Stellantis NV (STLA) 2007 Q2 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to today's Fiat's 2007 Second Quarter Results and 2007 First Half Results Conference Call. For your information today's conference is being recorded. At this time, I would like to turn the call over to your host today, Marco Auriemma of Fiat's Investor Relations team. Mr. Auriemma, please go ahead.

Thank you, operator. Good afternoon to everyone or good morning as the case may be, and welcome to Fiat's second quarter 2007 results conference call. Many apologies for the delay, we've have encountered technical problem in uploading the file on our website and now it is being so good, and it is available on both fiat.com and fiatgroup.com.

As usual today, call would be hosted by Mr. Sergio Marchionne our Chief Executive; and Mr. Maurizio Francescatti our Group Treasurer. After the presentation, we'd be ready to answer all of your questions.

Before I pass the line on to Mr. Marchionne, let me just take care of the usual housekeeping issue and remind you that any forward-looking statement we might make during today's call is subject to the risks and conditions mentioned in the 420[F], which we filed with the SEC on June 29.

And now I will pass on the microphone to Mr. Marchionne.

Good afternoon and apologies for the delay. Marco has [given] you a couple of links to our website, so in case you haven't got the presentation yet, you can try and get to it now. It's available on www.fiatgroup.com, which is now apparently working in and we have it also on www.fiat.com/analyst/. You should be able to download it from either one of those two sites, and again apologies. If you find it necessary, we will try and reconvene the conference call to answer any questions, you may not get through, I feel [seeing] the presentation, but I am going to try and move my way slowly through the presentation and take you through the most important aspects of second quarter of 2007. If you do have access to the presentation I assume you do, I'd like to start with page two.

Second quarter '07 has been a relatively significant quarter for Fiat Group for a couple of reasons. I think that from the title of the presentation, which we've called simply a quarter of records. I think we've accomplished a number of significant things in the year. The first -- the first is that our turnover is up by almost 12% and on the same perimeter basis this is the highest level that Fiat Group has achieved in its 108 years history. And we've had the highest volume of cars since the second quarter or 2001. We had the highest volume of vehicles both heavy vehicle and CNH, and in the case of CNH since the merger in 1999 and since -- and for the vehicle it's an all time record

Regardless of perimeter, this Group has now posted EUR946 million in trading profit, which is the highest level that's ever achieved regardless of perimeter in its 108 years of history. So it's up 44% on the prior year. The automobile section has more than doubled to a EUR193 million; vehicle is up 37%; trading profit for CNH is up almost 37 in US dollar terms.

So from an operating standpoint, it's been a phenomenal quarter, actually it really exceeded even in some ways our own internal expectations. And I think that we've reached some significant benchmark standards in terms of operating margins, which are indicative of the efforts that went on, you know, in the last 18 months especially in the areas of tractors and construction equipment.

Margins now are 6.2 versus 4.8 in Q2 of last year, and the car business is hovering around 3%, up from 1.5% a year ago. The vehicle is close to 8% at 7.8%, a very significant achievement this year in double digit margins of CNH which we have been forecasting for a while. But we've been able to achieve that number in Q2 of '07, we are at 10.6%. And we are beginning to feel comfortable certainly with the target that we set for ourselves going forward 2010.

Group net income is up 90% to EUR627 million. We have been able to produce almost EUR1 billion of cash in the quarter, of which roughly EUR500 million has been used to pay dividends in not only this year to shareholders, but also to CNH minorities and to Ferrari minorities aimed to fund about 230 million share buybacks which were carried out in the quarter.

On the basis of all that we have done in Q2, we are confirming our target for '07. We've confirmed a trading profit number of 2.7 billion as being the upper limit of we had originally indicated is the range. We are confirming and donating some numbers in the range that we previously indicated, and we've brought down the net debt target to about EUR600 million as well at the end of this year.

But if we move onto slide number 3, I think its fair to say that we've been -- all products have performed well in the quarter, from cost of trucks to construction equipment, and we have been able to achieve significant market share gains across all of our main product offerings in most of our geographic areas. And obviously capacity utilization has gone up substantially from a manufacturing foot print. And as you will see we have been able contain, more than contain the escalating cost of raw materials by bringing about material cost efficiencies. And with the exception of CNH we just have a slight negative impact on trading profit as a result of the raw material price increases, and most of the factors have had positive gains year-over-year.

We continue to rollout world class manufacturing [inaudible] now and we have rolled out through of the automobile plants and eight other plants across the Group, and we are on track to achieve full rollout by 2008.

And we've announced during the quarter, three more alliances, the most significant of which [inaudible] to minimize the others, but the most significant which is the engine supply to Daimler, which I think is a significant recognition by a truck manufacturer of the -- and relevance of the engine technology, which fits within Fiat Group, and it certainly reinforces the reasoning and the rationale for having established Fiat Powertain Technologies back in 2005.

We move on to page number 4, and this is purely a volume chart, and I don't want to spend, most of your lot of time on those. But, the volume gains in Q2 are consistent and probably in some cases, where we were able to achieve in the first part of the year, we are up double digits both for the quarter and for the half year. All sectors are up, with the exception of [automobile], which is [removed] from the last conference call, that we think has gone through a period of restructuring. And although the top line has come down year-over-year, we've been able to withstand the losses in the business, ineffectively post of those non-operating profits, which confirms the fact that the restructuring efforts that we carried out in 2006 are beginning to pay out.

It has been a very good quarter from a revenue standpoint. If you go to page -- slide number 5, which deals with the reconciliation of creating profit from 2006 to 2007, obviously the biggest gain has been achieved by the automobile sector, which is up EUR130 million year-over-year. But all the other sectors are garnering significant gains, EUR75 million in CNH, EUR61 million in Iveco, and even Components -- and the Components business were up EUR41 million year-over-year. So we're now close to EUR1 billion in operating profit for second quarter of 2007.

The other significant thing is that, although there was a high degree of skepticism associated with our ability to turn Maserati around. Maserati had a great quarter. It broke a trend that started in 1993, when Fiat bought Maserati. Maserati has been consistently losing money in this Group. It actually made money for the first time in Q2, and it intends to close in a year. On a positive note, we'll say more about this as we talk about volumes going forward in the business.

Slide 6, highest volumes since Q2 2001. Margins are now at 2.8%, certainly within -- probably within the range that we set for ourselves for the year at 2.1% to 2.9% Performance didn't -- went well both in passenger cars and light commercial vehicles. Brazil continues to be strong, market share is up almost a percentage point year-over-year and [Fiaza], the Brazilian operations -- Brazilian operation continues to be the market leader. In Brazil, on a comparable basis, revenues are up 15% and if you move to slide 7, I am going to try and explain some -- of you had some expectations about the car business doing about EUR220 million for the quarter. If you look at the strike in detail, we've mentioned this, I think in other occasions and certainly in connection with comments that I have made publicly about the impact of a strike in one of our suppliers on the Pomigliano plant, which manufacturers [offer amount]. The net impact for the quarter of that strike on production and lost sales is roughly EUR33 million. It used to be in excess of EUR50 million at a time, which had been recovered roughly a third of that loss, we expect to recover most of it by the end of the year, but it did penalize Q2 results, for EUR33 million. If you were to correct for that impact, we would have posted roughly EUR226 million worth of [inaudible] in line, with what the expectations were in the marketplace.

We continue to improve, obviously as a result of volume gains right across the operational leaders, price and mix is up mainly because of the impact of the introduction of the Bravo and the introduction of light commercial vehicles and the Scudo. We have been able to fully contain the impact of increased prices on the supplier side, actually we have met a gain of roughly EUR44 million. For the quarter we continue to over invest in the repositioning of these brands and on products launches. And as you can see the numbers roughly EUR55 million for the quarter compared to last year. This includes the launch cost of the Bravo, and all the efforts that have gone in, continue to go on in terms of the repositioning of the brands. These are not one-off costs, we do expect to continue to over invest going forward, to ensure that we support the government or the product portfolio for the Group, and then we support the achievement of the longing aspirations that we set out in our plan, back in November of last year.

We move on to slide number 8, and one more thing that has been historically -- we consider our Group has been the quality of the network coverage that we have. We brought 160 dealer appointments, mainly in the first half of this year. And this year half of them has come from competitor ranks. We continue to close network gaps where we are replacing underperforming dealers and I think we are fully -- we are expecting the most amount of significant work for this network. Development process is going to be completed by 2008. And 500 new salespeople have been hired by a network in the first half of this year and the most significant thing is that due to it profitability has increased, and it increased initially when we started this turnaround in the Italian market, and it's beginning to work its way through the UK, Belgium, Netherlands, Portugal and Poland.

The Alfa brand, we will talk -- I will talk more about this at the end, but as you know we started a significant repositioning of the brand in UK. We now have the result at the end of H1. That says, all dealers in UK, all Alfa brand dealers in UK are profitable. And I think that we are beginning to change the perception associated with sales and historical mishaps associated with Alfa. We are going to begin this process now in Germany. In H2, we are probably going to roll it out in France and Switzerland really in the next 180 days. And I think, we are expecting significant benefits to be associated with the positioning -- repositioning of the brand, especially in view of the launch of the new B segment in the first half of 2008.

If we move onto slide number 9; I think that some of you or most you have followed the launch of the Cinquecento. It has been an outstanding success in terms of the launch. It has provided. I think the key elements for the reformulation of the DNA of the Fiat brand. I think, it's going to significant support to the development of the product range and distribution policies of the sales, going forward. And we already have just over 57,000 orders, and also as you may know, the production volume slated for this year rose about a 120,000.

We have already executed on de-bottlenecking of some plant capacity in our Polish plant or capable hopefully after the summer break to get to 140,000. I think, we are looking at ways to try and expand capacity of the plant going forward. Although I can tell you, the maintenance of both the Panda and the Cinquecento together with the startup of production of the fourth car in 2008 is going to make any significant increases in production capacity of the Cinquecento Limited.

But I think, we are looking at ways to try and bring more cars out. The press has had incredibly positive response for the car, not just in the Italian market but throughout Europe. And as you all know this is the first car to be launched which is Euro 5 compliant, we are awaiting the assessment from EuroNcap in terms of how many stars the car will get, but our expectations is that we will be able to score 5 which is the maximum amount.

If we move on to slide number 10; a few seconds about Bravo. It's progressing well. 5,000 orders, we sold 42000 cars since the launch. The product mix is -- was experienced with the Punto back -- at the time, which we launched the car in September of '05. The mix is quite better than we originally expected.

Now we are expecting the introduction of the Turbo, the T-jet engines, which were done in June to have a significant impact on volumes going forward. So we are confirming 120,000 volumes that we have for the car. We continue to find ways to get additional market coverage, by making sure comfortably that the investment that we made in this C segment car is going to pay off and is going to reverse a lot of the unpleasant trend that was established last year for the Stilo back in 2001.

Our luxury brands on page 11; Ferrari continues to do well as you all know. It's a business that we manage in terms of volumes, and volumes are up 11% year-over-year. But we have full order books for the full range of the F430 from the hard-top to the Spider, and including the Fiorano, the 599, which is completely sold out in the U.S. probably for the next 24 months. And we continue to see very strong demand for the products.

The picture that you see on the slide is the car that will be unveiled at the Frankfurt Auto Show. It's a new F430 Scuderia which is the fastest version of the 430 that will be available at that time. Maserati has completed its turnaround. We have a significant order book. The new GranTurismo that was launched and presented in Geneva at the beginning of this year.

I think that the indications are that this business has now finally turned the corner. I think we need to find ways in which we can keep on maintaining these volumes, and we are expecting to have about 7,000 cars sold within 2007, and we continue to find ways in which -- to look for ways in which we can expand the product offering by associating at least some of the volumes with the [elements] for the Alfa brand.

And page 12, I mentioned in my opening remarks that this was probably the most significant accomplishment in my view of this Group in the last quarter. I talked at length in the past about the fact that the -- this effort of unbundling the brands, certainly with the CNH. It was expected to give significant results in terms of market share gains and traction for the brands in the market.

We've been able to accomplish this. And you can see a number of product launches on page 12, that we were carried out in Q2. This is a business that keeps on rejuvenating its product portfolio, and pretty consistently some of these volumes will not be -- some of these references may not be important, but we keep on investing in both the engine compliance side of tractors and construction equipment. In terms of ensuring that we modernize these vehicles to comply with current market deployments. Having said all this, it is a business which has now the four brands that are firmly position in the marketplace, were up -- revenues were up 16.3% year-over-year and notwithstanding a very slow market in North America, as it relates to the construction equipment.

And as we move on page 13, you can see the profitable consideration going from '06 to '07, from EUR273 million, most of which is driven by volume and by mix. There is a piece of this chart that deals with the fact that warranty and other costs have been coming down, which is reflective of the commitment that the sales has made in terms of the quality the productions that were coming out of CNH in the past.

The most significant story about CNH is visible on page 14. The thing is broken down into two parts; the left side of the chart deals with the agricultural equipment market. And as you can see it has been up with [exceptionality], less than 40 horsepower, tractors are up consistently across most regions of the world. A lot of this has been driven by the increase in commodity prices, which have a variety of regions, especially in the Latin America -- Latin American and North American markets has been driven by the increased reliance on biofuels. But in those areas, both, tractors were up -- we have been unable to achieve significant market share gains, both in Tractors and Combines. And more specifically in Combines, where I think we actually need a quantum lead in terms of market share retention. We are beginning to see numbers which hopefully, will ensure, while it will establish CNH as the market leader in the Ag equipment and I say this with all modesty, knowing pretty well that the market continues to be highly competitive, but I think we have put enough stakes on the ground to try and push both Case and International Harvester. New Holland and Ford has been the premier suppliers to the ag industry.

Construction equipment is more of a mixed bag, North America has been weak, in the second quarter consistent with first quarter performance. A lot of this is driven by the weakness of housing starts in US. But we have been able to compensate for their weakness by strong markets both from Latin America and Western Europe, where our brands have achieved significant market share and gains. I think the issue that has concerned us, and we will come back to this in a moment, is that we actually have had some supply constraints in Q2. We have not been able to ship out all things that we will require, some of which is dependent on the inability of some of our suppliers to keep pace with our demand. We are dealing with this issue aggressively, I will deal with this in my remarks at the end.

Again, if you move to slide 15, I think visually you can see the significance of the shift that has been achieved, we made more money in Q2 of '07 with CNH, than we made in any one year before 2006 with CNH. And I think it is -- I will tell you, of all the things that we have done, it is probably the most significant shift in performance we have made over a dollar, this is all calculated using US GAAP. But the fact that we have made more money in one quarter, than we made in any one year in our past, with the exceptional last year.

This is significant, and it's something that we need to build on the trend [arising] in the business forward in line with the expectations that we set out to you back in November of last year.

The other business that has performed really well is trucks. On page 16, we've had good volume increases. But on top -- in terms of top line, we have -- the most significant part of the development of this business. The fact that we have been able to gain share in the medium and the heavy end of the market, which has been the weak point and we regularly struggle. The launch of the Stralis has been a great success and we are beginning to see significant market share gains in these sectors, and the resulting impact of the market share gain is our ability to extract better pricing for what we consider to be highly competitive models in the marketplace. We've taken margins up to 7.8%. Overall market share has held relatively constant with a slight decrease in market share. The light end of this spectrum most of which is been done to preserve pricing. But the important thing is that medium and heavy trucks are up and up significantly. And this is evident from page 17, where the impact of volume and mix is the single largest driver of the profit improvement. We continue to invest in R&D, which has [chewed] up some of this game, but the investment in R&D is absolutely crucial, with the development of the new [truck] line up which will come into the marketplace in 2011 and 2012.

What I just said is evident on page 18. I mean, I think that we -- you can see the numbers in terms of the New Daily, the Stralis, and the Trakker. All the product launches of the vehicles carried out in 2006 and 2007, have met with great market success and the one that we're really pleased about, as I mentioned earlier, is the market impact of the launch of the Stralis and the fact that we are gaining significant share.

Page 19 deals with Powertrain Technologies; as you all know, this is a business that has its largest customer, Fiat Group, in terms of a variety of [attractions] going from automobiles to the CNH vehicles. So, volumes will follow the increase in sales around factors, and if you look at the trading profit reconciliation at the bottom of page 19. And as we've build up cost efficiencies in the manufacturing side, they've passed those on to the sectors factors and -- which is what we they are required to do under the transfer pricing agreement that they have with the Group, but they'll be able to retain a large chunk of the same as you're going to see the and it amounts to roughly EUR53 million, and a stake in trading profit for the business up to EUR77 million from 52. That's almost a 50% increase over 2006 levels.

Components have done well. We have no bleeders in the sector, now we've fixed them out, made a million for the second quarter, and both Marelli and Teksid continue do well. We sold the business in April 2007, which accounts for the decrease involvements for Teksid. But both of them are performing well, and we're relatively happy with the results of these sectors. They continue to produce adequate margins, and I think they continue to support the Group in terms of the strategic development going forward.

Slide 21, deals with reconciliation from trading profit and net result, and in the interest charge line we have a gain of EUR69 million they are related to equity, to stock option and equity swaps. And against that number we have booked a EUR43 million charge that relates to the payment of the charge to be paid for the early redemption of the 2011 bond that we are [still within] CNH. The reason why we call the bond is, because the net present value, the call was positive to the Group and so we may have incurred the charge of EUR431 million, but a benefit will be visible between now and obviously 2011 which is going to bundle the [inaudible] stock.

Tax rate is below 30% for the quarter, and we expect it to be reflective of the charge for the remainder of the year. Cash flow on page 22. I am going to try and cut my way through it and if you have specific question and might need some answer later. But as I said we produce roughly EUR900 million worth of cash, we burned about EUR511 million by buying back shares or paying dividend. And it allowed us to bring net debt down to EUR873 million. But the forecast today is that we will be around EUR600 million or below by the end of this year.

Slide 23. I mean, we are trying to do this and to try and give you a feel for how we see the businesses in 2007, and you should probably take this as a reflection how we see 2008 markets. I think we were quite satisfied with the payoff associated with the brand repositioning and the market share gains that have resulted from the repositioning of CNH. Also Iveco has achieved a similar turnaround by repositioning itself as a medium and heavy end, truck supplying, the Brazilian auto operations continue to do extremely well, and the Fiat Cinquecento has been a great success in terms of the launch, and I think it's provided the [regulars] of CNH to try and drive the brand forward. And obviously, the factor we have been unable to achieve a turnaround in Maserati although it's a small one, that's the first positive number in 14 years.

What we are concerned about is the fact that there are some key components of CNH and less so of Iveco. We are trying to tie supplying and those may cause CNH not to be able to fulfill all customer requirements so we are working heavily on this issue in terms of de-bottlenecking suppliers on this issue and finding alternative sources. Some of these are technologically complex components which will require sometime to find replacements for, but we continue to work on this to try and minimize the impact on the [running] aspiration for this.

Unfortunately most of the market has got either surprised with being bombarded with demands from both CNH and some of our competitors who try and meet with the increased market demand. We do see raw material prices continuing to escalate. I think we have done a great job of containing these from purchasing synergies, and the actual technical impact of our purchasing activity on the process. We expect that these numbers -- the number will still continue to be positive for the year.

The continued weakness of U.S. market is an area of concern. I think we see no light at the end of the tunnel for 2007. I think we are going to continue to see weak construction equipment markets in the U.S. I think this is going to be more than offset by increasing strength of these markets outside especially in Europe and Latin America.

The European car market is not a great market, with the exception of Italy, the market was down especially in big markets like France and Germany. And these are areas of key concerns to us as we try and reposition the car brands. And the thing that remains and has now become probably the key item at least in terms of my attention is the issue of Alfa, and the repositioning of this brand. I think we have done it too slowly, I think we need to be a lot more aggressive and a lot more disciplined by the way in which we get this plan [achieved]. As I said I hope that we will be able to see the positive impact that these actually got sold in the next 18 months.

In the last slide on page 24 deals with guidance that we are confirming. Trading profit, EUR2.7 billion, which is roughly a 5% trading margin for the year. Net income has been [hallowed] between EUR 1.6 billion and EUR1.8 billion, and that will have a similar impact on EPS, of between EUR1.25 and EUR1.40. Of that -- net income and EPS numbers are already consistent with when we set up this target for the beginning of this year.

We do foresee a reduction in our net debt to exceed -- hovering above EUR600 million by the end of the year. I think there is a view that we may do substantial development with this, and I think we are going to wait until the end of Q3 to determine exactly how much cash could be generated by these businesses on the remainder of 2007.

And obviously, we continue to work on the strategies -- on the strategy of targeted alliances. There are a number of files that have been open, some of which will close at the end of 2007, but we make no connection in terms of the numbers and timing, I think we continue to have to work across all sectors on the ability to strengthen these partners -- strengthen our businesses both in terms of technology and market coverage, and hopefully in 2007, or remainder of 2007, we will be able to see more.

I have no more promise to make out in the fact that I [rejoined], while I struggled at the beginning. I think it's almost a historical quarter and the fact that we have been able to generate more trading profit out of Fiat Group. But the hanging time is [inaudible], it is an indication and the strength of the industrial businesses. We expect overall the strength to continue in the second half of 2007, and based on what we see today in the marketplace, we see no reason why that cover should not continue in to 2008. And that covers our presentation.

Okay. Thank you. Now we are ready to start the Q&A session. Operator, could you please read the first one?

Thank you. Ladies and gentleman, today's question-and-answer session will be conducted electronically. [OPERATOR INSTRUCTIONS]. We will take our first question from Paolo Mosole from Intermonte.

And good evening everybody. I have three questions if I can, and the first one is on the trading profit evolution. I would like to ask you whether there has been any impact on the Cinquecento launch cost in the quarter. And the second one, I would love more information on the impact of the strike of EUR33 million, in which sense will you recover that EUR33 million in the following quarters?

And the second one, I have seen that the 500 -- the Cinquecento sorry. The Cinquecento orders are very strong and close to the full year target as well as the Iveco-Stralis orders are very close to the full year target. Why are you so cautious on the full year target for those two very good products? And the third one and on the guidance that implicitly you have given a guidance for the second half trading profit down by a quarter versus first half trading profit. Well, in last year, they have been more or less flat, first half versus second half. So what is concerning you is that the constraint in production that you mentioned the weakness of the European truck market or just general concern?

The Cinquecento has had marginal impact in terms of trading profit for the car business in Q2. So we haven't had any -- and I wouldn't blame anything on it, so I would ignore it for the [inaudible] calculation. The impact of the strike, the reason -- these are cars that have been traded for production and for sale in Q2 of 2007. We are going to recover that production by either working -- by probably working over time in our Pomigliano plant to try and recover [belongings]. And so, both the absorption and the margin associated with the sale of those cars will be recovered in Q3 and Q4 of this year.

The 500 orders are strong, yes I agree and so is the Stralis. We are not modifying -- we are not modifying expectations. I think as I mentioned earlier, at least in terms of the Cinquecento, the -- we are capacity constraint at least for the time being, 240,000 a year. We need to get normalized at that level of the cars, still in the ramp-up phase and it will not be fully operational in terms of operating leverage until about September -- the last part of September and early part of October. And a number of things that we have advanced, we are not taking plants -- in terms of especially in terms of the painting models to make sure that we have enough capacity to push through the cars. Although that will not be visible until the end of Q3, beginning of Q4.

A lesser trouble exists with the Stralis. We do have the capacity, and feel that we will be making more. I think your comment about the fact that -- when you take the difference between the EUR2.7 billion and the EUR1.5 billion. We have achieved for the first time for this year, there is no implicit -- there is no implicit warning about anything. What we are saying is that we are holding on to a forecast of EUR2.7 billion. I reaffirm our willingness to revisit these targets at the end of Q3. But I think that I will like to see the end of Q3 before we make a call on where the year would be. It certainly looks, when you look on paper and when you look at what has been achieved in the first six months, then we should be in a position to exceed EUR2.7 billion, and then I want to be able to see Q3 before I make that call.

Okay, thanks.

We will take our next question from Max Warburton from UBS.

Yeah good afternoon, just two questions from my side please; first of all on Bravo. The company was quite helpful with its guidance on this product earlier this year, talking about an official target of a 120,000 units but saying that, and that ain't going well, volumes could be substantially better than that. Could just help us understand how you are feeling about maybe some of those high projections? Is it looking less or likely that Bravo is going to do 180,000 number that was being banded around? I apologize that it wasn't actually given by Fiat management, but certainly the press were talking about a 180,000 units. Is it more realistic to the think that Bravo ultimately will come in at the bottom end of the range near the 120 you are talking about today? That's question number one, and my question two, just on CNH. Obviously we are seeing some great progress on the agricultural side and on the construction side margins coming off perhaps a little bit more than we would have thought given the revenue line. And the question really on CNH is, do you feel construction equipment margins have bottomed and that there are some opportunities to take some actions particularly in the US, where the weakness was in Q2 to ensure construction margins that don't get any worse? And that's the question on CNH. Thanks.

And I'll answer it backward. I think that we have seen -- we are probably are sitting at the bottom of the construction equipment market cycle. I mean -- I also do want to see a recovery on [years] construction spending in Q3 and Q4, that is based on our REIT today, its based on our understanding of the order book going forward. And one of our big competitors with these numbers I suppose and which I think being in the market may not have been pleased with based on what I have been able to tell. But I think it's reflective of working over the pricing pressure in the US, because of the [inaudible].

The significant thing about -- and to finish off the North American side, I think we put a number of measures in place to assure that we contain the margin degradation associated with the construction equipment which had effectively happened in Q2 of this year. But [inaudible] in the US, because we've been able to hold out margins well and we've been able to get a good penetration outside of North America.

I think we have seen the bottom of surprising squeeze. I think that we are continuing to bump it on year around these levels for the rest of 2007. In my expectations we will see a rebound although it will rise in 2008. The ag equipment market continues to be strong as I said earlier. I think that our indications are especially in view commodity prices and the impact that those revenues will have on farmers. At the end of the season there will be a significant boost in demand in Q4 '07 and Q1 of '08. So I think we are confident of both the remainder of 2007 and the early part of 2008 will continue to be strong volumes and strong margin quarters.

In terms of the Bravo itself, I never mentioned how many sales and I wouldn't, and I think it's reflected and kind of proven so we associate it with these forecasts. I think if I told you that I was ecstatic with the real penetration of the Bravo in the European markets, so may a slight stretch. I think that we have the cars have been valued and ranked quite highly in terms of the C segment. It is one due to some geographical difficulties which we won't quite understand. The market has not done as well as it should in France.

We've got that issue on the table and under examination. We need to understand it is a market which is contracted in 2007 versus 2006 overall. And so the interaction of these cars especially in the segment which is not a typical area of success for Fiat would have been significant [addition]. I think we would have seen higher numbers had the market been up to year-over-year. Having said all this I still confirm the commitment to deliver 120,000 vehicles a year. I will not release those off today, arrange that target without giving further confirmation over the ability but we'll try to penetrate the market outside [inaudible]. I think that remains a [solution] for us and we continue to work on this. Having said this the car will provide a more than adequate returns of a 120,000 vehicles a year, and I think we'll continue to support the view going forward until we see a more significant penetration that we've seen so far.

Could I just ask a quick follow up question on that, and thanks for such a straight forward answer. When we met in November there was a bit of a discussion about alternative body styles on the Bravo and whether or not there would not be a need to them? Could I just is, if the car continue to face a few headwinds, would Fiat be able to relatively quickly offer alternative body styles or do what we sometimes see other companies do and reposition content and pricing on the vehicle to try to figure out how to get the volumes going. Thanks.

The answer is a lot easier on the first part, although I think we are going to very, very reluctant to move pricing and content on the [vehicle]. The price from the content and the pricing strength point is quite competitive against the runaway competitive clients, and I think we watch this all the time. The car is not being sold at a premium against the competition, so there is not going to be the drop back to the car been bought. In terms of our ability to develop alternative body styles to the seats in the car. But the answer is that we can do. I am convinced that the economics will support that additional body style of the vehicle until we see better indication of how [this vehicle] will do in the marketplace. But the plans are here, we do have models and we do have an action plan that would be able to give us alternative body model in the next 15 months. Having said this, I think, today, I am not willing to make that commitment, until I get a better understanding as to what is causing the friction.

Thanks very much.

We will now take our next question from Adam Jonas from Morgan Stanley.

Thanks and good evening. Just a couple of questions. First, were there any real estate gain in Fiat Auto in the second quarter, and the only reason why I ask that --

No.

That's fine. I only asked there was more or so a recognition in Q1, you said there would be some later in the year?

The deal is not closed. There is not any [inaudible].

So anything to expect then in the second half?

The answer is yes. Until that closes, I say nothing, right.

Fair enough. Warranty costs, you showed a bit of detail on Iveco how warranty cost is improving. What about on the auto side, can you isolate or try to quantify how much lower warranty provisioning might have helped? As we can see, the quality of your vehicles on the line start to improve, what kind of flexibility do you have to perhaps provision less to recognize the better quality of your vehicles, and how much has that helped profit year-on-year?

It hasn't helped in Q2. I think we need to look at those discussion at the end of Q4 this year and look for those as a full year.

Okay.

So, I still think it will be [inaudible] the languish, or provision of the -- at the end of the year.

Understood. And finally, just on the Ferrari options. In the Ferrari annual reports, you have historically outlined the option plan for the Chairman for Ferrari, the managers of the Group and some for the employees of the Group. And outlined very specifically, how much of those were exercisable depending on the listing of the business in the stock market by December 31, 2010. Has there been any change to that side up in the last few quarters or in recent periods? Or is that -- is our understanding of those options are setup and tied to public listing of Ferrari, is that completely unchanged as it has been previously written on your letter to Ferrari?

I think it's fair to say that nor the Chairman or the Managing Director of Ferrari had options which are exercisable. Other than that, I think there is a piece left for the Chairman which is exercisable on IPO going forward. There may be some employees that still have -- still have options under the plan. We have absolutely no intention on [listing] Ferrari. These options will -- these options will die a natural death.

On that note, thanks very much.

We will now take our next question from Arndt Ellinghorst from Credit Suisse.

Thanks a lot. I have got one question. Mr. Marchionne, you haven't mentioned regulation as a concern on your slides. So my question would be, what's your take on the outcome of the European Commission as such, to reduce CO2? If the Commission would install CO2 limits, would you then expect a; a fixed industry target of let's say a 130 gram? Or instead of that targets by segments, like the vehicle size or weight or whatever? And if b is the case; like more segmentation limit, then what impact would you see from marksman especially like Fiat and would also have to probably significantly bring down CO2 moving forward?

Well, I am not really giving you the -- I am going to give you the official answer as the President of Fiat. And then I'll give you my views as a CEO of Fiat which -- I will try and not make contradictions.

I think the view of the industry is that 130 grams by 2012 is not an achievable target. I think we've been absolutely clear on this issue, we continue to reiterate the view that the -- and the findings of FRS 21 which was signed at the end of December of 2005, is the only basis on which regulation for the automotive industry are to be formulated and as a result of FRS 21, there was a very clear recognition that the undertaking in terms of reduction of emission is something that should be shared amongst all stakeholders, including people to provide other parts to the automotive sector, such as people that provide roads, new enforcement of traffic laws, on the fuel industry itself and therefore we think that the achievement of 130 grams which relies purely on technology of the automotive sector is not [well].

We have stated publicly that we think that the industry can get to 135 grams by 2015. I think you know to get there must be an agreement amongst car manufacturers as to how that burden would be allocated amongst the greatest car makers. That view is in the process of being formulated amongst my colleagues [Lucent] and there is no -- and therefore I cannot comment as to what the ultimate allocation scheme will entail. The answer as a CEO of Fiat, is that I think we've made the commitment publicly and certainly it connects or belongs to the super chain [though]. Fiat by 2012 will run a fleet of cars, which will have the lowest emission -- the lowest CO2 emission levels of any car manufacturer based in Europe. I can only tell you that I think that the distribution of the burden which will place an inordinate amount of obligations on small car manufacturers is by definition unfair. It's out there because it is not reflected in the pricing of the vehicles and I think that the small car manufacturers which mainly are ourselves and the French, have already been a significant amount of contributor in the reduction of CO2. I don't want to enter into the merits as to what the equitable way of allocating the burden is going to be ultimately. It's what we ultimately agreed amongst the car manufacturers that it is fair to say that the suggestions that you've made are not one that Fiat would favor.

And if I may, just one additional thing here. Just in terms of logic, I mean wouldn't it be -- in order to bring down CO2 emissions in Europe, the commission would have to enforce mass makers to bring down CO2, regardless if it's fair or not on margins or profitability. But that would be the key in order to reduce CO2, wouldn't it?

It sounds like -- I am not trying to be absolutely biased in my response, but the tone of your question is gross and very heavy to comment at this length. And I've had that conversation with my German colleagues and I do not find the argument at all convincing. It seems to me that the imposition on economics of shifting of burden of CO2 reductions to small car manufacturers does not reflect the economic reality associated with margins generation on the sale of cars. And there we argue with that one. And there may be a political reality that says, that in order to get there, we need to get to the small car manufactures. And at the end of that argument one looks at profitability and the ability to bring about change. In I feel almost no sympathy for anybody who manufactures each set of the cars and suggests for the board not to be shared with a guy who makes a diesel engine of the four cylinder range. These are not equivalent transformation vehicles. Right, and the pricing associated with them in the marketplace is structurally different. There are some people that bear the cost and some people that can't. There's no use looking at the small [range] and asking it to put the bill or won't work. But Fiat won't.

Okay. Thanks a lot.

We will now take our next question from Thierry Huon from Exane.

Hi. Good evening. It's Huon speaking from Exane. I have a couple of questions. The first one relates to the real material prices. You mentioned during your presentation that you managed quite well to limit this impact, but don't you feel that since Fiat is now in a much, much better shape than -- that's your main supplier will be probably bit more relative to allow you a good price on real material price and confidence?

I would expect it totally, completely and probably a different response from one of our supplier to the extent that we'll continue to feed them volumes and increase volume quarter-over-quarter. I would expect them to be a lot more cooperative on pricing then so far.

Okay. That's clear. And the second question is with regards the construction equipment. So I'll be a bit surprise to see the margin going down that much during the second quarter, since you had also some volume drops in the US. Does that means that's your flexibility is so limited that you cannot be able to face [prices] that's up in the US demand or is there any specific reason to have a drop in the second quarter?

Well the bottom line answer is that the US market for -- especially for the games brand which is the large orbital in construction is so having been, its bound to buy a semi calculation of margin. And the only way we are going to remedy this is in terms of the performance of the business going forward, is that we need to reestablish some geographical equilibrium in distribution of the revenues. I think a huge amount of work has already been done between '06 and the first half for '07, as we reposition mainly the new Holland brand in Europe; there is good work that's going in Latin America and we have try [inaudible], but we need to lessen the dependence on the US market in order to bring it by the margins of restoration in the absence of a pick up in US sales in market. Having said all this, I think we still have to have some production issues associated with the construction equipment side which have impacted our margins. But I think it is understood and it's under control, and it is my expectation that we will see a gradual recovery in margins over the remainder of '07.

Okay. And then may be last question about Ag business in the US. You mentioned that since crops price have remained quite high you expect some increase in demand by the end of the year; but these business remain the real [inaudible] core one then I guess that even if summer have higher revenue that will not change tractor of a combined every year just for the sake of it?

Structurally it is right. Although I'VE run in to difficulty with trying if somebody tries to find a cycle on the Ag side. I think the only -- the latest here that we had is a down cycle in the Ag business more or less at the end of the 90s, year 2000 and 2001. And we certainly have exceeded the normal cycle time for the Ag business. I think that there are some things that have gone on in this industry which were structural, and which were not clearly associated with previous cycles. The introduction of bio-fuels I think has changed the economics of this business. And as I am actually a lot more confident now about the longevity of the cycle going forward, than I have been for a long period of time.

I don't see, this is impacting '07 or '08; and I do think that these businesses will continue to perform strongly. The thing that remains to be unexploited and certainly not or at least not well exploited in CNH is the ability for us to transact business outside of Europe, North America, and Latin America. I think that we have now put an international organization in place, which is -- has as a very clear mandate the ability to penetrate markets which are non-traditional to CNH, in which we have had good activity in the past, or which -- where we think there is unexploited opportunity for the positioning of the brands.

The argument that you have raised abut the fact that farmers will not change their tractors in the treatment season is something which appears plausible at face value, but it isn't. I think that there has been also a fundamental shift in the way these farms are being run. I think, the economics of driving these farmers a lot more than they have in the past. Issues associated with productivity and the size of the equipment that is being used has become a key determinant of buying patterns, and I think that given that, I think, that the Case IH in particular in US is incredibly well positioned to benefit from the increase in demand in heavy horse power machinery both on the combine side and in tractors.

Okay. And I have a final one, if I may. With regard to the truck business, you mentioned in the previous conference call, that you may consider doing something in the U.S. on the truck side. Could you share with us, where you are in this process?

I think, I confirm our interest in the U.S. I think, we need to be cautious on how we get this done. I think, we have made some progress in terms of looking at potential alternatives in terms of the presentation of -- under Iveco or Iveco technology in the U.S. market. I still think it's too early to be able to call it. But my expectation is that we will have something done within the next six to nine months.

Okay. Thank you.

We will take our next question from [John Buckland] from MF Global.

Good afternoon. Thanks very much. On the -- on your presentation, I think one of the last slides talked about the challenge for alliances, and then of course you referred to emerging markets. When you look at your long-term targets for growth, clearly China, India, Russia, Turkey are big part of that growth, and in some of those markets, you still haven't really established the joint venture, the agreements, the networks you need to deliver that growth. I wonder, if you could just talk about where you are in the negotiations to have some more important joint ventures established?

I think, I feel a lot more comfortable with what's going on in Turkey and in India. I think there we have got the framework to try and develop the business certainly in accordance with the plan [inaudible] aspirations that we have indicated. So I am -- those are areas where both together of the longevity of the relationship in the case of Turkey, and because the ability to find a suitable partner, such as Tata in India, we have already close the gap -- the timing between sort of intent and action, as we were putting in place a number of imitative which are beginning to bear fruit. We are beginning to produce cars in India in accordance with plans on that slide. I feel a lot more comfortable that we have moved in the right direction. China, China remains an issue for us only for the car side, I think that we have done good work with trucks and with engines. I think, we've got good relationship with SAIC, and even with NAC in terms of the production of commercial vehicles, will remain absolutely open and unresolved business today is the future of the car business. I have been public on the fact that I was not satisfied with the arrangements that we had established with NAC in terms of the production of Fiat car, as we continue to work with our partners to try and find a solution. I am relatively confident that we will be able to at least on a parallel basis begin to develop those businesses in China in a meaningful way in a relatively short period of time. Having said all this, I think that I still want to be able to complete the discussions that were having with our Chinese current partners and potential partners and be able to announce something as quickly as possible, but I am not in a position today, I know though I think it is necessary for us to change the objectives for 2010, in terms of what we expected in those areas. And I do hope that we will be able to provide some clarity about the identity of our partners going forward by the end of this year.

And Russia?

Russia is a business where we already have a relationship with Severstal Auto, I think that we do see them as being given upon, as we have announced another joint venture in terms of the manufacture of [Magneti's], that we had announced in Q2 of this year. It is a market that we are watching with care, with interest.

But then you need something more substantial meet this 130,000 unit figure by 2010 in Russia for Fiat Auto?

The answer is no. I think that we can probably work within the structure, especially for willing to make the commitment with our partners and try and develop that volume. They are more significant in Russia; I think is the fate and the state of the automobile industry. That was inherited post 1991 in the full market. I think that is an issue, that it continues to remain unresolved and Fiat to be honest, I think is unwilling to play in that reshaping our restructuring exercise. And so our alternatives are elsewhere, I think that the service part option is probably the most intelligent option for us to go forward, simply because of the fact that it is starting from a clean sheet of paper in terms of production going forward. I will be very-very reluctant to open discussions with the current automobile manufacturer in Russia, which would entail us inheriting legacy issues, which we cannot clear. So I think we need to work within the structure. I think we'll do more, but I think we are going be patient about this, because I think there could be some very negative repercussions on doing things like this. The deal would have passed, there is not a clear word -- clear to us, nor that is current in terms of technology. I think our relationship will set us [inaudible] our subsidy would allow us to become technologically official, relatively good, if you wanted to -- I think the image [shooted] where we started with Severstal are already in that state.

I think we can do more, trying to move the business forward and that opportunity is on the table and we are looking at this. And I prefer to wait until we finish the discussions to be able to take it any further. I hope to wait till that.

Thank you. Just one clarification on the [inaudible] side. I wasn't -- but I was listening to the replay of CNH yesterday. One of the issues that [inaudible] talked about would be the change in agricultural loans in Brazil. I wondered if you could explain that and what it means for demand. Is it that the demand is being boosted by in the short-term, because people have not had to pay the loans and their future terms would be tougher?

No, I think that the registration in Brazil is trying to deal with legacy issues associated with purchases that were made in the vast and current outstandings on them. I think one of the things that we have done is that we have managed the possession for prudent financing. But really one of the things that we consistently worry about is recurring value or collateral dispositions and I think we need adequate reserves and we continue to make them. To assure that we continue to -- that we are prepared to deal with any potential slippage in terms of residual values associated with these loans.

But I think that the agricultural policy in Brazil is the one which is designed to encourage -- encourage the ag business. I think it is being done in a variety of ways, I think that the registration -- I have looked at the comments held by [inaudible] in terms of the affairs going forward in terms of making payments or waiting for a 30% payment later on. I don't think the impacts on the -- I don't think there is any attempt here artificially boosting demand. And in all this has to do with the fact that one of the things that was going in favor of the ag in Brazil was the relatively weakness of the local currency against US dollar. That's a position that's completely flipped in the last 18 months. And so, the demand that we are satisfying in terms of equipment is purely justifying the local usage of the equipment for local -- for local utilization. Its not -- the export side of this is relatively weak.

Whether that issue corrects and the impact as an industry going forward is very clear to me. But I think that if the US dollar were to restrengthen against the Reais -- agains the Brazilian currency. I think we will see an additional boost of demand. We have looked at the numbers we have seen in which -- we've seen it the way in which the market is reacting. This is not an artificial bump. I think that there is a structural change in which the Brazilian ag industry is being shaped and I think we are just satisfying the natural consequences of that reshaping. I don't think there's anything associated with this. And whatever the Brazilian government is doing in terms of the funding -- the funding [more or so] and its something which is consistent with past history.

Okay. Great thank you very much.

We will now take our next question from Andrew Lobbenberg from ABN AMRO.

Hello, hi it's Andrew from ABN here. Can you talk a little about the dollar and whether that -- or [the extent] of its side effects the profitability of Ferrari and Maserati? And also whether the dollar position affects your thinking on taking the Alfa brand to the US? And then just one final question, with your concerns about the repositioning of the Alfa brand, does that affect your thinking about the relaunch of Lancha in Northern Europe?

Let me deal with the Alfa -- this US dollar issue at best. If it was going to permanent. It was simply suggested at some point in time between now and -- that at some point in time in the development of the brand, we have find for, we will have to find a local production solution to the Alfa brand. And it's true by the way that I think about it for successfully repositioning Alfa in the US. We will have to follow the -- we will have to follow in line with what both BMW and Mercedes have done in the US, which has established local production sites. I think we are way too early to make that call, I stay clear on the fact that the Group is willing to fund the initial startup losses with that introduction, and we know that it will take us at least four years until we can breakeven both on a cash and earnings basis before we can start seeing some results from the US. Having said all this, I think we need to be in the US market simply because in the medium to long-term, it is too large a market to ignore, and it certainly offers a great amount of potential.

In terms of the position of the [development], we continue to -- I think it is a policy here to cover hedges on a 12 month rolling basis. I am looking at my treasury that's [old]. But we finally know that they are empty. We won't tell you the churn for the -- for Ferrari. But it does extend beyond 12 months. We have taken position to cover earnings for 2007 for sure and for part of 2008, concerning the case of Ferrari and to a lesser extent in the case of Maserati. Having said all this, I am going to make -- I actually think that both of those brands have got pricing power which goes beyond the threatened weakness of the dollar. It's not good news for a Ferrari buyer in the US, but I think that the Ferrari will protect margins first.

That's fine. I am going to ask about the long term, the delay in the repositioning the Alfa plant?

So which, the launch?

Yeah the fairness in repositioning Alfa, if you have any concerns about rolling out Lancia in.

No I think the Lancia is still is lot of ways a much easier story. Because I think that although there is the leverage of the technology that Fiat is much, much more accessible. I feel Lancia different ambition and he's got a different class of competitors compared to Fiat and potentially to Lancia. And I think they commented in those group meetings to make technologically to Alfa. These are with different caliber and in different depth than they are commenting that we need to make it both fit in to the financial side. The discussion now on Alfa Romeo is also Alfa Romeo specific. It has one more relevance, sometimes what we do with Maserati going forward and it does in terms of what you may consider to be natural brands, Fiat and the [launch] events. Above all very few believe us I think probably on the outside, the fact that we can get to the 300,000 number of Lancia. We are assuming incredible resilience of that brand will fundamentally two models, and very limited geographical cover. I think as launch out Alfa Romeo across the European network in an effective way. We will be able to take you back through the Lancia brand in that distribution side. I think we'll get to 300 cars and really if it was a Lancia certainly faster and probably in a much cheaper fashion when we get to similar volumes in Alfa Romeo.

Okay thank you.

We will now move to Monica Bosio from Caboto.

Yes, good afternoon. I would ask three questions. The first one is regarding the profitability of the out operations. If could you please give us some flavor on the [Union] out operations profitability and on the Western profitability. The second question is related to the European car market. Just your opinion, how do you see the Italian car market in 2008, when in turn it should expire? Do you think that there could be a soft landing? And the third question is related to the buyback plan. How much of the buyback plan could we assume, if it will be suitable within the year in that percentage? Thanks.

Again these are very good questions. Unfortunately I cannot give you answers to both of them. Let me deal with the percentage issue. I will not break down profitability by Europe and by Brazil, the only thing I will tell you that the operations ex-Brazil, our earnings are positive and they contain to be earnings positive for the third quarter in a row.

Okay.

And that's the only thing I will tell you. In terms of the European car market our expectation is -- I mean we've always won the projections that the assumption of the car market will be flat year-over-year. We've seen a drop in the margin span almost 2% year-over-ear even though Europe, Italy itself has contributed significantly towards the decline of France and then Germany. And we do expect a soft landing on the Italian side. We aren't clear as to how long these incentives schemes will last. It is our expectation that its going to be large. Our expectations, but by the time they are expecting as well as our goals is all of our brands will have be sufficiently reposition and that they'll able to continue and grow share and get to the number that we have mentioned earlier which is roughly 35%. And in terms of the share buybacks, I think that we have been as public on this issue as we can be. I think we stated our intentions to buy a maximum number of shares. I think we will continue on this activity as long as we think that these share repurchases, our earnings and value are accretive to Fiat. The timing of these purchases and the quantum of these purchases is left to management discretion and we'll not comment until after we have done them.

Okay, thanks

We will now take our next question from Horst Schneider from WestLB.

Yeah good evening, Horst Schneider from WestLB. My question on the Italian market has just been answered, so I have only two questions remaining, a rather simple question regarding potential M&A activity at Fiat. Firstly, we hear sometimes some noise that Fiat could be interested in buying, for example, one brand from Ford, for example Volvo. So my question is could you may deny that you have an interest in buying any of Ford's brands?

It's no instance.

Okay. Then last question is on the automotive supply activity. So, we see currently here take up multiples for some automotive suppliers increasing significantly and in that context my question is that, if it could become an option for you to sell Magneti Marelli. If the price, what's right?

I mean I've always -- I'll give you the party line on this. I mean I have always figured Magneti Mareli especially in this -- in the turn around phase of Fiat is an integral part of our activities, and we continue to rely on them to provide the right level of technological support in terms of the repositioning of a brand and the contents of the products that we are showing forward. I have also been publicly [attracted], and of all the activities that Fiat has, it is the one that is auxiliary to but its not the main business of Fiat Group. I make no comment as to what we would ever entertain a proposal to sell Mareli. We have declined all offers of interest from potential purchasers and that continues to be our view. This business is not for sale, but I think it would be unreasonable to suggest that we'll consider if an extremely attractive offer was to be made that Fiat will not by definition look at it. I think we will be forced too. And we are not inciting offers.

Okay. Thank you.

We will now move to Martino De Ambroggi from Euromobiliare.

Good afternoon everybody. I need a comment. Is there any specific reason that you are confirming your productive sales target presented during the last business plan presentation, despite much stronger sales always referring to the indication you gave during the business plan presentation. And on the vehicle I didn't see that probably, that's my fault. I didn't see an indication on the order backlog that you used to provide. I don't know if it's possible to have it?

We have -- the order backlog is up year-over-year, I looked at it this morning so there has been a significant recovery in Q2 versus Q1. And I think in terms of the volume aspiration, I mentioned earlier that we will not go back and revisit any numbers until the end of Q3. But I think it's reasonable to assume based on what been able to do so far. Just tell me the numbers that we've talked about in the business plan and probably easily achievable and then we shall revise targets, but we'll wait until the end of Q3 to come back to us.

Okay. And always on -- I understand you have given the tax update for Q3, but my comment is that your guidance for the full year doesn't seem coherent with the usual strong free cash flow you had in the last quarter? And in any case can we --

[inaudible].

Okay. But can you given us an idea just roughly what can be do contribution of CNH in your EUR600 million guidance?

In the [810] levels?

Yeah.

I think it is fair to say that the overall the CNH business will continue to generate cash, it has done so. In the first six months of this year it started to contribute to generate cash in the next six months. One of things that we have done in CNH is that we've build an increased level of consciousness to the level of calling a paranoia by the amount of retail sales that we generate in the business. And that has triggered, I think -- at least a large reason as to why we have been able to generate cash in some ways that we have done in Q2. I don't -- I think that CNH will continue; I am here to [tell you] that CNH will continue to be debt-free at the end of 2007; at the end of Q2.

Thank you.

I might [inaudible]. He agrees I think.

Okay. Thank you.

We will now move to Philippe Houchois from JP Morgan.

Yes good afternoon. Two questions please; one is I understand the share buyback you don't want to discuss in more detail but you are still buying back shares things since you haven't bought any since the early part f June. At this stage could you tell us whether the rating agencies provide I mean any kind of restrictions on you ability to buyback shares or if you are really free with them, will you tell them that you were free to spend that time and that budget which is still kind of constraint to get to your investment grade rating.

And the other question I had was on the profitability of Chateau in Europe and the industry in general. I mean historically Germany's car makers have played a kind of some game across Europe. Are your profits at this stage of Chateau coming at the expense of your peers in the industry or do you see an uplift in industry profitability on the back of a pretty deep restructuring we've seen across the European car industry? So is there kind of upside to usual you know some game in general with car manufacturing?

Your last question I wish I am in to completing. So I can't give you - part of it is instinctive. I think there's been a huge amount of work that has been done by the industry in terms of reshaping the cost structure. So there is no doubt there is a benefit associated with all the work that has been done by our competitors and by Fiat in reshaping the industrial footprint of the car business.

And our volumes -- given the fact that our market has been declining for the first six months of this year; our gains in this market have happened at other people's expense. And that by definition has impacted on the profitability. But I don't think it's turned, I think the zero some game has a different zero. And I think that people will continue extending sensibly there. I don't think we're talking about the same allocation. The bigger issue to me is whether the market itself and demand in the European market will pick up from the levels that we've seen so far.

If we were to restore our selves to 2006 levels in terms of volumes, I think that we would all feel much more comfortable. I think that nearly 2% decline in the market has been significant. And I think its been talked by most of us. But I think the fundamental answer to your question is that, I think that we have taken margins away from other people so far. But it was margins that were there three years ago, I don't think. The answer to your first question about rating, we have obviously discussed our share buyback policy with the rating agencies. They have not imposed restrictions on us, obviously they can determine at any point in time as to whether a share buyback policy is offensive to their ratings that they've assigned to Fiat.

We monitor this issue with them at all times, so we have a pretty open dialogue with the rating agencies about what we intend to do. And the levels that we had given to them must be indications and interventions in terms of share buybacks, has not caused them any concern. And certainly, in terms of the latest upgrade that we got through investment grade, that issue was discussed on all earnings, and then there is not [prejudiciously] the restoration of investment grade status to Fiat.

Okay, thank you. If I can squeeze in may be last question that is on the -- there is another drop in your tax rates, year-over-year. Should we use the new tax rate as an indication of where your cash tax level is or are you going to be paying less tax on that based on the fact that you should be able to utilize your tax credit attached to your historic [inaudible] losses in Europe?

I think regardless of the 2007, you should assume that these could be kind of taxes.

Yeah, great thank you very much.

Our final question comes from Paolo Mosole from Intermonte.

Hello, I've just a follow up on Cinquecento if I can. You mentioned

You want to buy one.

Yeah sure, that's true. But I don't know when I will be able to get one. And the question is on the CapEx which you said would be marginal in order to increase it to 140,000. But are you also considering possible increase in cost because of the wages request by their key plants employees?

I think they were all in vision as part of our product cost, and I don't want to comment on the impact of the wage related increases. I think that this is a part of dialog is going on with the [total] trade unions, and I think that we will respond to them accordingly. But I think that we will need to find, and I think we have access the ways of litigating any potential negative impact associated with that wage rise. But I think it's premature to call -- I think we continue to work with the system to find the solution that accommodates their interests and ours. I don't think any of these are ultimately going to impact significantly on the possibility of [inaudible] especially given the volume aspiration.

Okay. Thank you very much.

You are very welcome.

Okay. Thank you very much for participating in the call. Of course, we are available to answer any type of question you may have as soon as we are back in the office. Bye.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen.