Stellantis NV (STLA) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat 2008 fourth quarter and full year results conference call. For your information, today's conference is being recorded. At this time, I would like to turn the conference 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 to you all or good morning, as the case may be and welcome to Fiat 2008 fourth quarter and full year results webcast and conference call. Mr. Sergio Marchionne, our chief executive, 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. And after the introductory remarks, we will be available to answer other question you may have. Before moving ahead, let me just remind you that any forward-looking statements we make -- we might make 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 Mr. Sergio Marchionne.

Good afternoon, ladies and gentlemen. We gave a lot of thought to the title for this presentation and I think probably the best way to describe what we're going to witness in 2009, coming out of 2008, fundamental rethink about the health, the way in which we're going to be running this business. If you go back to the meeting that we had back in [Balachor] in 2006, obviously, the objective of the plan that we presented then was one that was geared at the industrial expansion of Fiat for 2010. It covered a four-year period of intense investments and growth and the conditions for that plan started changing in 2008. And certainly by the fourth quarter of last year, they fundamentally changed the landscape in which this industry operates. It is not just -- these are not just reflections that impact on the car business. I think the impact, certainly on the automotive sector in general and/or, even in a more general sense, to industrial activity.

There is a number of things that have happened that have changed the capabilities of houses like Fiat to try and get to the 2010 objectives unless there is a restoration of simple financing capabilities in the capital markets to allow organizations like ours to go out there and accomplish those objectives. So we -- this whole emphasis that we've had -- earnings on the maintenance of margins are things which have become structurally secondary now because all of us, just not Fiat, are going to be running 2008 for the primary objective of cash conservation and, more importantly, cash generation.

But before we get into this discussion, let me try and wrap up 2008 pretty quickly. I'm on slide two. As the slide says, we have had the best trading year in our history. We've ended up closing the year with revenues of about EUR60 billion with a trading margin of about 5.7%, which I would suggest is probably best-in-class margins in the sector. We have been able to grow end year revenue across all the sectors. And certainly in terms of the capital goods business, both trucks and the CNH side, we have had stellar performances. They have achieved good margin performance and good market penetration. And I think that when we stand back from all this, I think I can look at 2008 certainly with a certain degree of satisfaction. This is notwithstanding the fact that the fourth quarter has been fundamentally dissimilar from the first three.

We have seen a severe decline in revenues. We've seen a contraction of demand across all sectors with the exception of the AG business on a worldwide basis. But notwithstanding all of this, I think we've come back in with a net income for the year of EUR1.7 billion. If you remove all the unusual items from 2007 and 2008, we were actually up 15% year over year. So we're pleased with that part of the performance. The unpleasant part of the performance for 2008 has been the ballooning of the net industrial debt position, which had hit about EUR5.9 million as of the end of December, which, I think we need to spend some time in terms of explaining.

I think we have given you indications, certainly in the past, in the way in which our balance sheet is structured and the way in which it functions through a normal operating cycle, especially the reference that a negative working capital position of the Group has experienced not just in 2008, but historically. In a period of economic downturn -- and this certainly consistent with what I told you in the presentation in Balachor in 2006 -- in a situation like this, working capital would turn. I think that a lot of us, and certainly you, were surprised by the size -- by the speed of the turnaround which has been quite substantial. And we have seen volumes decline rapidly in the last three months of 2008 and that has brought about the boomerang of working capital coming through and payables effectively being extinguished in the absence of replenishment of cash from new payables being incurred and therefore coming into the production cycle. But anyway, we'll explain this as we go on.

We've got about EUR4 billion worth of cash on the balance sheet. It's around the target that we had. We'll explain more about this. Part of the liquidity has been used and continues to be used, certainly as of the end of the year. The substitute, the fact that the ABS market in the United States has dried up and access, so CNH capital to that market has been severely curtailed. We've had one ABS transaction the first semester of 2008 and that market has effectively been shut down to most issuers since. And Fiat has financed those activities out of the Group.

As of the end of December we had about $5.2 billion of funds that have been extended to CNH Capital to carry on our activities. And I think the conference call from the CNH management was concluded awhile ago. I think that there was a clear indication in the press release that they issued, but the fact that CNH Capital doesn't necessarily -- is not necessarily in a position to continue to rebound such funding going forward and that we will find alternative ways of replacing the source of capital which has been driving that business.

If you can move onto page three, this is a typical reconciliation of the constitution of our top line in our trading profit results. All the businesses were up for the year, not only in terms of revenue, but also in terms of trading performance. Even the car side ended up being 1% year over year notwithstanding the severe decline in the fourth quarter of 2008. All these businesses, because of their inter relationships and their strong connection with the car side, have suffered significant declines in the fourth quarter and has impacted on their profitability.

On slide four you can see the -- a reconciliation from trading profit all the way down to net results. Before I move there, I think we have taken -- there is an item on there of EUR407 million worth of unusuals for the fourth quarter -- EUR390 million for the year. We have decided, given trading conditions in the market, to do a couple of things. One is to book some restructuring charges in connection with businesses that we have already put out hands on during 2008 in terms of aligning the cost structure. But probably the most significant part is that we have realigned the current value of the used equipment for both the car side and the truck side in view of weakened -- the weakened demand function in 2009.

There is also a portion of this that relates to some adjustment to -- for suppliers. They're in a critical condition and therefore we've made provisions to deal with those potential exposures. The other thing that we've had -- additional mark-to-market adjustment on our equity swap that supports our stock options and the Q4 loss was EUR99 million against a gain of EUR71 million in Q4 of '07. And we've had a loss of EUR263 million for the year on that swap against a gain of EUR70 million in 2007.

Cash flow statement on page five. EUR5 billion in capital expenditure and as I mentioned earlier, a change in working capital of about EUR3.6 billion, which is at the heart of the ballooning of the debt from a positive cash position of roughly EUR350 million at the end of '07 to about EUR5.9 billion at the end of '08.

We can move onto slide number six. We've tried to sort of depict -- and we've given you some historical background for this going back to 2005 -- about how the various components of the working capital line operate in normal trading cycles. You can see that we had -- and it was visible, by the way, at the end of Q3 when you saw the debt going over EUR3 billion -- that the working -- the trade payables have consistently and historically been a source of capital to this [house].

I've gone back in and I've looked -- I've tried to look at the networking capital position of this group going back a few years and they've -- it's provided -- the networking capital position has been negative to the tune of anywhere between EUR2.5 million to EUR4 billion. That position, at the end of 2008, was nearly zero. And so, all the benefit, which has been supporting the industrial operations of Fiat was effectively reversed in the fourth quarter. Now, to the extent that you have a one-time adjustment of this caliber, the hit has been taken. And once we stabilize volumes, if we work to maintain volumes at the exit rate of 2008, there should be no more negative impact in 2009. And as a matter of fact, we're forecasting that we will generate roughly EUR1.1 billion of cash in 2009 and therefore our net industrial debt position will be brought down to below the EUR5 billion mark.

There's a few slides, starting on page eight, I guess, that talk about what -- how we see 2009 in view of the way in which we exited 2008. I think there is --- there's collective consensus on the fact that the outlook on the automobile side is relatively negative. We've shown you some indication of where we think volumes would be in 2009. We're talking about roughly a decrease of anywhere between 10% to 15% in volumes, both in Europe and in Brazil and light commercial vehicles being around the 15% to 18% mark. This is certainly consistently with behavior that we've seen in the marketplace in the fourth quarter of this year. We do expect that our total volumes of cars sold will be below the EUR2 million mark in 2009.

I've made reference to the fact that 1,840,000 vehicles appears to be the magic number at which we break even. We still expect to be above that number, but not substantially so. And our internal forecast would suggest that probably even in a worst-case scenario, we will break even on a global basis on the car side. Actually, we do have expectations it will be positive. But even in a distraught scenario as the one that we're depicting now, the car business will be both earnings and cash positive in 2009. Not by a big stretch, but some.

Page nine is our assessment of how CNH will perform in 2009. The best way to describe this is that I think we're going to see -- we are going to see volumes coming down on a global basis in AG. I think we will hold up relatively well our large horsepower tractors, four-wheel drives and combines, which continue to be at the heart of the profitability of CNH and certainly have been for 2008. The order book -- the order board which is supporting the production which ballooned inventories at the end of '08 in AG is strong. We expect to have two strong quarters on the AG side in 2009. And that has to be balanced against what we expect to be pretty disastrous conditions in construction equipment.

Construction equipment, to give you an idea, I think we're talking about volumes in Q1 being roughly 60% of what we saw in 2008. And this is due to the fact -- this is due to a variety of reasons, but even if the stimulus package that is being proposed in the US and which is directed in infrastructure spending, even if that were to be actioned relatively quickly in the US, we will not see the benefit of that stimulus on our demand until probably the latter part of 2009 and 2010. So we have begun the process of systematic shutdowns of our production facilities in construction equipment, not only in Europe, but also in the US. We have downgraded our production capabilities in Latin America in expectations of a slowdown. And it is our expectation that most of the construction plants will not run in the first quarter of 2009.

That is not true, obviously, of AG. On the AG side, we continue to produce combines and large tractors. We are going to be seeing a decline in the tractors of 100 horsepower and below, which is purely attributable to the class of farmers that will be buying this type of equipment and the fact they really have not benefited from the crop side of the farmer population, which has been able to utilize large equipment. It has been able, really, to rely on what I consider to be pretty significant commodity prices to justify the investments.

Having said this, I think that 2009 is going to be a good year for CNH. We do expect to see performance which, very broad line, is similar to what we've seen in 2009. I prefer not to peg myself to a number, but I think in terms of overall performance, we will not be materially off 2008 numbers. Now this is based on our assessment of a strong first half in AG, a weak construction equipment industry for the whole of 2009 and our ability to reflect -- to start re-accessing some of our non-traditional markets such as the CIS in the second half of 2009. This is a market which, because of credit conditions, is temporarily shut down. We have made -- we have tried to make some arrangements to get around the credit issues that are impacting those customers, but I think it's highly unlikely that we'll have any success in the first half of 2009. So the recovery will probably be pushed to the second half of the year.

Trucks is a different story. We're expecting a 30% decline in Western Europe. Less pronounced in Eastern Europe and roughly a 10% decline in Brazil. We have had a good year with Iveco. [Journey] was going very well for the first six months of 2008. We've had an outstanding performance out of Brazil for the whole year, although demand has weakened and dropped off in the fourth quarter. But notwithstanding, I think that we are, as the slide refers, the financing conditions in Latin America have weakened. They are obviously not as bad as they are in Western Europe, but they are impacting on demand and we're beginning to see this in the numbers.

If you move onto slide number 11, this is what we have prepared as launches for 2009. We have decided to postpone a couple of strategic launches on the car side. I think the success of 147 will not be launched in 2009. It will be launched in 2010. We have found it pretty useless to try and introduce new vehicles in a market which is in a downward trend and so we're going to save our pattern and continue to run our plants in the existing models until we see a restoration of some sensible demand in the marketplace, which hopefully will happen in 2010.

Obviously, there's a number of upgrades in products that will be launched fore the Case, IH and the New Holland brand in 2009, but these are thoroughly consistent with our product portfolio development and certainly with the demand in the marketplace. We've talked a lot, certainly in the second -- in the first and the second quarters on the impact of raw material prices on our performance. We have seen a severe reversal of the price hikes that we have seen.

This is an indication of where most of these commodities have ended up at the end of this year. And we feel relatively comfortable that these prices will hold in 2009. So we're not concerned about additional raw material prices hikes, although I think we're still wearing -- we will be wearing for the first probably two quarters of this year the back end results of the negotiations that took place with suppliers during the first part of 2008.

Having said this, if you look at slide number 13, we were able to recover most of these price hikes, even in the fourth quarter with a net number of about EUR20 million and that continues to be our objective going forward and throughout 2009. We made a commitment at the end of Q3 about the fact that we will be aligning our cost structure to what we perceive to be the right level of demand.

There's a number of items listed on slide number 14 that deal with the usage of temporary layoffs with the fact that we're not renewing a number of temporary worker arrangements that we've had. We will continue to rely on what is referred to here as [casa integrate scenario], the temporary layoff scheme, until we can find the right equilibrium between demand and supply. This is something which is totally outside of our control. But the industrial system in Italy and certainly outside of Europe will allow us to manage that effectively.

We have made a conscious decision that we will not be producing equipment in the absence of a strong order book and I think we've been pretty tough in terms of decisions to keep plants shut even beyond the expected timelines. I mean, if you look at the announcements that have come out of Germany from our competitors, they've taken a much more benevolent line to this. I don't want to judge the wisdom of that call, but certainly, on our assessment, base on what we see as a demand function in 2009, we do need to take draconian steps to realign this -- to realign our production capacity.

We have begun to impact on the white collars. These were announced in the early part of 2009. We continue to take our cost out of the structure. We continue to right size the organization to try to deal a the market in 2009 which is fundamentally uncertain, but certainly will be not be positive vis-à-vis 2008. I will not bore you with the details of the slide on page 16. This is the commitment that we made in terms of world class manufacturing. I think that if you look at what was achieved in 2008, we did get to a 4.7% reduction in transformation costs. Just on the FGA side, the average hours per vehicle has come off by 10% versus 2006 and certainly it is in line to achieve the 20% reduction that we've set for ourselves in 2010.

Now slide 16, which deals with our view of 2009 as a whole. We have seen a lot of erratic behavior in the marketplace. There appears to be no consistency in terms of demand and there are, because of the various level of government interventions, which have differed both in scope and reach across the European landscape, it is very, very difficult for us to try and predict where ultimate demand will be. And so we've based a budget and we've run the numbers and we have -- we are realigning our cost structure to look at a marketplace that we'll see, at least in terms of our products, a 20% decline in global demand. That will not be the ultimate number that impacts on our top line. But the demand for our products will come off roughly 20%.

We think we'll make about EUR1 billion -- in excess of EUR1 billion in 2009. I've seen somebody raise the question about how we're going to get to a number like EUR300 million of net if the number is EUR1 billion. I mean, we're careful enough. I said the trading profit was going to be in excess of EUR1 billion. And I think if you adjust that number and you allow for about EUR150 million worth of equity pickups, you'll end up with roughly EUR300 million worth of net income for the year.

The more important thing is that we intend to generate cash in excess of EUR1 billion through the working capital reduction program that we've put in place. This is going to happen simply as a result of the work off of the inventories that we had at the end of 2008. I think the thing that you need to realize is that this is not an awful problem. The build up of inventories relates fundamentally to CNH, half of which is AG and half of which is construction equipment. And the AG equipment was built in order to deal with the strong order book, Q1, Q2 2009. The construction equipment order book is much weaker and that's why we're going to have to shut down the infrastructure to produce and work off that lump in the first semester of 2009.

The other part of it that caused a ramp up in inventories was Iveco and both of these capital groups' businesses suffer from the inability to step on the brakes and effectively achieve an instant shutdown of the industrial framework. By the time we put this in place at the end of Q3, the machine had already started. It took us awhile into Q4 to get to the right level of reductions in terms of production. I think the system is now aligned with expected demand, but we are going to work off some excess inventory in the first semester of 2009.

I'll spend two minutes on the Fiat-Chrysler arrangement on page 17. It is a non-binding term sheet, which is pretty well laid out and pretty well articulated for a global strategic alliance. It is global in scale. It does provide us with perfect complementarities from a geographical standpoint. We will fully complement Chrysler's product offering. Obviously there's the typical synergies that are associate with such a combination are going to come to fruition. What we do offer Chrysler is access to a set of platforms which have been at the heart of Fiat Group Automobile's development over the last four or five years, which are in the A, B and C segments.

They will give us access to a variety of products which are currently not within our framework. I mean, they have a strong presence in pickups, which are relevant to us in Latin America. They will have access to our distribution network in Europe as we will have access to theirs in North America. And I think, to the extent that we can work quickly on the convergence of platforms in the A, B and C segment, obviously we'll benefit from the combined impact of purchasing and obviously the sharing of components. We are contributing -- the architectures -- and we are contributing the power train know-how to Chrysler in exchange for 35% equity stake. There will be no cash investment by Fiat in this venture.

Obviously, this deal is subject to [vetting] by the Treasury in connection with the funding of the auto industry in the US. And we do need to obtain significant confessions from the other stakeholders involved in Chrysler.

My final slide is on page 18, which sort of summarizes how we see 2009. In my view, it is going to be the toughest year ever. I don't think we've ever seen a combination of factors coming into play at this speed, certainly in my experience as a CEO. I think it's going to test every ounce of leadership skills that we have, especially our ability to react quickly to market changes. I think that we cannot ignore, given the level of intervention that is going on globally, the relevance of the role that government can and should play in this process and we need to be fully coordinated with this type of intervention. And so the announcement that was made this morning by our Premier Berlusconi in connection with the auto industry, which will be asked to present its views to the cabinet on Tuesday in Rome is a good indication of the fact that this issue has now reached sufficient magnitude that the Italian government will need to look at this and see in what way it can align itself with the other type of interventions that the other European states are carried at.

I've always been of the view that this type of activity, if it happened at all, should be coordinated at a European level and even internationally we should not be favoring state intervention if it's going to bias the basis of competition in other parts of the world. I think that once the $17.4 billion aid package to the auto industry was announced and partially paid in 2008 and the European countries started acting unilaterally on this, it became absolutely apparent that the inaction by some parts -- by some other -- by countries such as Italy would have permanently damaged, I think, our ability to compete.

The forecast we gave you, by the way, for 2009 does not envision any type of incentivization in terms of eco-incentives and therefore our estimate as to what volumes will be in 2009 is based on the fact that demand will continue to weaken at the rate of 12% to 15% lower than it was in 2008. But anyway, having said this, I think we favor -- we favor the dialogue and I think we do need to find collectively a solution to the impasse that has been reached and hopefully Tuesday we'll be in a position to share our views with the government in finding a solution that's acceptable to everybody.

I was clear in some of the comments that I made in the early part -- in the second half of 2009 -- 2008 about the fact that this economic crisis is going to bring about a significant change in the landscape of the automotive sector. And I think it will change it in a way which is fundamentally irreversible. I think a number of things need to happen for this industry to start earning its cost of capital and to avoid running into these problems which, when you look at the history of the car industry over the last 20 or 25 years, it almost appears to be accident prone.

And so we need to find a better way to run these businesses. I do think the consolidation -- the right level of consolidation is one answer to this problem. And I've indicated that Fiat was willing to play an active role in this consolidation process. I think that the Chrysler is a first step in the direction. By far it's not the last. But I think it's an indication of the type of activity that must go on in this industry to allow us to be profitable and to effectively drive a decent future for the business.

I think that pretty well answers the -- deals with the presentation. I think the whole pile of items in slide 19 that deal with the calendar, but I think that's outside of my area of confidence. So I'll pass it back to Mr. Auriemma.

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

(Operator Instructions) Our first question comes from Arndt Ellinghorst from Credit Suisse. Please go ahead.

Yes, thank you very much and good afternoon to everybody. First question is on your alliance with Chrysler. And I think we all looked at the Chrysler business for many years and we've all been surprised many time alongside major shareholders like Daimler and [Server] as well with the speed of each duration and what could happen to this business. Now since Chrysler is becoming a long-term industrial partner for Fiat in the US and then probably globally, could you talk about the due diligence work that you've done, securing that Chrysler will be a healthy player in the market for the long term? And also could you talk a bit about the investments that Fiat might have to take in order to allow Chrysler producing its [products]? That's my first question and then I have another one. Thank you.

Just to deal with the last part of the question, we're not going to fund any of the investments that Chrysler needs to undertake to try and deal with its own [product]. We're going to provide architecture. We're going to provide engine technology. But the cost of tooling and the cost of development of these for local applications will be on the account of Chrysler.

So are you --?

If I can just finish for a moment. Obviously, there's huge value, which is not being charged across to Chrysler today, which is the cost of the development of the architectures. Those are slight costs on the part of Fiat. There was real live cost to the heart of the development of the A segment, which is produced the [Panda] and the [chinto chanto] and which will produce the future Panda in 2010. All that development and all that technology will be available to Chrysler and we will not charge them for this, but the application of that architecture in the US for production of Chrysler [batch] cars will be on their account.

And in terms of the due diligence that we're carrying out, we carried out some -- we've been in dialogue with them for awhile. We have carried out at least a sufficient level of due diligence to get us to sign this relatively detailed letter of intent. We've had people in Detroit on the ground since Tuesday carrying out the remainder of the due diligence. It's our expectation that we will complete that process over a period of weeks and certainly in time for Chrysler to finalize its proposal to Congress and obtain the additional funding that it requires to complete its revival.

As a general comment about sort of the historical disbelief of the ability of Chrysler to resurrect, I mean, I grew up in North America and I still remember the days of Lee Iacocca, when he took on the mission impossible with Chrysler. And it was absolutely unrecognizable after the turnaround. I think one of the things that I've also learned from managing Fiat is that I think if you apply and you have the right leadership in place, these businesses can be turned and they can be turned pretty quickly.

I don't think there's been anything which has gone on like Chrysler which is sort of a terminal dent in their ability to compete. I think they have the unfortunate task of competing in a market which has lost six million vehicles year over year. It's a very difficult market to operate in. Financing conditions for the vehicles have not been there. But I think as the US recovers out of this economic crisis with the help, that Fiat Chrysler, I think, has a pretty good opportunity to come back and be a viable car player.

All right. And on this one, I mean, just to make it clear. I mean, you're not putting any cash into that business for Chrysler producing any Fiats in future. That's all been done by Chrysler. And then do you really believe --.

If -- no.

That Chrysler has enough cash to spend all this money?

Yes, let's be clear. There is no -- if they ever manufacture anything on our behalf, it will be done on our account. Anything which they produce on their account will be paid by them, regardless of the source of the architecture of the power train. And this will be true of any arrangement that we make with any other car manufacturer.

Okay. That's clear. And my second question was on consolidation in Europe. I mean, you've been very clear -- much clearer than anybody else in the industry about the needs of consolidation and I guess everybody on this call agrees with you. And could you talk about Europe and how open major players in Europe are? I don't know how much you can say, but could you talk a bit about [Persu] in particular because it is already a partner of Fiat on the commercial vehicle -- on the light commercial vehicle side. And it just looks so appealing for many of us that the two of you could maybe get out of this crisis stronger by joining forces. Thank you.

I can't make any comments about any particular player. I think it will be unfair and, certainly, if you see the comments that have come out of Persu this morning, which have confirmed their intention to manage their way out of the crisis and have issued a flat no comment against any other possible conversations with Fiat, are reflective of the position that Fiat is also taking in this matter. I have no comment on the issue. There is no doubt, in my view, that as time progresses here, the next two or three months, and as we see the lasting impact of what I consider to be a deeply and well-rooted crisis, that people will start looking at opportunities to try and lay the basis for a much better future, for a much better way to control our destiny than the way in which we have done it so far.

And so without encouraging any one particular player, we have -- the comments that I have made publicly on this have been an invitation to the auto industry at large, for those who are interested, to effectively start the dialogue and we're quite willing to start the dialogue with anybody who is interested in pursuing it. And I think it's only fair to say that, based on what I know as of today, without having any real tangible evidence of the fact that there's -- that a deal is either imminent or otherwise doable, that there's sufficient strategic interest in the industry to promote the dialogue and ultimately bring it to conclusion.

But I think it's way too early in the game and I think that we need to allow a natural process to go through of developing the right level of comfort that the -- that whoever decides to do whatever with the other believes that it is the right strategic answer. And more importantly, that the ending -- that whatever ends up being the ultimate form of the combination is manageable and that it has an absolute shared set of objectives about where the business will go. And that's not just -- that doesn't happen on a spreadsheet. I think that needs to -- it needs -- there needs to be process of dialogue. There has to be a clear understanding of what the cultural differences may be and the way in which they may be overcome.

I mean, in my earlier part -- in the early part of my career, I tried to put together the first three-way transnational merger. It was well intentioned. It ended up being a bilateral, which ultimately ended up being a three-way. But at the heart of the potential disagreements, there were a number of cultural issues that came to the surface which have been ignored as part of the proposal. And having lived through them, I would be very, very careful to try to hazard solutions that ultimately could just blow up in everybody else's face -- in everybody's face.

And I don't think Fiat wants to see that happen. I think we have a strong franchise. I think we have a strong set of brands. I don't mean this to be disrespectful of others, but I think that we need to ensure that whatever is good in Fiat is preserved and its effectiveness is probably augmented in a larger context. It is, in that sense, that the Chrysler relationship is a good indication of the way in which we can proceed. The areas of overlap are relatively limited with Chrysler, but it does give the opportunity for the best side of both organizations to come forward and play a role in the other. I'm not trying to sort of be idealistic, but just -- but we need to be very, very careful. This business is ultimately run by men and women and we need to find a way in which that coexistence can work. And so we need to be careful.

And I'm not trying to discourage you from what you consider to be a marriage made in heaven, but before any marriage in heaven is ever made, I think we need to walk very softly and very quietly before we get there. Having said this, I think the economic crisis is going to put in the right level of urgency into the process and hopefully we'll have an answer by the end of this year.

Thanks a lot.

Our next question comes from Massimo Vecchio from Mediobanca. Please go ahead.

Good afternoon to everybody. I have three questions, if I may.

I have a question for you. I just read -- I just read in one of the press releases that you've been working on a refinancing package for Fiat. Is it you or somebody else inside your [shop]?

Surely somebody else.

Whoever that person is -- whoever that person is, would you tell them to stop it because I never asked for it.

I will tell. Yes.

Thank you. Go ahead with your question.

So the CapEx -- I was surprised by the CapEx figure because EUR5 billion CapEx -- a strong increase year on year in this current situation, I was wondering if there was kind of anticipation from 2009 to 2008 and what kind of CapEx do you foresee for 2009?

I can tell you the highest possible number in these trading conditions that we'll see and which is built into the EUR1.4 billion -- EUR1.1 billion cash flow number is roughly EUR4 billion. The EUR5 billion is undoubtedly at the high end of expectations that came in because of the commitment that we made to the power train division to fundamentally do a couple of things. The first one is to develop a transmission -- a C635, which we had to put in place because we're substituting a GM transmission which is coming out of production in 2010. And the other one is the fact that we're investing in Poland for the production of the small gas engine, which will come into the market in September of 2009.

So those were exceptional. We have reviewed the whole CapEx program with the leadership team here over the last two days. I mean, we're ready to slam on the brakes in a much harder way that's presently planned in the event that market conditions were to deteriorate. So you should not look at a EUR5 billion number as being an ongoing drain on this group. It's the highest level that I've ever seen this group spend, certainly in terms of the history that I've been able to review. But it does reflect a couple of unusual items, one of which is the investment that we have made in power train, which has historically not been -- historically not been the case. But the '09 number top end is EUR4 billion.

Can you quantify what is your maintenance CapEx in the worst case scenario related to CapEx whatever you can? What we could ever expect.

That's a difficult question and I tell you honestly, based on what I know and the way in which we're approving capital here, if it were to be in excess of EUR250 million to EUR350 million, I would be surprised. If you're talking about maintenance.

Yes, yes, yes. Okay. So [it's low].

It is not -- it is not -- this is not -- this is not a business that requires a huge amount of maintenance. These are -- these are project-specific investments and so it -- most of the money that was spent on the Fiat Groups on the automobile side was in connection with new product launches. And so it's not -- they're not maintenance related. But I would find it very difficult to assume that it's more than EUR300 million.

Okay.

I'd have to back and check -- I'd have to go back and check, but it's very unlikely that it's in excess of that number.

Anyway, it's a very low figure and wasn't affecting much more than that. And the second question is on the stock level at dealer set Fiat. Obviously, you have been doing some of the stocking in Q4. I think you will keep on stocking in Q1. Do you think it will be enough and can you give an indication on what kind of stock you have?

I -- you can ask the question of Mr. Auriemma after the call. He will give you the exact numbers.

Okay.

But I can tell you right now. No, [just find the chart]. Dealer inventory, as of the end of Q4, was 188,000 vehicles. And to give you an idea, Q4 last year was 219,000. And so we've been grinding levels down consistently. We want to grind them again in Q1 of 2009. I mean, the plants are going to continue to be shut down until we get this number right. I mean, based on what I can see from the chart, we're probably sitting at historical lows that go back to 2005.

Okay. And the last question -- sorry, but I had to come back to the -- for the financing issues and this demonstrated I did not know anything about it. In your presentation, I will to ready anymore the available comment line that it was EUR2 billion at the end of Q3. And I also noticed that you have a higher level of banking debt. Can you give some color on that?

Where is the -- what slide are you making reference to? Because I thought we had it corrected.

The last one before slide 43. In the third quarter presentation, there were EUR2 billion of available committed lines. And the level of bank debt -- sorry, it was not EUR6.4 billion. It was lower. So I was trying to understand it.

It's on slide 42 at the bottom.

Okay. Okay. Okay. Perfect.

Now what it also tells you is that the credit lines were drawn down of EUR2 billion for a variety of reasons. But that we've also committed EUR5.2 billion of cash to CNH Capital.

Okay. Yes. Thank you very much.

But you need to read those two statements together.

Thank you very much.

Our next question comes from Max Warburton from Sanford Bernstein. Please go ahead.

Yes, hi there. Thanks for letting me on the call. I've got three questions on Chrysler, I guess, predictably. Mr. Marchionne, the first one, I mean, I think you talked earlier in response to a question about needing to put together some sort of entity that's manageable. And also in the press release I think it talks about Fiat providing management services to Chrysler in its submission to Congress. Could you just give us an idea of how much time you personally will be spending on this and whether actually you'll almost be making the trip to Capital Hill to help Chrysler present this plan? That's the first question.

And then the second one, you talk about signing this deal later in the year is contingent on all of the stakeholders making concessions. There's also press reports that you might go over 50%. Is it safe to assume that to go over 50% you would have to see all of the healthcare removed or would you in theory be willing to increase your exposure to Chrysler even with some of those liabilities still in place?

And then the third and final question, I mean, someone else said you've been the most articulate CEO when it comes to what's wrong with this industry and the huge barriers to exit, et cetera. Yet getting involved with Chrysler, it looks like you're sort of saving or trying to save one of the participants that look most likely to exit. The question really is are you not keeping a company in business that should not be in business and therefore, globally, once again lowering returns for autos? Thanks.

The last part of your question -- and I'm not trying to pay you compliments, but it's probably the most interesting part of what you said. I actually think that one of the reasons why I did not --and I've never favored sort of the death by bankruptcy of one of the American players is because it doesn't fundamentally deal with the issue other than with the financial liabilities associated with the entity. And this ties me back to the question about now what do we expect -- of what we want in terms of concessions from the stakeholders. I think there is a more reasonable way to get this done.

I think that if demand in the United States -- were to stay at this level of 10 billion -- sorry, 10 million units in 2009 and stay consistently at these levels, the system in the United States is capable of taking at capacity. And I think there have been a raft of announcements that have been made by all the carmakers in the United States -- a raft of announcements being made by carmakers in the United States that deal with plant closures. And that has not been the issue. So capacity has come out of the system.

I think there are two things that have been negatively impacting on the performance of all of them. And I don't pick on Chrysler necessarily. Is that there may have been a misjudgment. And that's not for me to judge, but it certainly is -- there may have been a misjudgment on the product portfolio that was being presented to the American consumer and which has effectively shifted demand away from the American based carmakers to other alternative brands, which has really given a lot of space to both imports and to foreign companies manufacturing in the US, occupying a large portion of the market space. It's not up for me to judge whether it was a result of an error or otherwise. But certainly the results indicate that other foreign makes have had huge success in conquering a space that historically belonged to American carmakers.

And the second thing that I think happened is that the cost structure of these businesses were completely out of control. And in an environment like that, the proposal that we're making to Chrysler in terms of giving them immediate access for the architectures that Fiat has and to the power trains that Fiat has -- is going to immediately fill the gap of the product portfolio shortfall that it could have otherwise had.

I don't think that the shutdown of Chrysler would have, through bankruptcy or otherwise, would have helped anybody. I think that the important thing is to come out of this process with much healthier competitors. And the alliance with Fiat is going to strengthen them and we're going to give them something they don't have today. It is going to -- it is a geographic nearly perfect fit because of the fact that we've always wanted to access the North America market. They have access to that market. They don't have a good access outside of it. We can provide those channels of distribution to them and they can open up theirs to us.

And so in the long term, the medium to long term, a much stronger organization is bound to come out of it if we get everything right and if we get the right level of concessions from the stakeholders because the financial burden on Chrysler today, including obligations that it has to the UAW membership and obligations that it has to the banks including -- and if you, on top of this, you include the cash injection that is being provided by the Treasury would make the think unviable financially. I mean, the funds have to be paid back to the Treasury before anybody gets any money out of this thing. And so we need to provide the framework for this thing to be able to generate cash and ultimately return to a healthy level of operation.

We have looked at this. We've analyzed this from a variety of scenarios and I think if the right level of concessions are made, we can find a way to make this work. I don't think you achieve a rational response to this industry problem by necessarily eliminating your competitor. It's a question of how the competitor gets reshaped in the process and I think we can provide the right means to do this.

In terms of my going to Capitol Hill and the amount of time that it would take, I -- it's my hope that I'm not asked to go. I'm not sure how effective I will be in that environment. I'll leave to much better people like Bob Nardelli and Tom LaSorda who represent the current leadership Chrysler to get that done. It is ultimately going to require time on my part. It's going to require time on the part of the management team of this organization to make themselves available to the Chrysler organization and start going through a process of intense exchange of data. And it is an additional burden. But I think that it needs to be done. I mean, it's part -- it's part of the ultimate solution to this industry. It is difficult, but I think it's worth the effort. I mean, if we're successful in this, I think both Fiat and Chrysler will come out of it much stronger organizations.

I mean, just one follow-up on that. I mean, it's clear why Chrysler would benefit from getting your technology and getting your management, but I think most of us obviously struggle to see how Fiat itself benefits in any [NPV] type time horizon. And in the meantime, if you look at the assets that may be attractive to -- in North American, I mean, is it not realistic to pick up dealers and even pick up assembly plants for kind of no real cost rather than having to take on 60,000 people and all their liabilities and a lot of product lines that don't have any overlap?

I think that -- and it's way too premature for me to judge as to what will happen to the Chrysler organization in terms of headcounts, plants and so on. It's part of the reshaping exercise that it must go through. It's already shed the number -- a number of employees to try and resize itself to a market. I have no idea -- and to be perfectly honest, and I'm not in a position to express the view as to whether it needs to do more. The issue to me, though, it not whether -- I mean, to be clear, we were not the only people that were going after Chrysler. It would have been somebody else that could have possibly struck a similar transaction with them.

I would expect them to have been as reputable as we are and probably more so in getting this done. And so we wouldn't have eliminated the problem. I mean, I think your suggestion would have been absolutely accurate perhaps if extinction had been the only alternative, right? That very much -- that would have been the case. And so I also think that the business itself is worth saving. I -- the picking up brands and production facilities as a result of the failure of an organization is a completely different exercise than trying to revive an existing one.

I doubt it very much that Fiat's bank -- if Fiat, in 2004, had not been able to find a way to pull itself out of the mess that it was in and for whatever reason had to -- rendered itself insolvent, that anybody coming in could have done much with the brands that it was picking up. I mean, it's very -- we've seen this with Rover. It's -- the disassembly of Rover out of the UK has been one of the tragic acts that I've seen in a long, long time. And I think you need to avoid this at all cost. I don't think it works.

So I'm hopeful and, I tell you, I'm relatively confident that we can find the constituent elements of a plan to revive Chrysler. I think our -- the benefit to us is going to be ultimately in the excess that we have to the US and in the shareholding that we will have in Chrysler. I think it's a medium to long-term bet, but it's a first step in a much longer process.

Okay. Thanks for the expansive answers.

Our next question comes from Philippe Houchois, UBS. Please go ahead.

Yes. Good afternoon. I have a few questions as well. The first one is -- I know back in -- when you first arrived as CEO of Fiat, you said that one of the big issues was the minority interest that GM had in [Giatatu] and how difficult it was to manage your business in a joint venture. Have your views changed to the extent that you're looking at minority interest in Chrysler and in what sense is that different from your experience at Giatatu and if you can explain on that. And generally speaking, looking at the consolidation of the industry that we will expect will happen, if you've changed your views on the ability to run the business when you have a sizeable minority shareholder.

Should I give you a few more questions and then go ahead or --?

Yes, just give them all to me and I'll answer them.

The other question I had was I can't quite figure out, you've given us some '09 guidance which is quite brave, given the environment. And I can see your EBIT. I can see your net income. But in between I don't quite understand how you can be able to reduce your net interest expense to the point you can earn a profit at the net income level in '09 unless either of you have a cash injection or you are able to get a nice task credit. If that's the case, I wouldn't mind having your views on -- we've all dreamed about your task credit for euros and to what extent the chance of recoverability with that tax asset has improved enough. If you can update us on this.

And finally, if you could tell us -- I assume you are negotiating credit lines. I'm not quite sure exactly what you've answered earlier in that question. But at this stage, when you're talking to banks, what kind of collateral are you requested to bring and, in other words, are you at risk of losing some of the assets of the Fiat Group, potentially, as you secure additional credit lines? Thank you.

Well, let me deal with the third question up front and just get rid of the angst that you may be suffering. There's absolutely no way that we're going to provide collateral on any bank lines. I mean, I think we need to be very -- we need to be very careful. I've read a couple of the reports that have come out from you guys in terms of the car industry. I've seen one with such doom and gloom over the fact that we're all destined for extinction just in terms of the cash absorption that we were going to go through over the next four years.

I mean, there's not a single doubt that I can paint an incredibly ugly picture of continuous cash consumption by the industry and effectively the fact that we're all going to die. I -- just to give you a couple of numbers. I mean, between trade receivables and inventories, as of the end of the year, the group had about -- almost EUR17 billion worth of assets. I mean, this is just straight working capital. Historically, as I said, over EUR4 billion -- we had a negative working capital position at the end of '07 of roughly EUR4 billion -- in excess of EUR4 billion negative. That number went to zero in a period of 12 months because of the cycle with which we paid off our payables.

One, if the -- if the trading cycle normalizes in the sense that we adjust all volumes to a reduced level, that problem disappears and we will end up going back into a negative working capital position because we will adjust. All the numbers will automatically adjust at a new level over time. I made this point very clear, the 2006 presentation in [Inult]. I told you clearly and I remember the language that I used at the time, that if there were pauses of adjustment that we will go back to a negative working capital position. This -- it's arithmetically provable.

And so for anybody to look at me and suggest that I collateralize a credit line which is ultimately designed to finance working capital, I find it absolutely ridiculous, especially since the organization is earnings positive and it's producing cash even in a down cycle. So the question, if you want to make reference to the fact that we were very courageous in coming up with numbers that suggest that we will be earnings positive in 2009, that's our assessment of what our sectors will do.

I mean, it's coming out where we consider to be surely a much lesser performing business in trucks and a much less performing business in trucks. I mean my English is going to (expletive) today. But -- and the fact that CNH will continue to perform well in 2009 and we're expecting no exceptional performance out of the Fiat Group Automobile sector. We're just not. I think we're going to see relatively healthy levels coming out of Brazil, obviously lower than '08, but probably in line with '07. And so overall we will produce both earnings and cash.

Just to get you out of the quandary for a moment that you've got with the P&L. And I'm just going to run through four numbers and you can add them up. I mean, if you start off with a number like a EUR1.25 billion worth of trading profit, you knock off EUR300 million in exceptional expenses, it takes you down to EUR950 million. You have about EUR850 million worth of interest expenses, even EUR900 million, EUR150 million worth of equity pickups. And the difference of EUR300 million is the tax line. So by the time you run through the P&L you should end up roughly with the right answer.

Okay.

And in terms of these wonderful tax assets of yours, when I was young and foolish and I was becoming an accountant -- I always wanted to be a tax professional. I think I did that for about two years. And I used to have the same dreams you used to have. The reality of tax assets is they're only usable against earnings. And so we -- I think we have enough tax assets on the balance sheet and we have had to book some more at the end of 2008 for a variety of accounting reasons. But we're now done and we're going to absorb these against earnings coming out of the group, out of Ferrari, out of Iveco and so on, even the car side is not a huge performer. But we have enough earnings out of the Italian business to soft them up. And so there's a reasonable -- more than a reasonable expectation that will be fully utilized. We have an additional EUR3 billion of unbooked tax assets which will only be activated in the event that we start softening up and effectively utilizing what's on the balance sheet now.

And in terms of this minority interest question that you've asked me, I agree with you that being a minority shareholder and trying to influence the business decisions of somebody else becomes very, very difficult. And that's why I think, as we work our way through the implementation of the letter of intent, you will see that I think that we have taken some precautions to ensure that we're not ignored and yet that we don't run the business. But we need -- so far we have a phenomenal relationship with both Nardelli and LaSorda. I expect that relationship to continue and for all of us to contribute to the revival of Chrysler.

I have no issues. But I am fully aware of the ones you made reference to earlier and I'm the one that decided that we should get out of that impossible arrangement with General Motors. But I think it also reflects two things -- one, the relative size of the commitment that was made by GM towards Fiat and secondly, the differences in culture between Chrysler and GM. And I express no difference as to which one is better. I just think -- I feel more at ease with the Chrysler people today.

Yes. And if I can squeeze in a last question. The French carmakers have had to agree on shorter payment terms. Are there any discussions in Italy about a similar move which would fundamentally change your working capital dynamics in -- over the next 12, 18 months or so?

The answer is yes, but probably in exactly the opposite direction that the French have moved.

Okay. All right. Thank you very much.

You're welcome.

Our next question comes from Thierry Huon from Exane. Please go ahead.

Yes. Good evening. It's Thierry speaking from Exane. So a few questions to start with, [Maurizio], accounting ones. In the cash flow statement, you've got EUR941 million coming from a change in a couple of consolidations and others. Could you clarify what is this come from? And the second question is about your personal involvement in the [GV] with Chrysler if this one goes through. Do you intend to spend a lot of time in that? Are you going to be personally involved in the management of Chrysler? And the last question is just a clarification about what you said because the line was not really good about the credit line of available. Because in the presentation it seems like it's now zero and -- versus EUR2 billion previously, so I want to be sure that I heard correctly understood. Thank you.

Okay. Just to deal with the third question. You're right. The credit lines are zero at the end of December 2008. There's also a note on that page, which I think is slide 43, which makes reference to the fact that we're now funding to the tune of $5.2 billion with CNH Capital organization. So you need to run -- you need to read those two numbers concurrently. The lines would have been undrawn had the funds been available.

Okay. So it's --.

We made a strategic choice to fund capital.

Okay, so but if you --.

And we'll [unwind] that call as we go through. In terms of my personal involvement -- can I just add to the rest of your questions, then you can just come back? In terms of my personal involvement, I have absolutely no intention of running Chrysler. I'm going to be -- I am going to be involved, I sincerely hope that I can help Bob and Tom run these businesses and get them out of this situation, but it's not going to be a direct operating responsibility for Chrysler and it's not envisioned that it will be sold by the agreement. I have no idea where this EUR41 million other is, so I'm looking at Maurizio here to give me a hand.

It's not EUR41 million. It's EUR941 million.

EUR941 million.

EUR941 million.

The two major items of this line are the equity swap component for EUR263 million and additionally -- which is a non-cash item -- and another non-cash item, which is around EUR700 million of cash flow hedge reserves, which is accounted for in our net industrial debt. And that has been the variation in this reserve. Of course, this is another non-cash item.

Okay.

And this related to the accounting for hedged transaction.

Okay. Maybe a very last question for Mr. Marchionne. What is heart of the deal with Chrysler to go through in your view?

What is the --?

The chance of the deal to go through in your view.

I think it would be criminal on my part if I told you that it was less than 50%.

Could you repeat that?

I said I think it would be criminal on my part if I told you that it would be less than 50%.

Okay. I just tried.

Thanks.

Thank you.

Our next question comes from John Buckland from MF Global. Please go ahead.

Good afternoon. Thank you for taking my question. Going back to the process of consolidation and what might happen, I guess there are, as you mentioned, many impediments to something happening in the moment. But clearly, when -- if and when a consolidation has to happen, there has to be some costs taken by both parties to adjust the business model, to adjust the cost basis, product lines and everything else, very much in line with what you've mentioned with Chrysler. So, I mean, could you give us some idea about what those costs could be and whether we are anywhere close to either sides, whoever that may be or government that are prepared to accept those costs.

And then the other question, just on this working capital, if demand is falling as much as you predict it to fall, I can accept that inventories will need to come down, but presumably, production will continue to fall as well. And therefore I'm a little bit at a loss how you get back to recover some working capital because, presumably, the creditors continue to trend down. Perhaps not as fast as they have in 2008, but perhaps still going down. So I just wondered if you could just explain those two points, please.

I think it would be improper for me to try and give you an estimate of what you consider to be the cost of a potential merger because a lot of it depends on who the merged partners are. But I don't think, based on what I know, I see nothing that will prevent a European to European combination from happening which would include non-digestible costs on other side of the -- for either of the two governments involved. I think I've been very clear when I came in 2004, even when we made the commitment not to shut down plants in Europe at the time, that we did not think that the real problem was the direct labor in the car manufacturing process because it only represented roughly 4% of direct -- of the total cost of the vehicle. And if you included indirect, it was around 6% to 7%.

And that continues not to be the major obstacle. I think that there's a lot of -- there's going to have to be a lot of questions asked about what I call the infrastructure costs associated with running these businesses. Most of the car manufacturers would end up having certainly duplicate structures in terms of product development and distribution channels across Europe. Those appear to be the most easily accessible cost pools to try and take out. And I think that one thing that people need to focus on is that over a period of two to three years, depending on the partner, which in some places it might take longer, but you will get much -- you will get a very much strong realignment of the platforms. And that, in and by itself, will bring about a substantial cost savings purely because of the sharing of the architecture on the components associated with the vehicle.

So I think these things -- they're not whiz-bang mergers. It's not as if you put them together and within six months you're going to get phenomenal results. But the impact of the merger itself, over time, will improve margins significantly to the point where you can bring about -- you can create an organization that will certainly earn its cost of capital. If we run the numbers, I think we feel relatively comfortable that can be done. And we've modeled this on a couple of targets to find out whether it makes sense to do so or not.

In terms of the creditors, I agree with you that we're going to continue to adjust -- we're going to continue to adjust the production to meet demand. If I'm right -- and I think I am -- that we're going to see a 10% to 15% decline in the European market. I think that we will continue to shut down plants and that will deal with the inventory issue. The credit aside is a much simpler question. Most of the payables that were sort of paid off on the fourth quarter of 2008 and some of which will have to be paid in Q1 of 2009 related to production that was made in Q2 and Q3 of '08.

And so we're working out detail risk of those creditors today. Eventually, they'll flatten out. If I'm not producing, I will not owe money to anybody. And if we continue to take out capacity and production, we'll end up with zero creditors. And the wonderful thing about this business is that the minute I turn the plant on and I start manufacturing and selling what I make, it will be an instant miracle because we'll be cash flow positive in seconds. But until I get there, I'm not there. And so even in Q1 2009, I mean, I've been asked the question separately as to whether we think we're going to be cash flow positive in the first semester of 2009 and the answer is absolutely yes. I am that confident about Q1 2009? I don't know, but it certainly depends on where demand will sit in the first three months of the year.

I can only tell you that, based on what I've seen out of the Italian market, let me tell you, out of the markets that we track daily, the only market that's up year over year to date is France. And we have not seen the impact of the incentive scheme in Germany, which was implemented as of last Friday, I think. But once that incentive scheme gets put in place, I think we will see a pick up in demand, that we will see better numbers in the remainder in February and March of 2009. But the rest of the markets I'm not showing a sign of life. And certainly the numbers that we've seen so far would confirm a decline in the range that I've mentioned.

Could you tell us what you think the -- like the worst level of net debt will be during the year then? Because you said you're going to be high in Q1. Then what at the end of Q4?

It may be higher at the end of Q1. I'm looking at my treasurer, who is by definition a pessimist and that's why we all cherish him here. But there is a view that it will be higher at the end of Q1. But it's difficult to tell, to be honest. But we may have spikes within the quarter which may go in excess of the EUR590 million you see.

When I -- when I -- just another question if I may. Just when I hear the way you said you've run the numbers on a number of targets, does that -- that seems to imply that you are going to be the leader in any sort of consolidation as opposed to perhaps wanting to be the person led into that. I mean, I just wondered if you could just align that with the idea that both parties have to be comfortable where there is a merger or whether you do have to be an aggressor to make these things really work. And I'm still struggling to this idea that somehow the need to cut capacity, the need to cut jobs and the cost of those -- the cost of labor -- is manageable and acceptable to the parties. Because clearly, in some countries, any job cuts is not deemed to be acceptable.

Well, I think we need to deal with that issue when we get there. My expectations, certainly based on my -- on past experience -- is that if, when confronted with a viable project, I think that people will allow the right level of rightsizing to happen. And I prefer not to speculate about how people may view that. But I -- certainly it's been -- it's my experience that things like this are possible and that -- and certainly we have done -- I have done them before, so I think we can probably put something together that will allow for some level of attrition to happen if the expectation is effectively to run a much strong organization going forward.

The issue about the fact that I'm looking at this and that I've run the numbers and appear to be the aggressor, the level -- the term aggressor is a total overstretch. I think what we've done here is I think we've done our homework from a strategic standpoint to assess the viability or likelihood of something being potentially doable. I make absolutely no claim -- and as I've done this in my previous incarnations as a CEO -- to claim any right of leadership of anything. I think the only thing I am actually interested in is to ensure that we end up creating the conditions for the formation of a much strong organization, which is going to deliver value through all the stakeholders involved. And I think that we need to be open about this.

I've -- the problem with these deals is that the CEOs' egos get in the way and they all get bent out of shape. And I mean -- and so we need to be careful -- and that's why I made the suggestion earlier about the fact that I think we need to be careful about how we manage this and that we end up doing this with the right party. Because the union itself may not be sufficient. I think we need to create the conditions for it to be successful. And that needs to be carefully thought out. But my experience says that it can be done, even in an environment which is so protective of jobs and particular jurisdictions. I think that if the right project were to be proposed, I think people would accept the objective and move it on.

Okay. Well, let's hope we can get there somewhere, somehow.

Let's stay tuned.

Thanks.

Our next person is Adam Jonas from Morgan Stanley to ask a question. Please go ahead.

Thanks. Adam Jonas, Morgan Stanley. I hope you're doing all right. I've got two questions.

How's Morgan Stanley doing?

Well, we're all in this together. So about as well as you guys, I guess.

All right. Thanks. I feel better now.

The -- what's the minimum cash -- gross cash -- needed to run the business kind of from the perspective of the EUR3.9 billion that you ended 2008 with, if you could. Give us what that level is. And my second question is if you're basically going from your best year ever in 2008 to what you described as our worst year in 2009. It's an incredible decline of revenue, unbelievably tough economic and financial conditions. Yet you're still targeting over a 2% EBIT margin. You're going to be cash flow positive. You're going to be reducing net -- that net debt level without doing any capital increases.

I mean, it's -- frankly, from that perspective, you guys are doing great. If you can do a 2% plus margin in your worst year every, frankly, you're kicking Toyota's (expletive). You -- I -- you're probably going to be the only profitable car maker or auto-related company in the world this year. So I guess the question is that sounds pretty strong. Why merge at all if you're that strong and how is the government going to kind of feel the sense of urgency in the worst year ever. You're still a profitable, cash flow generating healthy company.

It's the reality of the solace that we are fundamentally an aggregation of three businesses. And the risk profiles associated with the truck side, the construction and AG business and the car businesses are total different. And the reality of it all is that I don't think you would find very many truck makers or very many AG equipment manufacturers who could not claim that they've earned their cost of capital over the cycle. I think they have. The people that are guilty of not earning the cost of capital are the automotive guys and those are the guys we need to fix. That's the business that appears not to have found the right paradigm to run the organization going forward.

I've been against merges historically. I made the comment when I came into Fiat five years ago about the fact that I did not think the fully-fledged mergers were the solutions. I've seen a lot of them be unsuccessful. I've seen acquisition of brands and organizations happen on a global scale that effectively did not yield the desired benefits. And that's why I think the selection of the partner which whom you do this is crucial because I think there has got to be an absolute sharing of the objectives. There cannot be a unilateral acquisition of another.

You need to agree what you're going to be when you grow up. I think you need to agree a proud portfolio before you come out of the gate. And I think you need to agree to a set of industrial objectives that will bring about all the desired reductions in the cost of the products that is required. I mean, I refer to this industry as being a Wal-Mart industry. And we need to start running it like a Wal-Mart industry. I think that we've been living beyond our means. I think we've been lucky enough to find financial markets that have been supportive of that lifestyle. I think to the extent that this is becoming a difficult issue for everybody around the table, not just on the automotive side. It is going to become increasingly difficult to finance these operations in the absence of a strong defensible industrial operation that guarantees that the business will earn money and a sufficient amount of money to earn its cost of capital.

Suggestion about the fact that we're going to be doing -- I take your compliments, but I think the 2% number that you made reference to is a number that reflects an aggregate of margins going form potentially zero on the car side to low -- to single digits on some of the other businesses. And therefore, I think it's an inappropriate comparison with Toyota as Toyota can do eight other cars, I'm not even there. But having said this --.

Well, next year they'll be lucky --.

Having said this, we have a long way to go. Sorry?

I was saying, I mean, even if you do -- even if you do zero, most people on this call would agree you may be the most profitable carmaker in the world in '09.

I think that Mr. [Vendelin Viedaking] and [Dieter Detcher] will be pretty ticked off if you made that comment.

They might be ticked off, but time will tell. You'll be doing better than them if you do a zero. Just my opinion.

God bless you.

And on the minimum cash?

I think that the numbers -- I've always said that we need to keep around these levels. I think anything below this will make me uncomfortable.

So you're at the minimum cash level.

Yes, I think we're -- that -- the trend of EUR3.5 billion to EUR4 billion mark. I'm looking at Maurizio here.

Yes. Well, of course. Technically, to run the machine we need much less than that. But I think my assessment was quite different.

Yes. I mean, mine is in terms of safety levels. One of the things that we've learned in this process and we've all learned it the hard way is that although we can model 20% reductions of volumes across the businesses, when you do this modeling you expect that this thing is going to be phased in over time, right? And that you have time to adjust the cycle. Nobody has ever modeled a 20% reduction in a matter of 90 days. And the problem is that the shock -- this is like your concept of VAR in banking, right? It works perfectly in markets which are relatively safe. If you've got any type of shock to the system, VAR is useless.

And our modeling, to be honest, is -- was accurate in terms of the end result. It was inaccurate in terms of determining the speed with which it got to that answer. It's all this mumble jumble that you're seeing around the newspapers today about capital increases, about arranging EUR5 billion per credit line. It's just hogwash. These are people who are just pulling numbers out of their shorts. I mean, let the industrial system adjust and we'll get there. All right? I mean, undoubtedly we'll make arrangements with financial institutions to provide support through this transition, but I don't think that the system is -- I don't think that we're that far off. It's impossible.

We just -- as you said earlier, we just finished off our best rating -- creating performance in history. It's impossible for us to go out there and start looking at capital infusions. I mean, we're not trading -- the last time I checked, we must be trading at a third of book value, right? I mean, this has become a joke. I mean, it's nonsensical valuation. So we can depict all the doomsday scenarios you like, but I think we'll still be here next quarter and hopefully we'll be here a year from now talking to you.

And that technical -- thank you. In that technical level, the technical minimum of cash to run the machinery, what would that be? It would be uncomfortably low, but still technical [condition].

A few hundred.

How much?

A few hundred because of the different geographies. It depends on the level of efficiency that you are maintaining.

A few hundred of gross cash.

Yes. The problem that you have with that notion, by the way, is the fact that -- and you need to be careful here because of the fact that geographic diversity helps in terms of minimizing operational risk and having -- you have the benefit of not necessarily looking in same demand function everywhere. But the distribution of that cash in various jurisdictions. Not all that pool of cash is available. I mean, it doesn't migrate naturally between jurisdictions, so we have to be very, very careful about how we access those pools and how we use them.

And that's why I think, from my standpoint, that I'm going to made reference to around this number is a safety level because of the fact that we -- you may not be able to access them for a variety of reasons because they're in the wrong jurisdictions. [Vali stroma] is that the absolute minimum is probably in that range. It's EUR300 million, EUR400 million, isn't it? But I don't want to get there, so let's not even discuss it.

No, I'm sure you won't. Thank you very much.

Thanks.

Our next question comes from Jose Asumendi from Royal Bank of Scotland. Please go ahead.

Thanks. A couple of questions, please. On trucks, out of the negative working capital figure related to higher inventories, how much does it relate to the truck business? Is it fair to assume around EUR1 billion?

One, two.

EUR1.2 billion?

EUR1.2 billion.

EUR1.2 million. All right. And can you talk a bit about the amount you see in the market? I mean, are going to be running with these inventories all the way on the first half of 2009 or can you actually give [some of these hedges] to the market and sell these trucks?

Oh, we can sell the trucks. I mean, before we all would get collectively depressed and look for razor blade to slash our wrists. There is a demand function out there. To the extent that we're not producing, we're going to work off our inventories. It's going to take some time. I mean, the truck business is not in the best of shape. Q1, especially, will be a very difficult quarter and I think we need to be cognizant to this. I think we're going to see a very uneven performance throughout 2009.

But these trucks can be sold. I mean, and we're not going to sacrifice margins to get that done. Whatever margin contraction we'll suffer is going to be volume dependent, right? I mean, if our volumes redrop a lot, I think there's an infrastructure cost element that we cannot deal with. But otherwise, just in terms of gross margins, we're not going to be able to see -- we're not going to see a huge deterioration.

We did suggest, in my -- I did suggest in my earlier comments that we did take an exceptional provision of about EUR180 million, I think it was, as part of the restructuring of the EUR390 million, which relates to the -- to a reduction and the carrying value of used equipment in both cars and trucks. And that is a reflection of the lack of efficiency -- lack of efficiency in the marketplace. You're bound to see a decline in used car values and used truck values when your top-line performance is not as strong, when the demand function is not that strong. So I think we've dealt with it. I think we need to work our way through the inventories issues for the first semester.

Do you have also -- like a full facts figure for how many trucks do you need to sell to remain on a trading profit level breakeven?

We do but I won't tell you.

All right. On a group level, a couple of questions. What would you consider [not people] gearing level or net debt EBITDA level for the group over the next two years?

In an ideal world, if you look at our projections, we had forecasted we'll be sitting on roughly EUR5 billion worth of cash by the end of 2010. And reality is that in a market which is -- the market which has got normal trading conditions, right, that type of number actually -- given what we've experienced, becomes almost a required level of sort of safety cash that you would have to keep on your balance sheet to try and deal with the eventuality of a potential downturn of the caliber that we're seeing. But I -- to be perfectly honest, when we get back up to a normal trading cycle and we get to EUR5 billion -- I think that's the number that I like to keep on a balance sheet and deal with the rest of life. I don't ever want to go through this again.

Right.

So I don't mind working my way through a cash pool. As much as I like bankers, I prefer not to talk to them.

Right. Right. And will you share with us the capitalization ratio of R&D that you had in '08?

I will give you the number in a second. By the way, while they're looking for the number, I want to correct something. Apparently I read the wrong chart. It's a CEO privilege, by the way. The level of inventories at the end of Q4 were 219,000 vehicles at the dealer level. They were down 10% versus Q3 of 2008 and we're expecting them to drop to about 185,000 in Q1 and now we're really sort of risking -- these are -- anything below this level is going to impact on their ability to sell. There is a significant reduction going on.

And on the R&D?

I'll come back to you on the R&D. They're going through charts here. So why don't we go to the next question and I'll come back to you.

Okay. Thanks very much.

Our next question comes from Paolo Mosole from Intermonte. Please go ahead.

Good afternoon. I still have some question for you. The first one on the provision that you took for the risk for [the value of list vacos]. Could you tell us to how many vacos that refers to and how many vacos could be such a similar provisioning first quarter or going forward in 2008?

And the second question is on Q1. You said that you would have given us guidance on a quarterly basis. Could you give us guidance into both trading profit in Q1, which I presume could be a negative one? And the third, in case you go through an alliance and would you consider that could be made through a spin off of the auto division to the new alliance?

Well, let me deal with the easy questions. The answer to your last question is yes.

Okay.

It would -- it could, it would be done that way, I think, if it happened. In terms of -- and maybe I think you misread my statement. I think -- I told you that I would keep on giving you updated guidance as we worked our way through the year about how we saw the year going. The best I can tell you right now is not -- I didn't change my views -- I didn't tell you in the report that I was -- I'd give you quarterly guidance. What I said is that I would update you on trading conditions on a quarterly basis and adjust the year-end number as I worked my way through the year.

My best assessment today is that we're going to make over EUR1 billion in trading profit in 2009 with all the other stuff that's listed on whatever page of the press release it's listed on. In terms of the write-down stuff, I don't know how many vehicles. I didn't do the numbers. But I think we took a look at the whole pool. It really is of -- it is really of no relevance. It was taken across the whole pool of used cars and trucks that we had within the organization and it reflected adequate provisioning or we think we may be experiencing as a drop in retail values.

That's the best information I have today and I have no expectations that we will take additions write downs based on what I know today on that pool. But there's no expectation that it will be Q1 or Q2 or Q3 write downs going forward unless there's another fundamental dump in the marketplace beyond what we expect in the forecast.

Now that's about -- that takes -- I think we're done with the questions, are we not, operator?

We have one other question. It's our final question from Ranjit Unnithan from JPMorgan.

Hi. Can you hear me?

Yes.

Hi. Thank you for taking my question. My question is on liquidity, sort of a follow-up to another of your questions. What are the Op financing options that you are trying to arrange for 2009? I know your guidance calls for positive free cash flow, but sort of in a contingency requirement, is it primarily credit lines from banks? Are you also considering government aid?

Well, let me put it this way. If government aid were to be offered, I'd be the last guy to resist it. Given the way -- which institution are you with, by the way?

JPMorgan. I'm sorry.

Yes, given the way -- given the level of funding that's gone into the American financial system and I -- if we could get anything like that I would take it in two minutes. So I would never every reject state aid as long as they allowed us to run the business, which they appear to have done with the banks in the U.S. But in terms of securing additional liquidity of the system, we are working with a variety of parties to provide the necessary liquidity. I think it will be very premature. We do have things that are pretty well agreed with the number of financial institutions and I think that we will access them as required. But I think that we have made progress over the last month. I think we need to make sure that we don't do something stupid and erratic in the market which is really not necessarily the most rational. But we do have access and good confirmation of the fact that these pools will be available to us. But certainly, if state aid comes, we'll take it.

If I can just go back to a question that was asked, I'm not sure who asked it and I apologize for not identifying the party who asked it. You asked me about the R&D capitalization. The total R&D cash out was EUR1.9 billion, almost EUR2 billion in 2008, of which we capitalized EUR1.2 billion and expensed EUR750 million. And that, by the way, I have no more answers for anybody, operator, so I -- we're done. I think we've been on this call for an hours and 48 minutes and I don't know of a CEO that would have been on this call for this long. I'm not trying to be arrogant, but I've given you all the answers I have for the day.

That's perfect. Thank you. So I would like to turn the call back over to you for any additional or closing remarks.

Thank you, Elaine. We would like to thank everyone for attending. If you have 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.