Stellantis NV (STLA) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat 2008 Second Quarter and 2008 First Half Year 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, Mr. Marco Auriemma, Head of Fiat's Investor Relations. Mr. Auriemma, please go ahead, sir.

Thank you, Elaine. Good afternoon and good morning to you all. Welcome to Fiat's Second Quarter and Half Year 2008 Results webcast and conference call. Mr. Sergio Marchionne, our Chief Executive and Mr. Maurizio Francescatti, the group treasurer will host today's call, as usual. They will use the material you should have downloaded from our website, www.fiatgroup.com. And after the introductory remarks, we will be available to answer all the questions you may have.

Before moving ahead, let me just remind you that any forward-looking statements we might during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor statement included in the presentation material.

So now, I will turn the call over to Sergio Marchionne.

Thanks very much and good afternoon, good morning. You see the headlines of the Q2 earnings release, it's been a good quarter for us. If I can just take you to page two, we'll deal in a pretty rapid fashion with the quarter itself and then, we'll try and deal with the future and how we see both the second half of 2008 and 2009. I think we've decided to deal with both of those issues because they are the issues that keep on being the sort of pervasive arguments that are going around.

There's a lot of negative press that has been written in connection with the results of Fiat, of the car industry in general. I think some of these permeate a degree of pessimism that has been assigned to this industry is overblown, that's certainly in the case of Fiat, hopefully by the time we finish with this presentation, we're going to give you some indication of the resilience of the earnings stream in the sense -- in the fact that the concerns that you may have accumulated as a result of a number of factors that have been affecting the industry may be excessive.

If I can just take you to page two, I think it's fair to say that this quarter, apart from the fact that it is the most profitable quarter of any quarter in the last 109 years of history of the Fiat Group is also indicative of the fact that the sectors themselves, individually have performed well beyond any other historical records that have been set. We haven't seen volumes of this caliber on the car side since 1997. CNH has had the best quarter in its history since the merger back in 1999. Iveco has had the best quarter in its history, the components businesses continue to perform well.

And so, overall, we're relatively satisfied that we've achieved our own internal targets of performance. We're now sitting on margins of about 6.7%, which certainly are numbers that we're not ashamed of, I think they're totally in line with the expected development of our margins between now and 2010.

Trading profit has broken the billion mark, we're now at EUR1.131 billion. We'll mention a couple of things out of this equity -- this equity swap in the mark to market adjustments required, which has very negatively impacted our net income on the normalized basis, earnings quarter over quarter are up 30%, we're able to generate over EUR1 billion worth of cash. Our debt is now down to about EUR0.5 billion. In consistent we probably just stated about liquidity objectives we're keeping about nearly EUR5 billion worth of cash on hand.

The -- we've announced a number of deals in the quarter, the most significant of which is the BMW deal of which I unfortunately, I can't say much more other than what has been released to the press. We're in the process now of negotiating and determining exactly the extent of the arrangements that we're going to finalize with BMW and we will not have any greater details until probably the end of this year. We were able to regain our investment grade status with all three rating agencies in Q2. And as important as all the things that we've done so far, is our commitment to achieve both the 2008 and 2009 objectives.

You can move on to slide three, you can see the composition of the quarter. All sectors were up, as I mentioned earlier. The only one that did not have double digit growth was Iveco. The Cinderella story of this quarter is the CNH performance, we were up 10.6% in euro terms, over 28% in dollar terms. Made nearly EUR400 million in trading profit out of the business, achieved margins of about 11.1%, which is the highest it's ever done.

I think we were able to cure, some, not all the industrial inefficiency arguments that were pitched, certainly as part of Q1 of this year and Q4 of 2007. We had a good performance out of trucks, almost EUR250 million in trading profit margins to date. In the components business, as I mentioned earlier, had a -- also had a decent quarter.

We go on to slide four, you can see the composition of the shift from '07 to '08, most of the growth has come from the automotive side and most of it has been driven by the increase in volumes in Brazil, which has had a phenomenal quarter. Volumes have been up almost over 25% for the whole industry and we've played along with that industry growth, we've maintained our leadership in the marketplace.

Ag and C were up by over EUR345 million in terms of revenues but the trading profit shift has been 51 million. Highest volumes ever in the Ag business that we've seen and I think it's a good indication of the pace at which this business will grow over the remainder of the year and surrounding into 2009.

As I mentioned earlier, the components business continued to perform well, we're up EUR27 million year over year. Comau is now stabilized, didn't make much money but certainly the issues that impacted the performance of that business are now under control.

If we just move on to page five, this is sort of a historical snapshot of how we got there. As you can see, I mean all the indications are up from automobiles to Ag and C to commercial vehicles to components. Margins expansion across all the businesses and certainly the trading performances fall in line. So, we're relatively satisfied. There's not much to be said other than the fact that we could have done more, but I think that given market conditions today, I think that we've already achieved what I consider to be satisfactory levels.

Moving on to page six, this issue that I mentioned earlier about the mark to market of the equity swaps supporting the stock option plans is clear. We had EUR120 million [string] Q2 '07 to Q2 '08. That number is EUR273 million. If you can see the footnote there, it tells you that there's a difference of EUR302 million in each one, which in large part is attributable to the mark to market of the equity swaps. I mean, this obviously depends on the share price to the extent that we see a reversal on that, we'll see a drawback of the adjustment.

Slide seven deals with the cash flow. As I mentioned earlier, about EUR1.1 billion worth of cash flow. We spent over EUR1 billion in CapEx in the quarter, which is over -- more than 30% over last year. We paid about EUR600 million between dividends and share repurchases and now withstanding all this, we ended up with a net debt to of about EUR0.5 billion and the credity level above 4.7. So, I think we're satisfied, also the financial management of the house has been in order and in accordance with our own expectations.

I'd like to spend the rest of the presentation today, because I'm not sure there's much use, we've put in all the traditional material in the presentation as a back up and you can make reference to these as you like and ask questions in connection with them. But I think the real issue is what does H2 look like and what does 2009 look like. And I think there are three things which are of paramount importance in terms of determining the viability of the forecast that we have internally in terms of 2008 and 2009.

The first one is certainly the main conditions and the forecasts associated with market performance in this year and next year. The other one is this looming issue which has to do with raw material cost and the impact on the cost structure of the group.

And the third issues has to do with industrial capacity management. And if you have potentially declining markets in the auto side and certainly in view of what CNH has experienced in the past in terms of the push on the industrial organization to try and meet delivery requirements in a market which has been growing more than 20%.

We move on to slide number nine, which deals with the automobile business. We are -- 2008 -- I mean, let's just deal with some raw numbers. The Italian market last year was over 2.4 million vehicles. We're seeing the market today at about 2.1 million, which is nearly a 20% drop year over year. All our forecasts and all the industrial planning that we've done in terms of utilization of our facilities reflect the kind of demand curve.

As you can see from the back up slide, we fit 33% market share in Italy in Q2. We've been able to maintain share well over 8% in Europe and it's all reflective of a push that's gone on here in the last three or four years to try and reestablish an equilibrium between the penetration of the Italian market and our ability to perform well outside of this country in Western Europe.

It's clear that the West -- that the Brazilian market has had a phenomenal run, 26% in the first half. We're expecting that market to taper down, although there may be a pessimistic view, but we expect a maintenance of about 20% growth year over year.

2009, on the car side, we're seeing the market as being roughly flat in Europe with some uptick on the Italian side, but it's not going to make much of a difference, we're talking about a 2.5% shift of a 2.1 million volume. The impact on us is roughly a third of that shift of about 60,000 vehicles. So, it's not going to be a big number.

The light commercial vehicle business has had an outstanding first half, we expect that that growth will taper down in the remainder of the year. I think that we've shown and it -- we've had great success at penetrating the Eastern Europe markets. As you can see from the data, we're up almost 17% in the first semester. And we're forecasting that number to continue until the end of the year, although Western Europe itself is relatively soft and it's something which is also relevant in terms of the discussions on Iveco.

Brazilian market continues to perform well also in this sector, 50% up for the year, although the growth rate is supposed to -- is expected to decline in the second half. '09, we're still expecting an uptick of roughly 5% on light commercial vehicles. And on the car side, a much reduced rate of growth of about 5%.

The combination of all these things leads us to the assessment on page 10, which is really what we're expecting in volumes. We split out Italy and ex -- and Western Europe, ex-Italy. It's been done more for position reasons than anything else. I looked at the European market in total and we're expecting to go for -- but at 1.14 million cars to about 1,285,000.

I mean, if you look historically at 2007 and you look at performance of the Italian market itself, our expectation is that we're not even going to go back to 2007 levels in '09, unless something structural happens. And so, the forecasts have been done in a pretty conservative way. To reflect, I think we're -- ultimately this market is going to end up.

Having said this, we're confirming our yearly target of 2.6 million cars for 2009 with an uptick in performance obviously coming out of Latin America, but at a much reduced rate. And you can see the light commercial vehicles have also been kept down as a result of our pessimistic view, which may be excessive in terms of where this market will be next year.

We move on to page 11, which deals with the CNH or the ag business. We can go through this chart line by line, I can just give you a summary of what I see. Let me deal with the obvious exception to the growth story, which has to do with our ability to penetrate the 40 and most the 40 horsepower and lower tractors.

The story on this one is that some markets, especially in the United States, which deal with livestock and milk producers and so on are markets which are not involved these days because of input prices into their livestock production and poor pricing on the milk side. It's a business which has not been growing and that is the reason why the smaller tractor, 60 horsepower and below have not performed well and we have not performed well.

Having said this, the remainder of the industry across the whole world has performed incredibly well, especially in terms of high horsepower tractor 100 plus and certainly all over town buying offerings that we have. I think that the issue for us and I mentioned this when we deal with the industrial capacity issues, a real challenge going forwarded is to try and produce enough to try and meet demand.

I think we're looking at an incredibly buoyant 2009, we're relatively comfortable with the 2008 order book is pretty well firm. But the 2009 and 2010 are going to provide us with an exceptional growth opportunity and I think we need to get our manufacturing footprint in line to try and deliver.

We move on to slide number 12, notwithstanding all these negative views that have been expressed about construction in the United States, the overall market in 2008 globally, has maintained nearly record levels in terms of total units. And the -- obviously the negative story has been in the US which has been housing driven. But the rest of the world has made up nearly for all of this in the US and for the decline in the Western European side.

And so, we're forecasting a year which is more or less a continuation of 2008. I think 2009 is going to show continued strength in Latin America and the rest of the world. I think we probably have seen the bottom of the slow down in construction spending in US. We are beginning to see an uptick in volumes and I think Western Europe is still coming off its highs. Last year, 2007, was a record year. But I think we're going to see numbers which are more or less in line with 2008 logging. So, it's not an overall negative picture.

I think the dislocation in the US has caused -- at least on our side, some negative impacts in terms of where the production facilities were and how we served the markets, that's by definition, impacted on our ability to deliver on higher market performance. An issue that we're looking at, we're trying to find out whether we can re-point some of these American plants to try and deal with growth outside of North American continent, given the fact that we still expect -- although we do expect an uptick, it's not going to be significant.

Page 13 -- page 13 deals with Iveco and the expectations. I think we've had a great semester. We're going to see the full year be flat -- year over year in Western Europe, up nearly 10% in Eastern Europe and all these numbers obviously reflect the decline in the second semester of this year. But Latin America continues to perform well. It is a recovery story for us which began in 2007 and which continues to deliver decent results.

Full year in 2009 is a different story, we do expect numbers to be down in Western Europe, roughly 5% to 10%. Eastern Europe is, in our view, going to be flat. And Latin America, I think we're probably being excessively conservative, but we're expected to be flat to slightly up.

The impact of all these, obviously is also in Fiat partnering technologies which you can see on slide 14, only make a couple of comments, one is obviously that numbers are still up year over year, we do expect to grow into that to 3.5 million next year and transmissions up to 2.7 million. As you can see from the chart, a small number of these rebates to industrial and marine, because of the transfer -- the price transfer arrangements that we have between the auto business and the passenger car side of FBT.

A lot of the savings that have been achieved on the efficiency side of FBT have been at least partially passed on to the car side. The most profitable part of this business for FBT is in fact the industrial and the marine, and to the extent that we're expecting a flat performance year over year in 2009, and the fact that we're seeing a slight decline in terms of transmissions may negatively impact our margins to the business in 2009. I think some of these issues may be -- we may be able to contain them. [NAFI] work is underway now to ensure that we got in enough efficiency measures to maintain margin performance in 2009.

The other issue which has been -- a lot of people have written about has to do with this question about raw material price hikes, the impact on our cost structure and whether we've been able to pass on these price increases into the marketplace. And so, we've decided to go -- if you start on page 15, we've given you an indication, assuming that January 1st, 2007 was 100 as to what we have seen in terms of market movements of these prices.

These are not prices paid by Fiat, we will not release these, these are part of our negotiating strategy with our suppliers. But it does indicate the box that most of the senders has found itself probably in the last quarter. We've seen steel prices are up 34% from the beginning of '07. We've seen platinum that's up nearly 80%, although we have seen some degradation of the prices of platinum lasted a while. Natural rubber is up 63%. Polypropylene is up 13%, obviously based on the price of oil.

The overall impact of these -- we'll discuss this in a moment, has been significant because when you go to slide 16, you can see that roughly of the EUR30 billion in annual purchase volumes that we have out of the group, more than two thirds of that number has been impacted by the raw material process collection.

The actual commodity content of that -- of that EUR20 billion, is roughly EUR7 billion, and that' the number that would have gone up or down depending on where the commodity prices would have been. The rest of it has to do with transformation which is independent of the raw material price movements. But the real issue for us is how do we manage or what we do in connection with the EUR7 billion commodities exposure.

And if you could move on to slide 17, we're going to try and give you an understanding on how it is that we manage this, what we were able to accomplish in the first semester of this year. And then, on the next slide, on why we -- how we intend to deal with H2.

When we met the [Inauto] back in 2006, we told you what our plan was in terms of the management of group purchasing activities and we have targeted roughly EUR850 million in gross savings against which we expected to have a raw material price hike of roughly EUR270 million, which would have netted us in excess of EUR0.5 billion in savings year over year.

The reality of what happened in 2008 and what -- given the fact that we pretty well know the movement of our own price curve is that we're going to see an additional EUR680 million above the EUR270 million expectations in raw material price impacts.

As a result of all this, we put a number of initiatives in place that have effectively recovered part of this and they account for about EUR330 million, which left us with a net saving of EUR230 million, compared to an expectation of EUR580 million back in 2006. That by necessity, has forced us to go back and take a look at pricing to try and find out what we could do in order to recover the impact.

What you see on the right hand side of the slide on page 17 are all the things that we have done to try and minimize the impact of this, including the intrusion into our supplier industrial footprint to try and introduce world class manufacturing processes to bring down the cost of transformation and thereby reduce the cost of the component.

But -- in the first half of this year, we were able to contain most of these prices increases, on others it's been an issue that's come up on the previous call. Notwithstanding, this overall relatively large increase of EUR950 million.

We're facing, in the second half of this year, a bill of about EUR650 million which is going to work it's way to be -- it's going to work its way to the cost structure of the group. And so, when you look at page 18, this tells you in what way we have been able to try and deal with this. We knew that we were going to get part of the EUR650 million anyway, and so we have introduced recovery actions that minimize the impact. The uncovered portion of this raw material price hike is roughly EUR350 million. And that's what you can see on slide 18.

We put in a number of actions which gave us roughly EUR420 million in price recoveries. This EUR420 million is not an arithmetic number. It is a number which is based on our assessment on the ability of these prices to stick.

And so, we've discounted some of these because of potential competitive reactions to price increases, although I've seen this morning where some of our competitors, if not most of them, certainly on the car side, are following suit and the most -- the EUR420 million also increase -- includes a series of price increases that we've been able to push through and some of which have been planned in implementation for the third and fourth quarter of this year on the CNH business, which has probably got the biggest ability to try and transfer -- transfer raw material price hike to the customer base.

So, we feel comfortable to the EUR420 million is a number that is going to be achieved, it's already been discounted for actualization risks. By the time you look -- we've finished with this and you add another EUR40 million worth of other inflationary impacts on our cost structure on raw materials, we're looking at a net price retention of roughly EUR30 million, which is going to be consistent with margin achievement in 2007.

The objective of this exercise has been to ensure retention of margins, so far the process has been successful. The CNH part to this story is the one that probably is the most certain because of the buoyancy of the demand for ag products and therefore, we feel relatively comfortable with whatever we're going to implement in H2 this year will be sufficient to try and recover all the price hikes that have been rolled through.

I'm going to make some comments about 2009 because I don't think we put a slide together on what's going to happen. In 2009, we're -- we're expecting another round of price increases and I prefer not to discuss it -- I'm not sure it's another round, but it's the full year impact of the price increases that we've seen on the previous slide. Because we've been able to contain part of it in the first half of 2008, part of it has worked its way through the second half. But a full year impact of all the price hikes is larger than the number that you see on this slide. And so, there's going to be a drag effect on these price increases in 2009.

And based on our own estimates, all the price increases that we've put into the marketplace are going to be sufficient to recover that drag effect into 2009. The EUR420 million number that you see on slide 18 is the 2008 impact of the price increases, it does not reflect and it does not stand for the full year impact of the price increases that we're going to be pushing through. I can only give you a general number, but we think that the number overall is going to be in the neighborhood of EUR850 million to EUR950 million for the year, if you were to annualized the EUR420 million.

We can just deal with slide number 19, which deals with the other issue, which is the question of how do we flex -- how do we flex production given demand. We do have an absolute determination to ensure that we match demand with supply. And so, we've been active in terms of the reallocation of the workforce and these comments are mainly on the European side and mainly in Italy, but we are -- we've been relatively efficient in terms of allocating potential surplus labor to other units within the Italian environment that require labor.

We are gong to be using this temporary layoff mechanism and we will use it as frequently as necessary to ensure that we match supply with demand. We've had a number of people that were on staff that were on -- that were temporary, those people are no longer with the organization. It's certainly have been unfortunately, but unfortunately we've had to cut back to try and deal with market conditions, especially on the truck side.

We've tried to use this lull in production to deal with world class manufacturing training; it's really been designed to accelerate the introduction of the process to our clients to the extent that we've utilized that space to do so. If there is any excess level, we will go back and use the temporary mail mechanism.

In full, for those of you who are numerically inclined, which includes most of you, the impact of the shut down, the whole Italian production system, with the exception of the production of the light commercial vehicles is roughly EUR23 million a week. And the consequent impact on the power train activities, we will not be producing emergence is roughly about EUR5 million. So, I mean this is the number that we're using internally to try and quantify the costs associated with this realignment.

The opposite issue is absolutely true on page 20 at CNH. We're looking at demand function for 2009 is in excess of 20% over 2008 levels and a similar function in 2010, and so, as much as I think we've worked diligently as we have seen on the margin performance in the business in Q2, which is now about 11.1%, additional work needs to be done.

We lost, I think Mr. McDougal may have spoken about this on his own conference call. We lost about $50 million or EUR32 million, and I think it's included in the backup, but we lost about EUR32 million in terms of industrial bottlenecks within the manufacturing environment. These are issues that need to be taken off the table and taken of the table quickly, together with a fundamental increase in capacity and large horsepower and combine production.

We have done this -- we have dealt with part of this in terms of the reopening of the solar [caba] plant in Brazil, which is going to give us a lot of breathing space in terms of combine production. We need to do more. I think we're absolutely strapped in terms of capacity and for the production of combines, both through our two European plants and the one in the US. So, we're going to be looking at this issue over the next couple of weeks and we're going to be making a final determination about how this American side gets expanded but the forces is under way.

We have -- to make sure that we don't take all the blame for what's gone on here in terms of capacity constraints, the component suppliers have also been stretched. And so, we're working -- our purchasing people are working very diligently with a whole list of critical suppliers to ensure that we can make '09 -- we can make the '09 numbers -- we're devoting people inside the plants to ensure we helped them remove any bottlenecks that we may have.

We're providing capital in terms of providing them with supplier [totally] to try and get them over the hurdle. If this is not a temporary issue, it's not a flash in the pan, this is a structural shift in demand, which based on what we see in terms of commodity prices, is probably going to drive this industry for a number of years and I think we need to be ready industrially to try and deal with this.

While the constraints that we've also had is just the ability to machine parts. This is an area which has been historically neglected at CNH, so -- while we revamp the machining parts both in Europe and the United States, we're going to outsource a lot of this capacity out until we can build our own capacity in-house. That and our -- I think that the number of -- the measures that we put in place in -- certainly in the first half of 2008 that will be rolled out in the remainder of the year are going to give us the ability to try and deal with demand.

I think the -- we are disciplined, I think we're going to be able to -- and I sincerely hope that we don't have to get to a problem of allocating, God, the customers, given the demand function that we see, but we have seen -- especially on the case of International Harvester brand, and the high horsepower side of New Holland, a pretty stiff demand for our products in 2009. So, we're expecting the fourth quarter of this year to be an exceptional quarter and certainly 2009 to follow on that.

Just a couple of comments about cash flow. On page 21, we're confirming our ability to deal with the EUR1billion cash flow number for the year. As most of you know, we have a negative working capital position on the car side, to the extent that we have declining volumes on the European side. That implies a reversal of the cash generation associated with the negative working capital.

I think we've done and are putting a number of things in place to ensure that we can deal with that even throughout the event that it were to materialize. The other concern that people have had is our ability of our capital business -- of the capital finance businesses, especially in the US to address the ABS market.

This is a market which I think has been vilified as a result of the top crime issues, especially in the residential side. I think it has been unduly punished in for no reason and certainly is pushed spreads at record levels on the issuances. We've been on the market a couple of times in Q2 2008, but we will continue to return to the ABS market whenever market conditions are favorable.

Obviously, we continue to look at capital markets to find we consider to be intelligent funding alternatives, but there really is no rush. I mean, if you look at the majority schedule that we have attached to this presentation as a backup, there's nothing of earth-shattering importance in the next 12 months and I think that we can certainly deal adequately with any chance requirements that may be in place in other business. Especially in view of the cash generation associated with this house, the fact that we expect a CapEx program of roughly EUR4 billion for the year, which is well in excess to what we spent last year.

That leads me to slide 22, which is the final and concluding slide and we are confirming all the numbers for 2008. We've now firmed up the sales number of these has been EUR63 billion. The trading profit number, net income cash flow and everything else is in accordance with the plans that we outlined to you earlier.

We have got a view about what turnover will look like in 2009. We're expecting about EUR65 billion for the year and we're confirming a trading profit of roughly EUR4.3 million to EUR4.5 million. And obviously, the associated cash generation with those earnings, which is about EUR1.3 billion.

That pretty well concludes the presentation. We'll be more than glad to take questions on what I've covered or anything else in the appendix.

Thank you.

Thank you. Now, we are ready to start the Q&A session. Elaine, please retrieve the first question, please.

Our first question comes from [Paulo Masoli] from [Intermonte]. Please go ahead.

Good afternoon, everybody and congratulations for the good results and the good presentation. I have a first question on the slide 17 where you indicate an additional raw material impact of EUR680 million cost, which if I'm correct, would compare to pure raw material costs of EUR7 billion, i.e. a plus 10% increase. Is that based on negotiation which you're making with your suppliers or it's an expectation that you have?

No, that's the number that we're going to wear. And it's a number that reflects -- I think the number -- it's roughly -- by the way, just to help you with the calculation, it's a half year number. So, it's not 10%, it's 18%.

Okay, okay.

It's 18% increase in that block of [tomorrow] just for half a year. So, I don't think it should be underestimated and so when you see these announcements from ourselves and from our competitors about the fact that we've been moving prices, it's a pure reflection on the fact that we cannot hang on to this kind of hand grenade, it's absolutely impossible. And so, I mean, we have made a decision that we're going to make this pricing policy stick to the -- and to the extent that we need to take back production we will do so.

I mean, we're not going to get caught in a volume game here and pay the price to margins, I mean, it's just not going to happen. The increases are way too large and they've happened in too short of a period of time to allow the industrial organization to adjust from an efficiency standpoint to the hike. Some of these I think are structural and they will stay in. So, it's not as if we're adjusting prices for the quarter, I mean we're adjusting prices permanently in the absence of a reversal in raw material price rumors.

Okay. A second question is on the Fiat auto profitability. As you've seen that strong drop in the Italian market this year and not any kind of recovery next year. How likely is that you will reach these here next year margins or -- which are 3.6% this year?

There will be what?

Sorry, how likely is that you will reach the target of auto margins which is 3.6% this year, which is the low end of your target for the auto division?

I don't think there's a doubt that we're going to make that number.

Okay.

That's not the issue. I think the really bloody problem with us -- I mean, if you look at the backdrop slide, I think there's a number that says we spent EUR55 million more in marketing expenses quarter over quarter, Q2 '08 to Q2 '07. I think we need to be careful here that we don't start reading a doomsday scenario in all these numbers.

There are market fluctuations -- I mean, I've read with interest and I don't know what Adam Jonas is on the call today, I hope he is, because I read the Financial Times yesterday with some interest and it was really a motivating read that I'm just going to quote you what it says. It says, "this industry is very good at losing money, it's just not very good at going bankrupt."

I mean, apart from the fact that I think that his comments, at least for the European car sector, are totally exaggerated. But I think that we're going to be able to manage this. I mean, I think we understand the problems, I think we've got a number of reputable CEOs who are running these car companies today.

We will manage through this process and we'll come out of it. I mean, it is what it is and at the end of the day we cannot change commodity prices. They are what they are, but we're not going to wear them. I mean, I -- at least from my standpoint and certainly based on the indications that I've seen, we're going to be able to push them through and retain margin.

This is, by the way, even if we were to be successful in achieving 100% recovery of these raw material price hikes and keep margins, it's still -- we're still providing inadequate margins, we have a long way to go and I think if you look at our 2010 objective, you see the shortfall right there. But I'm not worried about the margins, I mean if that's your question.

Okay, and then a final question on again, Fiat Auto, could you give us a feeling of the profitability by region, just to understand the -- what are Italy or Europe have been profitable in the quarter.

Italy has been undoubtedly profitable. Latin America has been undoubtedly profitable and Western Europe has been profitable. Don't ask me to quantify any of these, I wont.

Okay, I won't. Thank you very much.

By the way, just for your information, Italy has always been profitable. Historically. Even when we were losing a lot of money, which tells you something about becoming an international player, all right.

Our next question comes from Monica Bosio from Banca Imi. Please go ahead.

Hello, could you hear me? Hello, I could ask two questions, the first one is regarding the fully revenue target. The revenue target is now at EUR63 billion, which is higher than the previous one. May I assume that a difference is due only to price increases? Or the result of some other effect?

And the second question is related to the stock at the dealer network level. Is it possible to have some detail or some number on the stock level at the CNH network and if it's yes, if it's possible to have the same figures for the [partier]. Thank you very much.

By the way, just to deal with this information on the stock levels. The answer to your first -- to that question is that we're not stopping the distribution channels in case you're wondering, that's all we're taking production down to avoid the bill. But the information is on page -- is on slide 45 -- 43 on the presentation. So, if you have any more questions, just come back from that problem. The issue about the EUR63 billion in terms of revenue, it's not the price increase. I think that -- we had estimated -- we had estimated about EUR60 billion when the plan started back in 2006, we never changed --

Okay.

-- fundamentally the target. But I mean, we're now sitting on revenues of EUR17 billion for the quarter. We're well in excess for the halfway mark between the first semester and the full year target. It just reflecting the volume of business that we're pushing through this organization.

The price increases I mentioned earlier, most of them will become effective in the second half of 2008. And so, they haven't biased the number substantially, but the number is in the EUR63 billion range. It just shows the rate of growth for the businesses. I mean, there's nothing magic about this. Its not inflation driven.

So, it's supposed to because of volumes, because of CNH, et cetera, et cetera.

Well, it's due to CNH. It's due to Iveco, it's due to the [cross line]. They're all up. I mean, if you look at slide -- if you look at slide number three, you can (inaudible-background noise) see they've all been up double digits with the exception of Iveco and so, it's been -- it's been good performance.

Okay, and I would ask another question if it's possible. I can imagine that you have a contract from the purchasing side with suppliers, some of this contracts may be of expiring and some other no. Is it possible to have a direct down of the contracts which are expiring within six months --?

When you ask me the questions like that, I wonder whether you work for the competition.

Okay.

Just -- I'm not trying to be rude here, but there's absolutely no way I can give you that information.

Okay, It's no problem. Thanks.

This is part -- no, but, this is part of what we do for a living. So the kind of arrangements that we drive with suppliers are probably the most confidential pieces of information that we have, they determine the cost structure of this group, that's why we've aggregated all the purchasers, all the buyers together under [genucode], the objective is to try and leverage -- I mean, for the first time, we've been able to see the impact of this commodity drive on the real world position on the house, EUR7 billion three years ago was not visible.

It's now absolutely visible and it's being managed actively by a group of people who manage that number. And so, I prefer not to give you those details. I think it -- suffice to say that I mentioned in the slide, that one of the things that we have done is extend the terms in exchange for a reduction in price increases. I mean, we just -- we may have extended the duration of a contract to guarantee supply at a price.

I think there is a level of skepticism out there as to whether these price hikes will hold. I think we've taken a very negative view for 2009 that these prices -- these prices will stick and I think that our pricing policy reflects it.

Okay, thank you very much.

Our next question comes from Andrew Lobbenberg from RBS.

Oh, hi. It's Andrew here. A couple of questions, please. On previous calls, we've discussed the easing of production volumes for the 500, if you could just update us as to where that is going? Second question, on the price hikes, you said that your calculation, what you're going to get, was taking into account the pushback you would get from consumers and that you had greatest confidence in it sticking at CNH.

So, could you give us a bit of understanding as to which models or which markets you think are going to give you the best opportunity to get price increases to stick, apart from CNH on ag? And then, as a final question, since you won't tell us anything about BMW, could you just update us on the Serbian deal and the benefits you have flowed from that?

If you exclude -- if we exclude -- let's just give you a general comment about the CNH piece. The level of actualization that we have applied to the CNH portfolio is not reflective of an ability to push through crisis, but it is simply a reflection of our commitments that we have made to three orders on particular equipment where we effectively have protective price. And so, we've assumed that on those deals we will not be able to push through the price increase.

Given what we have seen, we have changed our commercial policy to ensure that if there are additional jolts in pricing that we would recover them regardless of commitment. So, that's just to deal with the CNH side. And so, there is a percentage of the volume that we will be booking in the second half for 2008 of which price protection has been passed on and where we will be wearing the price increase and that's reflective -- and that's reflected in our margin expectations for the year and it's fully reflected enough to make them to deliver 3.4 to 3.6 for the year.

In terms of -- I prefer not to discuss particular models. I can just make some general comments about where we think we would have more difficulty in terms of recovering them. To the extent that we may be weak in terms of market presence, in particular European countries, I think that's an area of concern. But more importantly, I think the age of the product within the portfolio is the one that really would concern us the most. So, the extent that the product has been around for four or five years, our ability to try and attract premium pricing above and beyond what we currently have in the marketplace will be much more difficult.

The good thing about Fiat is that most of its product portfolio has been renewed as of recent. We still have some issues that will be solved within 2009 in terms of product introductions. But the majority of the fleet has been renewed on the Fiat side. It is not true of the alpha side which is going to go through a substantial revamping over the next 24 months. It is true of light commercial vehicles and therefore, our ability to pass through the price increases on that portfolio product is much greater than it would be anywhere else. Hope that answers you questions.

Yes, no, that's good. Thanks.

And you wanted to know about Serbia? Serbia is a great place, especially after yesterday.

Yes.

The deal is going on. We got enough people on the ground that are negotiating the final terms of this agreement. It is my sincere expectation that we'll be in production in 2009. In an ideal world, that plant should be able to hit about 300,000 vehicles over a reasonable period of time.

And I think that things are looking good. I think that we're getting the right support from the government, hopefully it will be finalized as part of this negotiation, we're getting the right level of support from the government to get this process underway. We got great expectations in terms of the client and I think in terms of this capacity. So, our people have begun to sort of draw pretty firm investment plans that will be implemented over the next 12 months.

Cool. Thank -- and 500 capacity?

Over 200,000 a year.

Cool. Thanks.

Thanks.

Our next question comes from Massimo Vecchio from Mediobanca.

Good afternoon to everybody. I have two questions. The first one is on your component business. I wasn't expecting many results, I was expecting those business to be much weaker, they have high exposure to US and also probably they are not the biggest in terms of dimension compared to their peers. I was wondering if you can expand a little bit on the fact just behind this performance.

And the second question is on Fiat Auto, if one reads all the data on the car market and the other room or some registrations on the last three days of the month sales to fleets and the [meter] sales, I'd like to have your opinion on that and if you can expand on this as well. Thank you.

Well, let's deal -- the majority -- let me deal with the last question because I think that we can talk about four floor and sort of stories that you tell each other at the bar about this industry forever. The problem is that this industry does have some bad habits in it and I don't think that the question about the number of registration that happened in the last three months is indicative of anything. It certainly may have been indicative of the mismanagement of the distribution process by Fiat in the past.

I think our dealers -- our dealer structure and most dealers structures are used to the registrations in the last three days of the month. If you looked at the numbers -- if you look at the volumes that are registered in the last three days of the month in Italy, it's not just Fiat that's registering. We have a third of the market, but every other dealer is doing this in the country at the same time. So, it's reflective of the commercial habit and the jurisdiction and it's not reflective of anything else.

In terms of the fact that we -- there's been an emphasis toward fleets and rental companies, this is absolutely true, it's bound to happen in any market which is declining where the retail customer is not buying. It's reflective of the weakness of consumer spending. Everybody is therefore doing -- I mean, proportionately it looks -- the number looks larger because of the fact that the -- the retail is not there. But until that number comes back, we will continue to service the distribution channels as we've done in the past.

The issue that you've raised about components, we have been very careful about how we have grown [morelli] over the last little while and certainly -- I mean, I exclude FPT because FPT has a very clear mission in terms of being an engine and transmission producer for the passenger cars and the industrial and marine markets and so, it is a high tech industry in that sense where technology is going to play a significant role and we will see the development of this business over the next three or four years.

But the morelli side, we've been very, very careful not to have -- not to get engaged into sort of component businesses that have little technology in them and so, we have invested heavily in the automotive value business, we invested heavily in electronics and control units for engines. These are the businesses that we like, and therefore, our ability to retain margins in those businesses simply reflect the level of technology that's inherent in the business.

There are parts of that business which I don't think anybody in their rational self would ever invest in. I think that the question about being involved in exhausts is going -- it's questionable. It's an inherited issue from the Fiat group, I mean we do need product exhaust pipes in cars and mufflers, but I don't think it's the kind of business that ultimately is going to change the dynamics of the business. But all of the growth of morelli is happening at the high end of the spectrum and that's what's been yielding the margins that we've been seeing.

For last question, will you -- would you play a consolidation role in the industry, in the component industry if something comes up, or it's out of the question?

It's a good question. I mean, I -- just to be fair, I mean, I get approached from time to time from people who think they're consolidators and when I look at their portfolio businesses, we're not going to consolidate anything because -- it just -- we're just aggregating components, we're making people bigger. I think that that argument is only true for bringing about other geographical coverage, which is complimentary or technology which is needed for the development of the businesses and I have not seen anybody showing up at our door with that -- those kind of prerequisites.

I just wanted to correct something else that you said, there's no doubt that we have an exposure to the US business and around these present, but it is not the largest part of what we do. And so, although we haven't liked what we've seen in terms of the US market and as painful as some of the things that we've had to do with morelli in the United States in terms of cutting back production, we've been able to react and it hasn't impacted performance. It's not a big piece.

Thank you very much.

Our next question comes from Thierry Huon from Exane.

Yes, good afternoon, it's Thierry Huon from Exane. I've got a question about your forecast for the car business in '09. If I'm correct, you expect sales for Fiat to be up by 12%. It is not bold assumptions given the current environment?

Okay, maybe both. We're coming off a bottom in the end of 2007 that we have not seen here in I don't know how many years. I mean, 2007 is a dead stall year for the Italian market and it's not a great market for Europe.

Yes.

I mean, if you look at their ability to maintain share in Europe, notwithstanding the decline in Europe, but tells you the level of penetration that we've been able to have. If you look at the chart on page -- going to have to flip through this, but if you look at charts on page -- I'll find it, trust me.

On page 10, and you look at the development of the Western European market, ex-Italy, we went from 371 to 460 this year. We've grown over 90,000 units just in the Western European market, notwithstanding the decline -- the decline on the Italian side. So, I'm not looking for a particular outstanding performance. I just want to be able to play. This -- and by the way, Thierry, just to be clear we're still -- 8% margins is not going to put the world on fire? 8% market share.

Okay.

You know, we're not going to bother anybody else in going forward.

Could you tell us on which car --

We will, I promise you that we will eventually. I don't think we're going to do it right now.

Could you tell us on which car are you banking to get there?

Which cars are going to be in the 2009 line up?

No, on which car you are banking to get to this plus 12 points?

Well, I mean [Demeter] is going to be fully launched and it'll be in the show rooms in September, I have a lot of -- I have high expectations on that car. I think the indications that we've gone back from starting -- from the technical press and the reception that we've seen sort of a retail level is quite high. I think that car will probably do better than we think. The launch I think is going to deliver its numbers in 2009.

But we do have a number of project productions that are coming through. We're -- I had a long conversation with the Board this morning about what we're going to roll out. We're taking a very hard look at the launch schedule for 2009 because the worst thing you could do is launch a great car in a market like this because it's going to age while the market is looking for a bottom and I don't like doing this, so we're going to watch this very, very carefully.

We have the flexibility to decide when we launch and not launch. But if we see any uptick -- any type of uptick and activity in the marketplace, we'll be -- I think 2009 will probably be the most significant launch year, potentially, of any year we've had, since I've been here.

Okay. Another question, which is not the real one actually. I didn't think what you said about the auto marking for '09. Are you going to make the 3.6 or not?

Yes.

Okay. (inaudible) yes. Okay. Last question about the wording for the guidance. It seems to me a bit difference on what you used to say. If we wait, what you could have said that is commitment is to meet the guy down -- if I'm currently remember, it was before -- comes from guidance without specifying a commitment. Is that something -- is there any tone of cautiousness there?

Thierry, to be honest, I think the semantics are irrelevant, I did it to please a couple of people in the group executive counsel.

Okay.

I don't particularly care. Use your language, it's as good as it gets.

[With care]. Thank you very much.

You're welcome.

Our next question comes from [Neils Engal] from [BZed Bank].

Hi. I just have a question on slide 18, and I'm just wondering if I understand that correctly. You're guiding for 7% for H2, and if that's the case, just do the math and with the EUR65 billion, that's what you're expecting for this year -- EUR63 billion, sorry, for this year in terms of sale, that would make a huge [outrating] operating profit, just that (inaudible) --

Neils, slow down.

Are you --?

You can't take a EUR420 million price increase and apply it to EUR63 billion in revenue. It doesn't work that way. I wish it did, I think we'd all be retired and playing golf back in [Bolerond] but that's an indication of what we think we're going to be able to retain. If you take EUR2 million off that number it drops to 6. It's insignificant in the scheme of things. The whole objective is to try and retain margins for the year.

Okay. But --

So, that number ends up being 28 or 31, it doesn't really matter. The objective is to retain margins in accordance with the objectives that we set in the beginning of 2008.

All right. Okay, so it's not the guidance, just for stage two whatsoever. It's an indication.

Yes, well, if it was, then you should go out there and buy everything you can get your hands on on Fiat right?

That's right.

Deliver 7% margin on the second half on roughly EUR30 billion worth of revenue, we'd be making about EUR2.1 billion in addition to the EUR1.9 billion that we made this year. I would have had to revise guidance to over EUR4 billion for 2008.

Exactly, that's my point.

Yes, I know I got there. I'm on the page, but I'm not on the numbers.

Yes, that's all right. I was just doing the contrary. Okay, great. But thanks and good luck with H2.

Our next question comes from [John Luca Petacoli] from Banko Leonardo.

Good afternoon, gentlemen. My question was already partially answered, but I'd like to come back to the slide 43 on the dealer stocks. Is it possible to have some color just for Italy and then it would be Western Europe because that is a global chart?

I don't have it here, but if you speak to Mr. Auriemma later, he'll give you the information. I don't know whether we haven't given it out -- we have never given it out? I'm looking at my -- the people in the room. We have never given it out, so we're not able to do it now.

[What about just], just color , just how the dealer thought that --?

Use yellow and blue and dream it up. But we won't give out the numbers.

Okay. Okay. Thank you.

Thanks.

Our next question comes from Arndt Ellinghorst from Credit Suisse.

Thanks very much and good afternoon, everybody. Mr. Marchionne, could you share with us your thoughts regarding pricing specifically in the car business. And also, did you look at the total cost of ownership of driving around with cars, because what we see is that the cost of driving cars is significantly increasing from -- yes, from higher fuel prices, basically. Do you take that into consideration when you're asking for price increases? And just share with us your thoughts on this one.

Well, I mean it's an interesting question, so let me -- I'm going to give you the philosophical view of the psyche. One way to answer your -- to answer the question of total cost of ownership is by driving cars that are both fuel efficient and environmentally friendly. So, I have absolutely no sympathy for somebody who drives a 12 cylinder car who bitches about the price of gas. All right?

The question is whether the common man should be driving gas guzzlers or not. Fiat made a choice, a long time ago, even before I showed up and it was a choice that was reinforced by a number of strategic commitments that were made by this group back in 2004 to work on downsizing engines with the objective of providing both fuel efficiency and a fundamental structural reduction in emissions.

We have been, as of the end of last year, the leaders in terms of having the lowest CO2 emissions in Europe and because of the car producers, we've maintained that record in the first semester of this year. We intend to maintain it going forward and certainly by 2012, which is when this new wonderful set of rules will be introduced by the European Commission.

So, I think that this whole notion of total cost of ownership must be viewed in the context of a variety of factors, including consumption which is making -- which is certainly a current -- oil prices is making the cost of driving phenomenally more expensive than it has been historically.

The fundamental question that you've asked, which has to do with price elasticity, in a normal environment, in the absence of what are considered to be external shocks on the procurement side, of the caliber that we have seen, we don't -- I would have told you that the majority of expectations on price increases on the car side would have been a farfetched idea.

What we have seen in the second quarter of this year, it was threatened in the first quarter of this year, but what we're seeing in terms of implementation in Q2 2008 and what we see for the remainder of the year is a fundamental shift in the way in which the cost structure of this business is won. It's independent of anything that any of us can do on the car business, and therefore, I think that there's a collective will and which, by the way, is not a result of delusion, but it is a result of the independent reasoning of car manufactures that have acknowledged that this type of price pressure on cost cannot be borne by the converter.

And so, we have passed them on in the -- in a normal environment, these type of events would have been absorbed by the structure and would have been made up by efficiency gains either on the industrial side of the business in terms of manufacturing or through the purchasing initiatives and the improvement of the technical content of components. This is the normal way in which these prices increases have been dealt with.

If you go back and look at a presentation that was made in [auto] in 2006, and you look at all of our forecasts as to where we thought we would be year after year in terms of gross savings, which are fundamentally related to technical improvements in the way in which we purchase components, net of raw material price sense, you would have ended up with a positive gain.

So, the price elasticity argument is understood. We will be -- we don't have price in power in this business. But when you've got external shocks of this caliber, it's impossible to hold them. The timeframe for digestion is too short.

So, basically -- I mean, this is curing the industry. I mean, everybody reduced costs over the last five, six years. And now, everybody is increasing prices, but is everybody also prepared to live with probably 5%, 10% fuel volumes. If profits could be sustained, I mean that would be a great world.

Well, I'm not sure it's a great world. I mean, that's why I made reference to Mr. Jonas's comments the other day in the Financial Times, I think that this industry is a lot smarter than it's ever been and I think we're going to deal with this issue intelligently.

This is an external shock to the system that needed an adjustment in pricing. And we were one of the first ones to come out of the gate and make the announcement. So, we've made it across all of our businesses. We're dead serious about cutting back production to ensure that we meet the targets, it's impossible. We're in this business to make money. All right? I know of first that view of car making other than the fact that we need to eventually earn a return on capital.

Understood.

And to the best of my knowledge, all my colleagues in the European car industry are driven by exactly the same motives.

Thanks. If I may just add one quick one, if you look at the portfolio of your businesses until next year, what's the biggest area of concern for you?

Probably the truck side. I think we need to see how demand shapes up for that business in 2009. It's very difficult to call. Our presence in China with the start up with [Chong Ching and Siek] will eventually come off stream and effectively provide a huge boost in terms of volumes simply because of the size of the marketplace. But this potential slow down in the truck business is happening probably a year or two early.

So having said this, I still feel relatively comfortable that we've got enough levers that we can -- we can continuously adjust our cost structure to try and make -- to make the numbers. I -- we've had a lengthy discussion with the rest of the executive team on this issue last Monday and I have a relatively high degree of confidence that there's a commitment on everybody's part around that table to make sure that we will tone down everything to make the number. We have a lot of discretionary stuff at our hands and I think we need to be able to -- we need to be able to turn it down as required. So, we're watching this like a hawk.

All right, then --

Look, I haven't had to change a -- I mean I mentioned this to my friends on the Group Executive Counsel on Monday. I'm getting to a point in my life where I can talk about my past, which is unfortunate, but I'm 56 and I never had to change a forecast so far and I prefer not to have Fiat do it the first time.

All right. Good point. Thanks for your presentation today.

Thanks.

Our final question comes from Adam Jonas from Morgan Stanley.

There you are, Adam.

It's me. I'm here. Sergio, I'm --

I've been looking for you all day.

Yes, I know, you've got the knives sharpening here. First, I'm very glad that the quote is motivating you.

Yes, it is.

But I was just -- forgive me if I'm just making an historical observation, no fault of your own, of course, but even Fiat Auto has lost money for nine out of the past 16 years. Ford and GM seem to do it in an average day. Mitsubishi, Nissan, Peugeot, even Mercedes is losing money, as you know, for a couple quarters not too long ago.

So, I totally take your point that you're not -- that you're in this business to make money and that you've never had to change a forecast before, but to be fair, you've never been the CEO of an auto company into a potential global downturn. I guess my question is --

But Adam, just to make sure that we --

Yes. Please.

Just to make sure that we muddy my reputation sufficiently. I did come in here in 2004 when we were losing 3 million bucks a day, yes?

Okay. Fine.

So, I may not have -- we may not have managed a downturn, but we certainly managed a loss.

Okay --

But the only comment that I tried to make and then I'll shut up on this issue, I think you need to give more credence to this -- not just to Fiat, but I think you need to give more credence to this industry than we have been able to achieve. I think that the European car side -- and I don't want to start talking about the US because I have little knowledge of the American car industry. Certainly whatever knowledge I had terminated on February the 14th, 2005, when we terminated the alliance with GM. I mean, my level --

Good move.

-- it stopped right there, but -- and so I leave it for them to try and defend their performance. I just think that the European car industry is in much better shape than it's ever been and I think a lot of this is a reflection of the quality of the leadership in place. I mean, I -- believe it or not, I'm -- other than [Wendolin Leaderking], I think I'm the longest serving member on the [ASEA] Board.

Sergio --

Everybody else is new.

Sergio, I mean, I'm certainly not one to take a swipe at --

No, no but --

-- your leadership or the management of your peers.

I just want to be -- I just want to be factually accurate and then, I think we can disagree about forecast and whether we're right or wrong. But I -- as much as I like to [bidding] against my colleagues on the car side, I think that you guys are no dummies.

Okay.

And I think that, let's give them the space to prove that they're not.

That's fine but, I mean, I guess the issue is that at some point, great management needs factors that are outside of any management's control.

Adam, there's a famous line by Warren Buffet, that --

I know what you're going to say.

-- says that, "Whenever you take great management and a lousy business and you put them together, the lousy business always wins."

Right. Well, that's -- then we're in agreement perhaps there, I don't know if you're agreeing with him or not.

Well, let's prove Warren Buffet wrong.

I'd like to do that but just to get on with it, because I guess I -- one last philosophical question before we wrap up a long day, I think, for a lot of people, yourselves included. I guess, can you think of any -- okay, let's say macroeconomic scenario where Fiat Auto could lose money, even under your stewardship?

Okay.

And to continue on that, could there be the type of macro scenario with a change of technology where it actually would be better for the long term business if you gave billions of euros to those 24-year-old engineers in turn to develop a gain changing technology that maybe would require you to sacrifice short term profit, and even profit entirely coupled with a negative scenario for the betterment of the Company, longer term. Or is this really all about running each year individually for profit and no matter what the scenario is, never losing money?

Well, that's a nice question on which to end the call. Let -- I don't think there is anything the Fiat Group Auto has done in the last four months which has been driven by a sheer single focus on making the number for the quarter. There are a number of things that I would have never done in this house, including building the [Chincochanco] back in 2005 and making the kind of capital commitment that we made if we thought that we were going to try and build the next quarter, because it took us a bit longer than three months to make the number -- to make the car.

I think that we're absolutely conscious and aware of -- and I'm going to come back to the first part of your question, but I think we're fully aware of the game that is being played here and the relevance of technology in the production of cars.

I think that there is -- and I can envision in the medium to long term, a solution that would fundamentally displace the current propulsion system of vehicles to the point where it would be unrecognizable compared to today's structure, and I can do this -- even though I'm not an engineer, but having spoken for research people and our development people, that I can see that happening in a medium to long term. I don't think it is going to happen before 2012. That's the first question.

But the group itself continues to invest in research to try and find ways in which the environmental damage -- potential environmental damage associated with emissions and the consumption arguments are curtailed. It's probably the single largest driver of the strategic development of the fleet of cars that are being developed by Fiat, its going to continue to be the mainstay of the strategy going forward, regardless of styling and brand issues.

And so, the notion of what are considered to be fundamental respect for the environment is crucial to the development of our brand and it's going to become even a more significant piece of what we do going forward.

Having said this, we made quarterly numbers. I mean, I think that the fundamental difference between -- I'm old enough now [to look back] -- going back to history, I've heard and I've met a lot of people that have told me that it were building the infrastructure for the future and I had to weigh our losses in the interim period because the world was going to be a better place by the time we finished. Most of those people are quacks. Most of them. Not all of them. There's got to be a commitment to deliver the numbers.

And so, one of the tricks in running this business or running any business is to balance the commitment to the future with the commitment to deliver what you promised. And it's not an easy -- it's not an easy task, it's not -- I -- it's not painless, but I am very concerned about people that don't deliver the numbers. It's a very bad habit. And so, I don't encourage it in here. I certainly don't and have never tolerated it in any part of my career as a chief executive and I won't.

So, having said all this, we will do all the right things to make sure that we can nurture the 24-year-old engineers that you make reference to and that we deliver the -- we end up being at the right place at the right time.

The other countenancing factor to all this is that the component suppliers, the reputable large component suppliers are people who are -- continue to invest in technology to try and provide a significant push forward in terms of the available technology to the marketplace. So, we are not solely depending on the ability of Fiat as a group to access that technology, because it will be available to the supplier side.

And I think that if you look at the development of the spool of reputable suppliers, apart from that, for the fact that some of them are relatively large. If you look at the amount of resources that is being devoted by them to drive technology forward, even if you didn't do anything inside the house, you'd be able -- as long as you paid for it, you'd be able to have access to it. So, I don't think we're going to be left naked on this. I think we'll be fine.

But I told you that I was going to come back to the first part of your questions. What was your first part of the question, Adam?

It was just -- can you envision a scenario where you could lose money --

Oh yes, that's right.

-- outside -- no fault of your own, Sergio. Yes, come on

No, no, no. That's okay. I take the blame too, I don't care. I'm old enough to take the mud. I can envision a scenario where auto will lose business. The likelihood that that will happen is in the lowest possible distribution. You can always envision a set of events that will effectively produce a loss. If European car demand went down across the board by 30% because people stopped buying cars, it would push us into some pretty drastic actions in terms of taking capacity out, but we will not the be only guys out and while you were taking capacity out, there'd be expenses, you might lose money. But it's not likely.

Yes, I'd say a 30% drop is a bit unlikely. Thanks for the answer, bless you and let's try to prove Warren Buffet wrong.

I'm on the page. Thanks.

Take care.

Thank you. We'd like to thank everyone for attending. If there are any additional questions, please don't hesitate to call us. Have a good evening. Bye.

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