Stellantis NV (STLA) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat 2009 first quarter 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 investor -- Fiat's Investor Relations.

Mr.

Auriemma, please go ahead, sir.

Thank you, Marion.

Good afternoon to you all, or good morning, as the case may be, and welcome to Fiat 2009 first quarter 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 that you should have downloaded from our website, 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 be making 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.

Thanks very much.

I guess you've had a chance to look over the numbers, I think the best way to describe this quarter.

For those of you who attended a presentation that we did here in Turin -- in 2006, one of the things that we hypothesized at that presentation was a 20% decline across all sectors, and we stress-tested the organization to find out how well we would do under those circumstances, and certainly it was the furthest off of my mind that we would actually be encountering a situation of this caliber.

And effectively we've been able to outdo ourselves, so we ended up with a decline turning the top line well in excess of our -- what we considered to be a disaster scenario back in 2006.

We've had, just in terms of volume, a 25% decline in revenues.

And it's been a decline that's been pretty well widespread across all sectors for a variety of different reasons.

But fundamentally the organization has had to contend with a set of conditions that have forced us to really deal with the limits of operational leverage.

I mean, I think that we are encountering and have encountered a situation that I don't think any market participant, whether it's Fiat or otherwise, has really been tooled to handle.

I think the fact that we've come out of this process having delivered a trading profit of nearly breakeven is just -- I think it's a recognition of the operational dexterity of the south.

So I think that it's reacted incredibly well to these adverse circumstances.

And I think it makes us a lot more comfortable about the way in which we're going to be tackling the remainder of 2009.

And it's fundamentally the basis -- it does provide us the basis on which we are confirming our commitment to deliver roughly EUR1 billion of trading profit for the year.

Just to start with page two, we've -- as I mentioned, we're down 25% over the equivalent quarter of last year.

Automobiles, which includes obviously even the sports car brands, were down about 17% or 18%.

CNH was down year-over-year, driven mainly by contraction of the small horsepower tractors and more fundamentally by an unprecedented contraction of construction equipment volumes.

And Iveco has seen numbers.

I don't know if -- I've asked the CEO of the sector yesterday as to whether he ever remembers numbers of this caliber.

But we've had a loss of nearly two-thirds of the volumes compared to Q1 of 2008.

Notwithstanding all this, I think we've ended up with a -- what I call an -- it is truly a narrow trading loss of roughly EUR48 million because we were able to contain the impact of the loss of contribution from the lost sales by a series of very targeted interventions on the cost structure that have allowed us to be effectively almost breakeven.

Net loss for the quarter is EUR411 million, I mean it is after financial and tax charges.

As important, I think we were able to manage liquidity intelligently.

We've got net debt, which is about EUR6.6 billion which is phenomenally different to the type of activity that we would have seen in normal -- in a normal Q1 given the seasonality of the business.

As important, we ended up holding on to roughly EUR5.1 billion worth of cash.

Some of this is due to the fact that we have an additional facility of roughly EUR1 billion that was put in place in Q1 of 2009.

But I think it's important to -- it was important for us to maintain both of those levels within the established ranges that we talked to you about at the end of the 2008.

We're going to get pretty gutsy here and we are going to make some predictions about what 2009 is going to look like.

I think it's -- there is no doubt in my mind that I think we've seen the bottom of the cycle.

I think that it is pretty hard to imagine a deterioration from current trading conditions.

I think we have seen volumes across all the sectors which have reached historical lows.

And we have seen the beginning of a recovery certainly on the car side -- and we'll go through this in a moment -- in the -- in probably March for European activities, and probably in the last two months in terms of the South American activities.

And so these markets appear to be stabilizing.

I think we're going to continue to see weakness in construction and in the -- on the truck side for probably a good portion of 2009, and we won't -- we will only see, I think, signs of recovery as we get close to the end of the year.

If you move onto slide number three, which deals with the composition of trading profit and of revenues, you can tell that the -- if we include the luxury brands, actually automotives -- the automobile sector was positive to the tune of EUR27 million.

CNH has had poor results.

But I think as we go through them I think we'll understand the origins.

But it was still positive.

Obviously what's gone negative is the component side of this business which is totally attached in terms of volumes to the rest of the organization, and to the overall performance even of our competitors.

And I think they're just suffering from a lack of volume.

And notwithstanding all the cost containment initiatives they do -- they are hitting the limits in terms of operational leverage.

Any deterioration from here or a continuation of these conditions without a sign of recovery would entail a permanent takeout of capacity from the system.

I don't think we're there.

So we're not even going to address it in terms of this call.

But I think that as long as volumes continue at these levels I think there is a limit to their ability to try and recover just on the efficiency side the loss of contribution.

But it's been a -- it's a good quarter.

And I'm relatively satisfied.

And I think that the organization has reacted well.

If you go to page five -- sorry page four, which deals with the reconciliation of trading profit, to the bottom.

I mean, there is no use explaining the equity swap.

It had a minimal impact.

In terms of the result, I think there was a EUR14 million gain form the swap which impact the financial charges.

But I think everything else is in line with the rest of the P&L, including tax rates and the rest.

Cash flow statement on page five is relatively clear.

As I mentioned to you, at the end of the 2008, we were rather proactive in terms of taking out capacity from the system, and obviously this is beginning to bear fruit.

We've refused to engage in production which would have ended up parking iron on our dealer's loft.

And so we've been very disciplined.

We've been disciplined across all the businesses on this issue.

And the fact that we've got substantially flat inventories in ag is -- even though I think we're trying to drive an inventory position on the agricultural side, which is really going to satisfy very strong order book in Q2 and Q3 for CNH, I think overall the working capital management has gone well, and we've delivered what we expected.

We continue to place particular emphasis on capital expenditure.

We're postponing all the postponable.

We're going to have a capital expenditure profile which we -- which will be less than EUR4 billion for the whole year.

We're probably going to be around EUR3.8 billion for 2009.

And we do expect -- and we'll come back to this in terms of the forecast for the year -- but we do expect to provide about EUR1 billion worth of cash flow to drive net indebtedness to above EUR5 billion by the end of the year, or slightly below.

If you want to turn to page number seven, we start talking about volumes and industry outlook.

We've -- in a down market, we have been able to significantly increase share.

We have been able to gain market share across all the -- what we consider to be the major markets, UK excluded, and the European side.

We've allowed the competition in Brazil to gain share, and we've done this with a very clear view of maintaining margin.

On the product portfolio that we have, I think that the numbers beginning in April are beginning to look much stronger in terms of market share.

I think that this highly competitive behavior has sort of subsided at least for the time being, but we're still maintaining market leadership at 23.8%.

We are forecasting the full year for Europe to be down roughly 10%.

The Italian market is expected to be down year-over-year, and notwithstanding the incentives that we're seeing.

We'll see in a moment what's happened.

I think that we -- the Italian market has gone down by roughly 25% in the first quarter of 2009.

And it's -- the impact of the eco-incentive system that was put in place did not work its way into the system until March of this year, and so we've actually had two-thirds of the quarter that were fundamentally un-impacted.

The more troublesome issue for us is the decline in the light commercial vehicle side.

This is a relatively profitable portion of our business portfolio in cars.

It's had a decline of more than a third in terms of volume, quarter-over-quarter.

And it is an area which I think will continue to be depressed for a big chunk of 2009, although the level of decline will improve throughout the year as we start getting some more reasonable numbers.

And that by the way, just in terms of the profit contribution, is a significant explanation of the variance year-over-year.

If you move onto slide number eight, when you look at the impact of the eco-incentives across the three main regions, Italy, Germany, and France, they have been effective in terms of promoting demand.

I think that we've been able to benefit from the scrapping incentives because of strategic choices that were made a long time ago, probably far back as three or four years ago in terms of the product portfolio, especially in terms of power trains, which have allowed us to continue to offer significant benefits in terms of CO2 emissions and consumption.

So we're continuing to see strong order books in the month of April.

I think this will continue certainly for the whole of Q2.

The indications to date is that the Italian market continues to be strong and our order books are getting longer.

So I -- these -- this is relatively decent information on which to try and plan performance for the year.

The Brazilian market I think will continue to perform well.

And I think my expectations is that we'll probably finish the year on the average at about 2007 levels.

If you move onto slide number nine, this is a more problematic chart in the sense that when you look at the composition of the movement of the markets and our market share gains in the sector, we have done incredibly well in tractors, especially at the heavy end of the offering.

Large horsepower tractor, four wheel drives, and combines have done well.

We have lost some share in terms of combines in Latin America, where this is totally due to financing conditions that we found to be unacceptable in the market.

So we've let those orders go.

But I think overall we've had a strong quarter.

And I think that we're looking forward to a strong performance of the ag sector in the second quarter of 2009.

In terms of construction equipment on page 10, the story is completely different.

I think we have seen -- as you can see from the Q1 data just in terms of year-over-year decline we had thought that Q1 of 2008 was already a bad quarter.

But we have actually lost nearly two-thirds of the volume compared to 2008 and that's by definition impacted the performance.

Most of our plants in construction equipment are not running as we speak.

And they've not been running for a while.

I think we're going to continue to idle these facilities as we work our way through the bottom of this crisis.

And I think that we will not see any recovery until Q4 2009.

Undoubtedly there is going to be a bunch of stimulus packages that will be put together by a variety of governments going forward.

These are not built into our expectations.

And I think it's very difficult to assess as to what the American response will be to the stimulus package that is being proposed by the current administration.

But certainly based on what we see today, it -- whatever the impact will be, it's not going to be visible or felt until the end of this year.

Slide number 11 is a continuation of the sad story of what we see in construction.

This is the truck side of the business.

We've had substantial declines in volumes.

Eastern Europe especially has been impacted negatively by current market conditions.

I think, we -- for the full year, as you can see, some of these numbers are large declines year-over-year.

We're expecting all the markets to be down, including Latin America, which has suffered the least so far in terms of volumes.

So the market continues to be weak.

And I think we have decided to maintain a very strict pricing discipline in order to not to devalue, all the work that has gone on in terms of the repositioning of the brand.

So this continues to be our main objective.

I think we're going to monitor this very carefully as we go forward.

We are working off inventory issues in Iveco, which I think hopefully most of which will be out of our system by the third quarter of this year.

In terms of group purchasing, we are committed -- we are confirming the net savings of roughly EUR0.5 billion.

This is especially difficult in an environment where I think the negotiations that went on with our supplier back -- base back in 2008 involved a realignment of the price increases over a period of time, most of which if you look at slide number 13, are beginning to be felt in the first quarter of this year.

This is just the tail end of an agreed increased schedule that reflected particular market conditions in 2008.

I think we're out of it now, the end of March, and I think we're going to go back to try and experience normal trading conditions reflective of weak demand from the supplier base.

So I think we feel relatively comfortable that the worst is behind us, but it did have a negative impact certainly on the performance of CNH, which was fully recovered by pricing actions but notwithstanding it didn't benefit us in terms of a net basis to the bottom line.

Slide number 14 which deals with the cost structure.

8,500 people were taken out between year end and now.

We continue to use the temporary layoff mechanism to try and reduce effective headcount in the field.

We're gong to continue using this until we find the right equilibrium between the demand and supply.

And obviously as you can see from the fact that we were able to maintain nearly breakeven across the Group, a lot of work has been done in terms of the central costs required to run these businesses.

There's been a severe cut back in SG&A across all sectors.

All discretionary spending has been stopped.

And we continue to be incredibly careful in terms of the R&D and the commitment that we're making to these businesses.

The restructuring actions of CNH on page 15, I think that those of you who attended the conference call by CNH heard this from Rubin.

We are adjusting the cost structure of CNH especially on the ag side.

We do need to take a very hard look at our construction equipment business, because I think that these conditions that we're experiencing in the marketplace are an indication of a permanent shift in demand.

And I think that we need to make sure that we come out of this with two strong brands, with an incredibly simplified cost structure.

And so a number of things are going on within the business today to reduce salary workforce, headcounts, and to really bring about a substantially reduction in the cost of operating this business.

It's a lot different story on the ag side, because I do think that the question about idling plants is really not worthwhile.

We remain as confident as we've always been about the ability of CNH to compete globally notwithstanding particular weakness in demands.

The lower end of the horsepower spectrum in tractors, I think these are conditions that will restore as the economy does pick up.

Slide number 16 just highlights even more the issue about the -- our assessment of the global construction industry.

It has been these numbers that we're seeing, I went back and I looked at a time series of volumes going back as far back as the year 2000, and I don't think we have ever seen volumes at these levels.

And so even if there is a recovery, it's going to be gradual.

And I think that we need to learn from this and take the opportunity to restructure this business in an intelligent way.

And I think we're going to re-implement these measures, we are going to take some charges, probably most of which will come through in the second quarter of 2009, but they will reflect a realignment of the cost structure to match market conditions.

I think page 17 explains the same thing.

I'll move on to page 18 which deals with 2009 and our expectations.

I think I mentioned that -- and we've had his dialogue certainly on the conference call when we talked about 2008 in the closing of the year.

We did expect the first year -- the first quarter of 2009 to probably just show the most erratic pattern in terms of performance.

We've have seen this happen, and I think we've seen the worst.

I -- we're beginning to see, as I said, sign -- encouraging signs of a pick up in demand.

It's nothing phenomenal.

But given where we brought operating leverage now within the organization, we think we are going to be able to benefit pretty quickly from any up tick in demand.

We will see year-over-year a 20% reduction across volumes in all the businesses.

We do think that notwithstanding this we'll be able to get a 2% margin on our volumes.

We are going to take roughly a EUR0.5 billion charge between restructuring and other unusual costs in -- throughout the year.

Part of this will come through in Q2, and the rest of it will be visible as we go through the rest of the year.

Net-net we'll still be positive.

We think we're going to make over a EUR100 million for the year.

And as I said earlier I think the intention here is to try and drive cash to the tune of EUR1 billion and bring our net debt level to below EUR5 billion by the end of the year.

We -- I think I've got one slide that deals with the Chrysler issue.

Just to go back and remind everybody as to what the intent here -- there really -- the objective of our alignment with Chrysler was to try and provide -- to really provide Chrysler with a couple of things.

One is a bunch of technology both on the -- in terms of platforms, architectures, and power trains that will allow Chrysler to complete its product offerings.

And then secondly to offer them an expedited way of having access to distribution networks which are outside of the traditional trading areas.

We continue to do -- we continue to make progress in terms of the alliance.

We have spent significant amount of time with people from Chrysler, and from the US Treasury on finalizing this transaction.

We are going to continue this until April 30, which is the date that has been set by the President of the United States as being the drop dead date on this deal.

I am not in a position to give you an assessment today as to the likelihood or not likelihood of meeting all the conditions by April 30th.

Based on what I know today I have seen no reason why this should not happen.

And I can only confirm our unwavering commitment to get this transaction done.

We do see the benefits as being significant for both Fiat and Chrysler.

And it's a sincere hope that we can get all the stakeholders to agree to the final pieces of this puzzle in the next few days.

That's about it.

I have no other comments.

There is a whole pile of information that has been provided here in terms of providing you details on the quarter.

They are part of the appendix and I -- we can go back and you know answer any questions you may have in connection with them, but otherwise I think the presentation is done.

Mr.

Auriemma.

Thank you Mr.

Marchionne.

Now we are ready to start the Q&A session.

Marion, please retrieve the first question.

Thank you.

The question answer session will be conducted electronically.

(Operator Instructions) We'll pause for just a moment till everyone is settled for questions.

We'll take our first question from Adam Jonas from Morgan Stanley.

Please go ahead.

Hi, thanks.

Adam Jonas, Morgan Staley.

Just two questions on Chrysler.

The first is, if the negotiation with Chrysler don't end up going anywhere, and I guess we'll find out pretty soon, what kind of urgency do you have to kind of find a replacement for Chrysler like a new vehicle that could help take it to the 5.5 million unit level that you feel is so important for scale?

That's my first question.

And the second question is, you've repeatedly ruled out giving Chrysler -- giving cash to Chrysler.

Can you just explain why not?

Why -- if you believe in the future of the partner, why not be willing to contribute cash?

Thank you.

Well, let me answer the second question.

So the same reason that Morgan Stanley wouldn't lend any money to Chrysler.

I think that in today's market conditions, the likelihood of anybody able to raise capital in distress situations, as Chrysler finds itself, are pretty small.

And I think that we do bring sufficient technology and know-how to this organization to justify acquiring an equity interest in this.

I think Chrysler's a work in process.

It is going to require a substantial amount of effort on the part of Fiat to introduce this technology, and to effectively allow them to make full use of it within the North American market.

It will require a substantial amount of effort on the part of Fiat to try and distribute Chrysler products outside of their established trading zones.

And these are all things that have significant value.

This whole notion of attaching cash to the introduction of Fiat into Chrysler is something which I find really unjustifiable.

I don't know why we would have to pay to get in.

That's a point that we have made clearly from the beginning of these transactions.

And I really don't think we want to reopen that discussion.

I think it's unnecessary.

I think we have spent a long time talking to people both in the Treasury, within Chrysler, and other stakeholders involved in these negotiations to explain the value of what we're bringing.

And I think on that issue, we have achieved convergence.

Okay.

If I can -- if I may just interrupt, Sergio.

You mentioned you don't have any plans to invest even in the future.

So presumably, working deeply with Chrysler on common product and distribution would be -- not just involve upfront structure, which I can understand why this early in the venture you would be -- you would not find it necessary to contribute cash.

But presumably, years down the line as you start to do more deeper collaboration with them and perhaps the economy gets better and you start to show some improvement or real traction, you still ruling out the -- putting some of Fiat's money into this very important venture?

Not at all, because as a matter of fact, if you look at the -- and the slide that deals with the issue of Fiat's interest in Chrysler, there's a very clear indication of the fact that we've made a commitment on a call option basis to acquire majority control on our market base, on the basis of market values of Chrysler at the time at which the call option was exercised.

And so it's not an unbounded restriction we do on committing cash.

We are going to commit cash at the relevant time if the need arises.

I think the comments that we have made, in terms of our obligation or commitment to provide financial support to Chrysler, is that we are not the financial support mechanism that Chrysler needs to come out of its current crisis.

That's not our role.

Understood.

And I wanted to make that absolutely clear, because I think that there were concerns about the fact that as we were going through the recovery stages in Chrysler, that Fiat would be on the hook in terms of providing financial support to Chrysler in its recovery process.

That has not been the intention.

But having said that, I think that Fiat is willing and -- to look at industrial cooperation opportunities with Chrysler, which would require financial outlays, especially if they're intended for the benefit of Fiat and not for the benefit of Chrysler.

So the -- it's not a prohibition to infinity, it's a prohibition given current market conditions, and the fact that that's not in Fiat's plan today.

We need to work on helping Chrysler recover from its current crisis.

We're going to do this through technology, through distribution, and through management support.

I think all those things are available.

And I think they do constitute a significant contribution of value to the organization.

What it does in terms of industrial development going forward with Fiat is something that Fiat is quite willing to pay for.

In terms of the other question that you've asked, is there an alternative to Chrysler, the answer is there may very well be.

I'm just totally focused on getting this transaction done.

I think it's important.

I think it's important for Chrysler, and I think it's important to Fiat, and I'd just like to get it finished.

Okay, thank you.

Next question comes from Thierry Huon from Exane BNP.

Please go ahead.

Yes, good afternoon.

This is Thierry Huon speaking from Exane.

I've got three questions.

The first one is to know how long you could deal with the current situation with temporary measures such as temporary layoff and short times and things like that.

If a recovery is not materializing soon, what could you do to keep the impressive operating leverage you had during the first quarter?

The second question is about the financial cost.

I've been a bit surprised to see that (inaudible) didn't get more than what they did given the increase in the net debt in the last quarter.

And the last question is about Opel.

I guess that it shouldn't be easy for you to comment, but the vice president of the supervisory board of Opel said that you are in talks with GM for the European operations.

Could you give us any comment on that?

Just to deal with the operational issues and the continued weakness in demand, I think that -- certainly, in terms of what we've done within the Italian context which is the one that's made -- it is that part of the organization that has utilized the temporary layoff mechanism.

I think there's a very constructive dialogue that's going on with the government that recognizes the severity of the crisis.

And that would -- I think under the right circumstances would extend the protection that's afforded to our employees if the weakness were to continue beyond our forecast period.

So I'm not particularly concerned.

I think we will find a solution that will allow us to continue using this mechanism for a prolonged period of time in the event that weakness were to continue.

The issue that we've -- the question that you've asked about whether we're going to be able to maintain this tight control over operational leverage, I'm actually more comfortable in that.

I think that we have done -- some of the actions that we've implemented in '08, at the end of '08 and the first quarter of 2009 have not yet fully shown in the first quarter results.

I think we're going to see an increased benefit of this tightening of cost around the operational leverage issue.

And so I'm relatively comfortable that we can continue to hold for quite a while.

The main objective for the south is going to continue to focus on liquidity.

And for the remainder of 2009, I think that notwithstanding the fact that we think that we've hit bottom from an economic cycle standpoint, I think we need to provide stability in terms of cash flow generation and the maintenance of debt.

And that continues to be the single largest driving force that we've got, and the easiest access that we have for the management of that issue is working capital.

So there are people now within this organization who worry and manage that position day in day out.

I think we've made some right choices about taking plants out of production to avoid build.

And I think there's -- we're going to continue that discipline.

So I feel relatively comfortable that the house has gotten used to this rhythm, and that we'll be able to keep it up for the whole of 2009 if necessary.

I don't know of the question about the financial charges, I'm going to pass it on to Maurizio here to answer the question.

Well, my understanding is that you deemed them even lower than you expected.

In a comparison quarter-over-quarter and year-over-year, of course, you have to clean the numbers from the effect of the equity swap transaction, which in a comparison on Q1 '09 versus '08 is 14 positive this year against the 63 negative last year.

It means actually worsening of 77, which I think is consistent with increase in net debt.

Okay, thank you.

And for the question about the --

And in terms of the third question, to begin with I've seen all this -- all these press clippings coming out about the fact that we're in the process of -- have or will send a letter to Opel to do something, I -- the only thing I can tell you, to begin with, we don't -- I have nothing to announce in the sense that I have -- there's nothing established that has been -- to the best of my knowledge that -- we have not had any direct conversations with Opel.

I just wanted -- I want you to step back from that -- from the Opel opportunity for a moment, because I think you need to take a look at this as being an industry issue and not necessarily an Opel issue.

I was relatively clear when we had our shareholders meeting a couple of weeks ago, that when you stand back and you look at the automotive landscape -- and most of you have commented this in terms of your report -- that you've all recognized the fact that there is a structural imbalance between the ability to produce and demand.

This is a problem which we have been dragging out now for a number of years.

Somebody told me -- and I don't know whether this statement is true or not -- that there's not been a single plant that's been taken out of production in Germany since the war.

I don't know whether it's true or not, and I don't think it matters.

But I think that there are issues -- it doesn't matter vis-a-vis the country itself, but certainly there are issues that looked at the industry on a global scale -- and more particularly in Europe and in the US -- that require a realignment of these positions in some fashion.

Because especially given current financing conditions in the marketplace, this industry will not be able to attract capital to try and finance its future.

And so we are fully cognizant of this.

I know the pain that we have lived through in -- in the fourth quarter of 2008, and certainly in the first quarter of this year in terms of adjusting our operations for this new -- to these new demand levels.

It is a very painful adjustment process.

It is something which the industry is incapable, structurally, to handle.

And it has forced I think the US Treasury to come in and effectively provide support to two of the large automotive players in North America.

I wholeheartedly share -- and I'm not here defending the US Treasury actions, because it's not my role.

But I think that level of intervention in the sector to try and guide it through a very difficult period of adjustment and realignment to allow it to reemerge from the restructuring process much stronger than it's been is something that needs to be tackled.

So without mentioning particular potential candidates of Fiat, I repeat -- and as I've done this in the past -- that we're open to dialogue, and we have open dialogue with a number of automotive companies around the world that would suggest that we are going to be part of a consolidation exercise that will accomplish two things.

One, we need to get to minimum volumes, roughly 5 million to 6 million.

And I think the more important thing is that we need to be able to drive a minimum of 1 million cars off each one of the main architectures that drive the business in Fiat.

If we cannot get there, I think, we're going to be suboptimal.

I think we're never going to be able to justify the size and the extent of the investments that are being made of supporting the R&D that's required to move this industry forward.

I think we have a great opportunity now.

I think, in a lot of ways, we can follow the example that's been used in the US to try and guide the industry through.

I would -- it will be welcome.

But I duly think -- I do think that we need to tackle this issue once and for all.

The market conditions to get that done are here.

And Fiat is a willing player.

And so that's all I can tell you.

The rest of it is up to other people.

Okay, thank you.

It's really helpful.

Next question comes from Massimo Vecchio from Mediobanca.

Please go ahead.

Good afternoon.

I've one question on Chrysler.

Assume that you won't be able to close the deal by the 30th of April or by the -- by any extended deadline.

What's your position in doing cherry-picking on Chrysler assets in a Chapter 11 process?

Put it another way, you -- do you want or need single assets or you want the company on an going-on concern?

Second question is on what you were saying before about the plant closures in -- around Europe and probably also US.

What makes you so confident that politically you could close plants?

Or probably have you have any other option like idle plant, temporary layoff or anything which is -- which will have the same effect of closing plants?

That's it, yes.

And just in terms of your first question on cherry-picking Chrysler assets.

I go back to what I said.

I like Chrysler in its totality.

I think it's totally an untimely question to ask about whether the spoils of Chrysler will be of interest to us in the event the deal doesn't go through.

I remain as committed to getting this deal done on the terms that we've described.

I think it would be beneficial to both Fiat and to Chrysler.

And I'm only focused on that issue and focused on our ability to close by April 30th.

Everything else is an irrelevant question.

I just -- I've no interest, right.

I mean, just don't.

So let's just make sure that we can close this deal and close it properly.

In terms of the second question, which is a more problematic question, it deals with this notion of closure of plants.

I think there's a -- and I don't want to give you the wise answers to difficult questions.

But there are ways in which you can deal with capacity issues.

I think one of the problems that you have is -- analyst community, is to insist on plant closures as being the solutions.

There are other ways to get there, including the ability to restrict the capacity of particular plants to produce volumes.

That may have inefficiencies associated with it, because of the fact that we may not be running them at optimal levels, but it is a minimal cost compared to the downside risk of creating the level of social instability that is associated with plant closures.

And so one of the things that one has to look at if one is carrying out this exercise is a way in which you can naturally restrict capacity, not necessarily day one, but you could do this over a short period of time to try and achieve the same desired objective.

And so -- and the solution will depend on what the two combining entities will look like at the end of the day.

So I don't -- there's no pre-arranged view of this, but temporary lay offs will not fix what are considered to be structural, fundamental problems in the industry.

So we need to tackle them.

We need to tackle them in a socially responsible way.

But I think solutions are there.

I think that it would be phenomenally impossible to look at wholesale reductions of capacity.

I think that Europe for one, I don't think it sustained, nor is it within the culture of the European -- of European society to carry out the type of downsizing that's gone on in the US in the automotive side.

I think that we will have to find a different approach to this.

But I think the tools do exist and the methodologies do exist to achieve the same end.

A follow-up question, if I may.

If you live to choose, what kind of deal in the current scenario would you prefer?

A cross-selling deal like the Chrysler one, or say synergy's cost cutting deal, like the Opel one, if you'll ever have to choose?

If you go back to -- and if -- that's a difficult question to answer, because I'm not being offered a choice.

I'm intent on closing the Chrysler deal.

So that remains a priority today.

And so just in terms of the way in which you've asked the question, the answer is that Chrysler is on the table and Chrysler is my first and foremost objective.

Okay, thank you.

There's a second part to your question, which says that if you started off with a clean sheet of paper, and you had to design a world that had what you called a geographic extension into United States with Chrysler or an opportunity to bring about a significant reduction in the execution cost of running your current business, the short-term answer is that you will focus on the latter, because that's the one that would have the immediate impact and the immediate benefit associated with improving the performance of Fiat going forward, in the medium to short term.

Having said this, I do not think that those two things are mutually exclusive.

I think it's -- it is quite possible for Fiat to engage in both of those transactions and to execute them properly.

Thank you very much.

Next question comes from Martino De Ambroggi from Equita SIM.

Yes, good afternoon.

One more question on M&A activity.

I understand that you are focused on Chrysler.

Then I understand that you had nothing to announce on Opel, but what could be your best case as a realistic scenario on an eventual deal with Opel?

Yes, thank you.

And the second question is on debt.

If you could elaborate just to understand if it's -- there is -- if there is some structural change in payment terms.

And if possible, a rough indication on what the trend of the debt in Q2.

Thank you.

I'm going to get Maurizio to give you the Q2 target.

I don't have it available, but -- and then I'll deal with the other issues.

Well, we expect to improve even in Q2, even -- of course, we will have some other payables coming due.

But even then objective is to improve on Q1 performance.

I don't want to put words in his mouth, but I think that the question on Opel, I really cannot answer.

I think you're asking me to answer a hypothetical question.

I don't have anything in front of me to provide you with comfort one way or the other.

If the opportunity were to arise in a tangible way, I think we would give it a very hard look, but I don't think we're there today.

In terms of your -- whether there's been a structural shift in our payment terms, I think the answer is absolutely yes.

There's no doubt that we have -- all of us in this industry have learned how to do more with less.

I think we've asked some of our suppliers to contribute to this process.

But the industry, as you well know, is not in great shape from a financial standpoint, so I think everybody has contributed, but I don't think we've done anything, which is exceptionally different than the rest of the competitor class.

Okay, thank you.

And if I may just a follow-up, I understand that it's a pretty difficult question, but would you be comfortable only with a common platform for an eventual deal, whatever will be the partner, or today it is nothing can be taken into account because it's not enough.

It's -- in and by itself, a common platform would not be enough, common platforms would be.

But I think that one of the things that we'll be losing is the additional benefits of being able to leverage off the distribution mechanism associated with both organizations.

And I think that that's something that cannot be underestimated.

And so my primary objective is to still try and find a way to get to that objective of the 5.5 million to 6 million cars and have these architectures of 1 million a piece.

I think they're relatively simple objectives.

I think they do work.

I think they provide the right level of economies of scale to allow us to earn a decent return of the capital that we're committing to this business.

I think we all need to get there.

And certainly the exercise with Chrysler is intended to get into that level.

Okay, thank you.

Next question comes from Andrew Lobbenberg from RBS.

Hi there, two questions, if I may.

We've discussed at some length and I know discussions will go on about M&A issues within auto.

But does that mean that potential issues or adventures for Iveco or indeed potentially for CNH are off the agenda because you need to deal with auto first or does this downturn create possibilities for those businesses also?

And then the second question I'd like to ask is more your judgment on how the politicians in Europe have behaved, because at the time of the start of the downturn, you were quite vociferous I think in calling for Europe to act in a united manner and to be led by Brussels.

And quite plainly, well, that's not happened at all.

And we've had very different attitudes from different countries around Europe.

So how do you see that playing out forward and how -- going forward?

And how do you see the competitive political environment between countries playing out in the event there's consolidation?

Well, let me try and deal with the first issue.

I think that the fact that we're -- we have targeted the car side as being the opportune time to try and deal with consolidation issues and so on doesn't mean that we shut the door on the other sectors.

We're as actively involved as we've always been on the strategic development of both trucks and the ag and construction equipment side.

There's a variety of -- a host of activities that are going on on those sectors to try and get this done.

And so I -- the fact that we haven't talked about them is just because of the fact that they're part of the normal course of business.

It is much more difficult, if I can just give you a general answer on the CNH side.

I think that people totally underestimate the size of the ag business inside CNH.

It is of sufficient size and it would really prevent us from being an acquirer of anything; they're just too large, probably on a global scale, unless you're talking about geographic extensions, which are just purely commercial presence positions.

I -- those arguments continue.

One of the things that's impacted performance in Q1 for the ag side of CNH is the fact that the eastern markets have closed.

People in countries like Russia and the former Eastern Bloc, because of liquidity shortages, have not been able to finance the acquisition of construction -- of ag equipment, and that's made a significant difference in terms of the volumes that we're pushing through.

Eventually, that market will come back and will be present again.

But I -- don't expect large deals in terms of the CNH side, because the businesses are sufficiently large that you will probably trigger antitrust reactions to these moves.

The vehicle side is a different story.

I think the vehicle is trying to become a much more balanced organization in terms of geographical coverage.

We recently announced the opening of this infamous plant in China, which was the result of a very long set of negotiations with our partner SAIC and with the local authorities.

We do see that as being a significant growth opportunity for the Group.

And so on a rounded basis, it looks like a -- it is a good business to go forward, which may or may not engage in other M&A activities going forward.

So don't think that we're not dealing with those issues.

They are and we continue to manage them actively.

The other question that you've asked, it's just -- you're pushing on a -- on an issue, which -- on which I agree with you.

I've been rather loud on in the past and I continue to be loud on.

I think that one of the underpinnings of the European Union, going back to the treaty of Rome, was this whole notion of creating a single economic market.

And I think that the latest round of interventions that we've seen in these businesses have not reflected the attachment to what are considered to be a reasonable understanding of a single market structure.

And I've not seen a reaction out of Brussels that will suggest that they would intervene, et cetera, in terms of rectifying this.

I -- having said this, I'm incredibly hopeful that there's there's sufficient wisdom in the member states in the ones that are involved in this business to bring about and rejoin in a collective effort to try and bring a solution, which will ultimately involve Brussels, but which I think is going to require the initiation -- the start of a process at national level.

You made reference to the Opel issue before.

Obviously, there's a very active dialog with the state on the Opel issue.

But it is -- it tells you that eventually there are responses that must come from the member states that deal with a particular situation.

And so the solution for the consolidation story is not going to originate out of Brussels in my view.

But it will eventually be brought to Brussels after the member states have agreed to a solution.

But it's too early to tell.

I think that we've got some time to see the development of these issues going forward.

I'm hopeful that there's -- as I said earlier, and I think that there's sufficient wisdom in those states to try and bring about a reasonable solution.

Interesting, thank you.

Next question comes from James Maxwell from Deutsche Bank.

Yes, good afternoon.

I have a couple of questions.

The first one -- I was just wondering if you'd comment a little bit more just about the inventory position within Fiat auto, how you see that evolving?

How to go from here -- well, that means production in the second quarter?

And my second question was just coming back on the debt front.

You've got EUR6 billion of cash maturities over the next 12 months according to slide 39.

I'd just like to understand to what extent you see that being rolled over, or how that gets rolled over for the next 12 months?

Thank you.

Sorry.

While you were talking, I was asking one of the people here to get me the data on the inventory position.

Could you repeat the second part of the question?

Yes, my second question was to do with the EUR6 billion of cash maturities over the next 12 months and how you see that being dealt with rolled over, et cetera?

Well, the biggest chunks of that number is sitting with bank -- with bank lines, which are going to roll over naturally.

They always have.

We've been sitting at the short end of the spectrum in terms of maturities and these are good relationships with financial institutions and they're going to -- just going to get rolled over in the natural course of business.

There's, I think, a piece of which is a CNH bond issue, which I think is going to get refinanced by them on their own.

So that issue is relatively well under control.

So I don't see a problem in terms of dealing with the maturity schedule over the next 12 months.

And I keep on reminding everybody of this maniacal emphasis that we now have of -- on cash flow generation, it remains the key issue for the Group.

I think any discussions of profit in an environment like this are almost secondary.

And the real question is to really to try and preserve as much liquidity and as much (inaudible) as we can as we work our way through 2009.

I'm looking for some people to give me the numbers on -- I'm just going to repeat -- I'm going to parrot what I've just been told.

But we're down -- just to give you the exact numbers, we're down 50,000 units in terms of the movement from the end of 2008 to the end of Q1 this year.

We have one month's worth of inventory in the network and 0.6 within the house.

So we keep on -- these are incredibly tight numbers.

I doubt very much there are automotive companies that are carrying this kind of Calvinistic volumes in inventory.

We're going to continue managing these numbers on that basis.

We're just -- we're not going to allow for the build to happen.

And we had shown, I think, over the last 90 days, a determination to take out capacity if market demand is not there.

Okay.

So -- that's pretty impressive.

It must be presumably as low as you can go there?

It's getting slow, but one of the things that's also helped is the fact that the eco-incentive system that we'd put in has driven up demand.

So we've got -- we are looking at a very strong order book for April.

And I think the quarter itself will be in good shape.

So -- well, I think we're fine.

I wish I had that kind of profile in construction equipment, I don't.

Thanks very much, thank you.

You're welcome.

Next question comes from Stuart Pearson from Credit Suisse.

Yes, good afternoon.

I just had two questions.

The first comes back to Chrysler.

Obviously your team has been working with Chrysler now for a few months.

I just wondered if you could share with us exactly what you've learnt about Chrysler in that time versus your expectations and what level of possibility you think you can get or Chrysler could achieve on a five-year view and -- or indeed how long it would take -- you think it would take them to get there?

And the second question really comes back to CNH and a little bit touching on the financing issue.

I guess, a lot of that relates to financial services and obviously you found a structure with -- your auto financing with [Citigroup] Credit Agricole, a partnership to help on that front.

Is that a structure that could work with CNH and is that something we could expect to see in the near term?

Thank you.

Let me deal with the second last -- with the second question, which is effectively two questions.

The answer is I could possibly envision it if it were to be done on satisfactory terms of CNH.

And as to whether it's likely that it will happen within the next nine months, I really have no view.

I don't have a deal on the table today that will suggest that we can achieve the Credit Agricole arrangement within CNH capital in the near term.

Although I know there has been ongoing discussions about -- people who are interested in participating.

Because strangely enough, when you look at this business, it is probably one of the most solid ABS businesses around.

I know that it -- when the financial crisis hit the United States, we threw out the baby with the bath water.

And so all securitization exercises in the US went out the door, but there's -- in that process we took a big chunk of business, which has been a good business for a long period of time, which has not suffered from the default rates that we've seen with MBS transactions and we filmed that out.

So our expectation is that if the market does come back, and that we're beginning to see signs of that market reopening.

Obviously, the pricing on that reentry is completely different.

It's a 1 to 10 relationship that we were financing in the early part of 2008 to what we're seeing now.

But if that condition were not to return, if a reasonable access to financing were not to return to that market, I think we would look at ways to do joint venture the activities.

But I don't think we're there yet, although I'm -- if you know anybody who wants to talk to us about that, send them our way.

In terms of what I saw in Chrysler, I can only tell you this.

The best way to describe this, Chrysler has gone through a significant period of trauma.

I think that this thing started off as a leverage buy-out with the best of intentions back in 2007.

I think there were a number of people that were absolutely committed to making this thing work, and then the economic crisis hit, and I think volumes have just disappeared.

It's very difficult to deal with a market that goes from 16 million to 10 million cars in a period of three or four months.

And so the organization has shown a huge amount of resilience in dealing with adverse conditions.

I think Bob Nardelli and his team have done an incredible job of holding this thing together.

But if you were to ask me today what is my expectation of this business going forward, I can make this comment about the US businesses, and what about the European side.

I think that if we start getting to single-digit middle margin performance anywhere north of 5, I think that these -- you would've done well.

And I think that if you were to ask me today what is the five-year target for Chrysler, I would be happy.

Okay, thank you.

Just one follow-up on CNH.

Just this morning, obviously stating that -- how to use the (inaudible) facility in Q2.

Can you give us any idea to the extent to which they might be able to use that or you hope to be able to use that?

No, the only thing I know is that the -- I think that they had -- there's a view inside CNH, which I share and the (inaudible) funding is going to be available to them.

I'm going to leave it to them to decide timing and size of that access.

I think it's subject to conditions in the US, and I'm not sufficiently close to that issue.

But I'm sure Rubin handled that in his conf call.

Yes, right.

Thank you.

You're welcome.

Next question comes from Max Warburton from Sanford Bernstein.

Please go ahead.

Max, I don't know whether I should call you Mr.

Corn.

The question is slightly related to that.

Could we just discuss financing of M&A without actually talking about any of the potential partners?

Just in theory, if you had the opportunity to put together a deal or deals that would work, what are your thoughts on financing?

Are you basically committed to only do deals, or deal that can funded from cash flow and with government assistance, or can you envisage a deal that would be so appealing that it will be worth either a) issuing equity, or b) selling something?

Let's just agree for a moment that if what you just described is a really appealing deal, then I think anything is possible.

But to be perfectly honest, I have not seen any, and given what I know about this industry, it is going to be incredibly unlikely that I will find one.

And so the question about how you fund these -- how you would fund these potential associations is something which remains the key stumbling block to getting these transactions done.

I think that what we are seeing out of the US is a clear recognition of the fact that there are particular points in time in economic cycles where the state has to step in to try and act as bridge.

And as long as one sees them as bridge, financing providers, I think a lot of things could happen.

But as long as the view is to provide a clear exit mechanism for these interventions, a very clear commitment not to abuse that right, a very clear commitment not to allow these organizations to become state-owned in the medium to long term.

If you can see them returning to free and unrestricted capital markets and markets in general, I think they're totally justifiable assistance programs.

But they need to be done with a view of transitioning an organization from point X to point Y.

And if you can do this, and you can do it with a credible management team with a credible business plan, I think it is the role of the state to step in and get that done.

And so it is my sincere hope that in the midst of all this that we do find a collection of wise old men out there, and they don't have to be old for that matter, that will understand the project and support it to completion.

But I -- given what's happened to the financial markets Max, I think that the issue about who does this -- you know, five years ago, this -- the capital market would've carried these deals.

Three years ago, they would've carried them.

But today there's nobody out there for a variety of reasons who's willing to engage.

And so we're -- right now what we got is industrial policy, which is being dictated by the scarcity of financial resources, which is totally independent of the ability of the industrial players to execute.

And in situations like this, there is a need to have state help.

You do need to transition these businesses out for a short period, as one can, but they need to be in place.

Without it, you will get nothing done.

Okay.

Looking at it from a different direction, you just said something like the capital markets in the past would've carried these deals.

Given that's not an option now and given there's constraints to what the government can do, have you got other capital options?

Two years ago, you were talking about -- or at least implying, I think, potentially an exit from autos.

That was impossible.

So now we're trying to build in autos.

Is there any way you can monetize some of the other assets at this time, IPOs borrowing against them, some other sort of design?

Or is it really -- sale is the only option, and you don't want to do that, because you're committed to the better businesses?

I do not even want to -- and that's why I was jokingly referring to your headline in your latest assessment of Fiat.

I think this notion of Fiat disengaging from CNH or from other assets in order to support growth of the car side is really trying to put the donkey-ass backwards because the problematic business here is the car side.

Not because of the fact that we can't manage it, because you've seen the fact that we've been able to manage through incredibly tough conditions and not bleed.

The real issues that I'm worrying about this business five years out and one of the things that happens when you are an industry participant -- I may not be the biggest, and we're not by far.

But we're sufficient sized, that the unwanted, unreasoned act of another, one other player in this business will ultimately damage me.

And I think that it -- we have an obligation to try and manage these processes out.

We're not -- as I said, we may not be the biggest, but we need to help this industry out of this including Fiat.

And if we can be the conduit for that change, I am quite willing to do this.

But it cannot be done at the cost of disposing of what are considered to be incredibly valuable assets of this Group in which we have devoted time and resources, and -- not only in terms of financial resources, but where we devoted a huge amount of management time to try and bring onto the state of performance that we are now seeing.

So I don't think in my view that you will ever see a condition where Fiat will dispose of one of its, what you call, this prized asset to try and finance a recovery into car.

The solution is elsewhere.

The solution is the way in which I think that I've outlined that earlier where I think the reasonable people need to come together and effectively find the way to collaborate in these consolidations and bring about the desired result.

But there is absolutely no reason, I don't even know how to justify it morally if I have to, why Fiat as a player in this business would have to sacrifice what it's worked very hard to build in order to accomplish an objective, the benefits of which will be shared across the industry.

So I think the obligation is on all of us, Fiat included, but not to do stupid things.

Very clear.

Can I just ask one unrelated question?

It's still about M&A, but nothing to do with financing.

Just -- you got quite strong views on automotive management on the issues of how the companies and how the industry runs itself.

Looking at other alliances, Transatlantic and even within Europe, what lessons do you divine from what's gone wrong with other companies to give us a set of -- sets of principles by which you might run say the via Chrysler or some other form of alliance?

Well, let me tell you one basic principle, we are poor.

This is an incredibly poor industry.

I've been public on this.

We have not earned cost of capital.

We have really caused incredible damage in terms of the maneuvers that we have made, and I include myself in this process, I'm not blaming anybody.

But our track record is not the best.

And so the notion of poverty or living in a very Franciscan way going forward is a good thing.

And I'm told we earn the right to live beyond our means.

I think that we should live within our means.

And I think we've acted and behaved in a way where we thought that particular parts of our business would carry the inadequacies and the economic efficiencies of others.

And I think this co-mingling of interests and not the ability to see the forest for the trees has led us to this problem.

The financial services industry, with all its benefits, has really allowed the car guys to obscure the fundamental industrial issue that impact the car making.

We need to go back to making cars and making money making cars.

It does -- it's not complicated.

But we also know what are the required conditions to get that done.

And that's why I go back to this notion of commonality of architectures, and minimum volumes on architectures and minimum size.

Size managed well is good.

Size managed for empire building purposes is nonsense.

And I have absolutely no intention although I've see some remarks from somebody about the fact that we're trying to build an empire, we're trying to do nothing of the sort.

We are trying to drive an argument purely based on industrial efficiency.

That is the only thing I care about.

Our cost of execution in this business needs to come down.

And that's the reason why the margins have been historically as poor as they have and unless fixed will continue to be like this.

You need to understand that for us to live in Q1 '09 with the kind of market behavior and performance that we've seen and be able to come out with some skin but not having bled to death took a huge effort on the part of this organization.

Now, the culture and the values that drive that discipline are embedded in the place.

I think if we will share by everybody, we will all be better off.

Okay.

Thank you as always.

Thank you.

That will conclude the question-answer session.

I would now like to hand the call back over to Mr.

Marco Auriemma for any additional closing remarks.

Thank you, Marion.

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.

Thank you.

That will conclude the today's question -- conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.