that benchmark will stands deals or would be falling down i.e. was Fiat Auto try to close the gap versus the benchmark which is sliding and therefore have to work twice as hard to get through absolute operating income results.

It is very difficult -- I spend the enough time in capital intensive industries, so that will be pretty negative about so to the rationality of some of the people making capital allocation decisions. You now when I came out of aluminon (ph) business and for anybody who has followed that industry for a while, I mean has not (inaudible) capital for a long period of time.

The chemical industry has done very much the same, so when you around other than banking, which appears to be making money regardless of what the cycle is. Other than banking the most people would invest money I hard assets, I have a hard time certainly over an extended 10, 15 years cycle to justify having earned return. Having said this I have also seen some significant corrections of capabilities coming out of the field, having out of these business were effectively a number of things has happened either aggregations of happened the excess capacity (inaudible) a realignment of manufacturing or production methods to try and to breakdown the cost of production.

So the answer to your question is I do not think the industry is earning its costs to capital now based on what I am seeing. I think it will , but I think that a solution to that earning of an adequate of return is going to be totally different in most of the industries. I do not think that aggregation any way in its purest form here, the combining of AMB and the automotive side really is going to create a huge amount of value. Strict economic consolidation theory does not work, simply because of the fact that the brand issues associated with the consolidation are very difficult strict economic conservation theory does not work, simply because of the fact that the brand issues associated with consolidation are very difficult and it takes a huge amount of discipline to try and keep up channels of distribution and sort of brand distinct from the manufacturing side.

The food companies have done a great job of doing this, if you looked at Nestle and its exquisite growth, it has been able to assimilate brands, bring down the cost of production as a result of sharing of platforms, but has been able to maintain brand that entered in the market place without impacting on the other. I am not sure that this industry is gone for the whole cycle of figuring this out. What I do know is that the profit, well I would like to know, what I do expect is that the profitability of the industry going forward is going to be, is not on the way, the industry will find ways to bring about its cost of reduction and maintain margins. I mean there is no arbitrage available here and when you look at some of the Japanese producers that are going to (inaudible) today, they have done a phenomenal job of producing results. I do not think this is beyond the scope of European producers. So, I think we need to learn, I think we need to be humble about this processing getting at them. Is that answers your questions?

It's Fanton Charles (ph) from (inaudible) Group here. My question is with regard to starting an employment, which kind of linked on from your previous question, is not the big way, is not the what the bit issues or barriers to getting the profitability where you need to and on the more direct topic, how is Fiat getting with these issues and what are major challenges that it sees in try to get with this staffing and employment situation, the labor right, to achieve this objectives in the Auto Division?

I think the labor does play an important role in the cost structure of making cars, I don't think that it is the single largest driver of potential margin improvement. As a matter of fact, I would suggest that isn't. What, I think, we got to be very careful about in terms of making statements going forward as though we are in the midst there in the process of settling down with the labor unions to try and discuss future way forward between Fiat and the labor force. It's all for me to talk about labor in this context, I think is probably not very helpful.

What I, having said this I am relatively comfortable that I think that we can find a solution, it does accommodate the needs of Fiat going forward and it does ultimately allows to be competitive in the market place. I think that this almost on competitiveness is a notion that needs to get a hold of the productive assets of Fiat and I think we need to work in a very constructive way to get us there. I can't tell any more than this and it would be the meeting with the unions on 29th. So, I think that until the discussion is had and you know anything that I say here is going to be counterproductive for both parties, I think.

Hello, this is Derrick Holmes from TIAA-CREF. As I am looking through the financial goals and objectives with the business going forward, one of the things that I noticed is there are no objectives or goals with regard to this structure of the balance sheet or debt-rating, if there are any, could you share this with us?

You know, when we tried to put this presentation together, one of the things that I thought was is to trying to talk to you about some of things we want to do with the better business like, sort of introduced CBA and starting going to talk about Six-Sigma and some of these functions that we have where I think we can apply them by the way, we don't have to, you know. I mean CNH and Iveco ready, all right. So, that we can bear with capital issues on AVSI and then you look at Auto, right? That you say what is the relevance of all this when you can't reach what are all those structures, right? And you say you have the biggest issue for us is Auto we need to address it. The answer is yes we want to go back to what the healthy level of bearing inside the organization. So, we need to find the way to shut that noise because, you know, somebody --. Sorry, I don't have it, its struck, but if it wasn't, that we all have it here. So, it's not just my phone right.

(inaudible).

Right you -- everybody shutting off down the same thing. But, I think, you know, if we are successful and I think we will be, but actually 2007, I don't think the gearing is going to be an issue to be on honest, truly. The machine is structurally cash generative, therefore our eyes is on capital investments and so. Let's not even talk about it and we are a bit far away from that, it means just made to return on sales numbers where we don't have a managed capital, it will be okay.

De Martino, you are next.

Hello, can you hear me? (Inaudible) from Citigroup. We, recent time about these ideas of creating this luxury (ph) report putting together in Massarotti, Ferrari and Fiat Auto, I have actually two questions does it make any sense to you and if it does is it practicable?

The answer to your question is that we will never do anything structurally that would impact on the relationship between ourselves and General Motors and they would in anyway should perform impact on the value of the product and to the extent that (inaudible) part of Fiat Auto, there is no way that we could ever do anything like this.

Martino De Ambroggi, Euromobiliare SIM. Just a sort of additional comment on the mandatory loan, in the previous question you answered that relationship with your nearly family are good, no doubt. But in one of the other slides, you are presenting an EPS fully diluted assuming the conversion of the mandatory loan that means that you feel that presumably at current conditions that would not participate. So, would be diluted, if its possible to have an additional comment on this and the second question for Mr. Damel, your Geneva presentation you gave a target of Fiat Auto volumes up below 10% for 2004, can you give also an indication for 2005? Thank you.

Let me deal with the question - that I only, the fully diluted earnings per share calculation is based as is properly and normally done by taking into account a2ll known possible convertible instruments and what is sitting on the balance sheet of Fiat as S.p.A today is a convertendo, which given its nature is a mandatory covetable in Q3 of 2005.

So, I just read respectable rules and unless there is somebody between now and the time that we are conversive 2007 changes the nature of an instrument, when you do fully diluted EPS calculations you must take in to account. Having said this, the calculation is in no way a reflection of any of this intentions nor is it necessarily a reflection of other banks intense or anything else. It's simply a statement of fact about what happens if the convertendo converts, as is required under its terms, that's it. And the relationship with nearly is good I keep on saying this. On the second issue, I guess on the volumes.

Going to Geneva, in my text I have to say solid growth. In the discussion, I said if we would succeed to sustainable grow 5% average for the next years, this would be OK for me. The first 6 months we grew 5%, so if it sustainable, that's OK for me.

Any more questions? So, this will end our session today, thank you very much for coming down to Bolonco (ph).

Thank you for coming.

Thank you.