Stellantis NV (STLA) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Fiat S.p.A. 2011 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 Marco Auriemma, head of Fiat S.p.A. investor relations. Please go ahead, sir.

Thank you, Laurie. Good afternoon to you all or good morning, as the case may be, and welcome to Fiat's 2011 first quarter results webcast and conference call. The chief executive, Sergio Marchionne, and the treasurer, Antonio Picca Piccon, will host today's call as usual. They will use the material you should have downloaded from our website at fiatspa.com. And after the introductory remarks, we'll be available to answer the question 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 language contained in the presentation material. So now I will turn the call over to Mr. Sergio Marchionne.

Thank you, Marco. Good afternoon.

Given the state of the European car market, I think that the results for Fiat for the first quarter of 2011 are more than satisfactory. I think that we have been able to manage the remnants of the hangover from the eco-incentive system in Western Europe relatively well. I think, obviously, we were supported by continuing strong market in Brazil and by the strong performance of our light commercial vehicle operations.

But I think overall the car side has done well. We're beginning to benefit from the rebound in automotive activity across the component sector as we can see from the results of both Marelli and Powertrain and taxis. I think that the prospects for the year continue to remain strong. We'll spend some time dealing with the issues that have arisen out of the production disruptions in Japan and what we think the impact will be on the Group, going forward.

I think we were quite successful in not only managing our P&L, but I think successfully managing our cash flows during the quarter. I think there's nothing exceptional in the performance that we've had in the quarter other than the fact that I think we've continued to maintain a high level of rigor in the management of our working capital positions.

We've got inventory levels in our dealers which are at record levels and we've maintained a very strong discipline in terms of inventory levels through distribution chain. I think we've been able to manage industrial production, obviously, to match a very unexciting demand, especially in the Italian market, where the volumes for the first quarter of this year have seen 20-year lows.

But overall, it's been a good quarter. I think it's a good basis on which we can approach the remaining nine months of the year and that's why I think we are in the position, notwithstanding what is being perceived as being a disruption in the supply chain, we are in a position to confirm the targets for the year.

If we move onto page three, just to highlight a couple of the significant events that have happened in the quarter. We were able to earn our way into the second two performance events that were established in our involvement with Chrysler. We have introduced the 1.4 liter engine in the United States, which is now available, at least for a first-time distribution, in the Fiat 500.

We were also able to finalize the agreement regarding non-NAFTA distribution for Chrysler products that has allowed us to go from the 20% that was originally granted to Fiat, to 30%. And our expectation is that within 2011 we will be able to have Chrysler homologate a car on a Fiat-derived platform together with Fiat Powertrains that will achieve 40 miles per gallon as an EPA highway label. So I think that we're working towards of the achievement of the last hurdle, which will get us to 35%.

We also acquired 50% of an operation in Italy called VM Motori, which manufactures diesel engines. We acquired the interest from Penske and we remain as joint venture partners on a 50-50 basis with GM going forward. I think it's an important addition to the diesel portfolio that Fiat manages today, would have two engines that are coming in from VM Motori, the 2.8 liter diesel and the three liter diesel, which are now being used both on the Fiat portfolio and on European-bound Chrysler-produced vehicles including the recently launched Jeep Grand Cherokee. So I think we've acquired now the -- a big piece in terms of completion of the product portfolio on Powertrains to allow us to compete effectively here -- especially here in Europe.

We were able to issue a bond. The proceeds of the bond were received on April 1st, so they're not reflected in the cash or debt numbers that you see as of the end of March for EUR1 billion. We have very good demands for the bond. I think Antonio will explain this as he goes through. But I think we had more than twice the required volumes of EUR1 billion. So we've got good institutional support for the issuance. And as I said in my opening remarks, I think we are confirming, notwithstanding the recent turmoils, we are confirming guidance both in terms of trading profit and cash and debt balances.

Just one comment on the debt position. We made it very clear when we announced the five-year plan on April 21 of last year that the indications on CapEx, both for Fiat and for Fiat Industrial, were designed to reflect the highest possible level of expenditures that we would see for the relevant year.

I think when you look at the expenditures to date and the remaining portion to be spent in the remaining nine months, it becomes relatively evident. And I think that our ability to consume that capital over the next three quarters is questionable. And so I think you should take the indication of CapEx as being the highest possible number that could be achieved. I think our objective is to try and bring that number below the target that you are seeing on page three.

Just in terms of revenues and trading profit by businesses on page four, relatively decent performance out of the car side in terms of volumes 3.5% up over 2010. Substantial growth in components and production system, as I mentioned, on the back of a recovering automotive market.

Trading profit was slightly down against 2010, but I think the significant contribution of Brazil and the cost containment measures that we implemented on the European side have helped tremendously. The components trading profit is almost up by 50% compared to 2010, but I think we were fortunate in having an outstanding performance for the luxury brands. Both Maserati and Ferrari had very good quarters and I think that they are an indication of the fact at least for the remainder of this year, they will continue along the same path.

Page five, and this is where we deal with supply chain issues and the expectations of the potential impact of the Japanese disruption on the European and Latin American operations. I can confirm that there is no impact from that event on Brazil. We do not expect any disruption in the South American activities.

I think that when we look at the purchasing trend for the first quarter of 2011, I think we gave an indication of the fact that we were seeing a deterioration in the estimated annual savings for the Group. I think that we have seen a further deterioration of what we expected as an improvement.

We're actually forecasting a savings over 2010, but a substantially reduced form to the tune of roughly 25% of what we originally expected as being a EUR300 million net purchasing saving for the year. Some of that has already been actualized. Roughly a third of that amount was achieved in the first quarter of 2011. But I think that given what's happened in terms of raw material prices and our ability to lock in positions for the remainder of the year, we still feel comfortable we can achieve a positive result, but substantially lower than our original forecast of a year ago.

Just a couple of words on Japan. The situation on the Japanese suppliers is a continuously evolving situation. It changes day by day. We have seen the situation improve drastically. Over the last two-and-a-half weeks, we have seen our supplier base very effectively search for alternative solutions to production.

I think we are now in a position, at least as of today, to estimate that the maximum potential impact on volumes for Fiat would be in the range of 50,000 to 100,000 vehicles, of which 25,000 would happen in the first quarter of this year and the remainder in the second -- in the third. I think it is highly unlikely that this dislocation will continue into the fourth quarter.

All our indications suggest that we will be back to normal as of October of 2011 as a result of other Japanese plants coming back on stream or alternative supply bases having been nailed down and effectively contracted to secure supply to our own Tier 1 suppliers.

This has been a tremendous effort that's been carried out by our purchasing organization which, as you all know, handles both Fiat and Fiat Industrial. We have had a similar task force working through the issues in Chrysler and we will update the market on those -- on the expected impact of Japan for Chrysler on May 2nd when we release earnings.

You know that we have continued and continue to operate our world class manufacturing systems. We now have 80 plants that have joined the program. One more plant has been added in the first quarter of this year. But we continue to achieve our targeted savings, which were a part of the initiative when we rolled it out in 2006.

Moving onto slide six, which deals with trading profit and net results, there's really nothing exceptional, other than this almost embarrassingly high tax rate that we've got against our pre-tax results. This is -- there's nothing strange about that number other than the fact that we're not providing a shield onto the European losses while we're obviously paying cash taxes on our South American activities. And what you see is the blended result of a naked loss in a taxed profit.

So this is bound to continue until our European activities are effectively fixed as we're trying to do through our industrial plan. And I think that signs of this will hopefully become visible in 2012.

Having said this, I think we've -- we're still encouraged by the results, EUR37 million positive. We are carrying an abnormally high level of liquidity in excess of EUR13 billion. Part of that is designed to deal with maturities which are happening within 2011. But I think -- and I'm sure that we'll talk about this somewhere in the question period but I think it's been designed to allow Fiat the highest level of flexibility in terms of initiatives that it may be required to carry out during 2011.

Slide seven deals with the cash flow statement. I'm going to pass it over to Antonio Picca Piccon, who I welcome as the Fiat S.p.A. treasurer. He was appointed on January the 1st, I think, wasn't it?

February 1.

February or whatever. Anyway, welcome. So you can explain the cash flow statement.

Thank you, Marchionne.

I would comment the net debt pattern as being stable during the quarter. There is a small cash generation, EUR53 million, second before the last line.

If we go through the cash flow itself, I think it's worth noting that the cash flow from operating activities, net of CapEx, has been absorbing EUR73 million, which is made basically of CapEx in line with D&A. And a good performance in terms of -- from the working capital, which is supported by a level of production which is slightly higher than the end of the year. Changing funds and some dividends made the rest in this section.

The remainder of the cash flow for the quarter is made of some support from mark-to-market of derivatives and cash settlements of companies sold to Fiat Industrial in Q4 last year.

If we can move onto slide number nine, which deals with quarterly industry volumes and outlook, you can see from the pinkish-reddish portion of the top part of the slide what the impact has been of the removal of the eco-incentive program in Italy. We have seen markets deteriorate to the tune of 23%. I think we have been -- to be honest, I think we have been advocating the removal of these eco-incentives in the European system now for awhile because we needed to see a restoration of normal demand and supply conditions in the market.

I think we are beginning to see, certainly in April, a restoration vis-a-vis on a comparative basis with the prior year of what I would call healthier steady state volumes. The market is still expected to be down about 5% in Italy for the year, which is a combination of performance for the next nine months and the first quarter drop of roughly 23%.

Europe is expected to do slightly better, 2% down for the first quarter, 1.5% down for the year. Most of this is driven by healthy demand, certainly in Germany, which is -- where the market has rebounded and where the upper segments of the car portfolio has actually increased substantially year over year. But Spain is down. Italy is down. I think that we're beginning to work our way through the remnants of the eco-incentives on the French side, which although for the quarter they were up in terms of volumes, they are supposed to taper off as the year progresses.

Having said this, the European market overall is expected to be about EUR13.6 million for the year. And that's, as I said, mainly on the back of a recovery in Germany. Our own performance in this market is expected to improve as we launch two significant products in the A and B segment of Fiat Panda and the launch of Ypsilon, which will come in the market respectively within Q4 and Q2 of 2011.

Light commercial vehicles has had a great quarter. The markets are recovering, except for Spain, obviously, which continues to be depressed. We do have a leading, if not the leading position in light commercial vehicles if you take them as a combination of the vehicle offering and Fiat Professional. And once again, we continued to perform well on this side in light commercial vehicles in Brazil where share is expected to be quite strong, but certainly in line with historical trends. And on the Brazilian side, we see the market continuing to expand in 2011, roughly 3% up on 2010 levels and Fiasa or Fiat's market share in that jurisdiction is expected to hold compared to 2010.

If we move onto slide number ten, this is a graphical representation of what the market share and data that I gave you earlier. You can see that we're now at 29% share. Obviously, we've analyzed this in detail. When we get to the next slide, I'll try and explain to you what, in fact, happened and why we've allowed it to happen.

European shares is about 7.1%. This -- the real issue is that when you look at the composition of their share in prior years, a lot of it was driven by the ability of Fiat to service eco-incentivized vehicles which use alternative fuel systems such as CNG and LPG.

Those incentives were removed as of the end of March of last year and therefore this has caused a dramatic contraction of the volumes in natural propulsion systems that we have and that has -- and, effectively, when you look at those volumes in terms of percentage of the market covered compared to 2010, we have been able to maintain and hold share, notwithstanding the loss of overall volumes.

I think the important thing is that we continue to emphasize something that we have established as a key target for Fiat, which is being the lowest CO2 emitter in terms of automotive production in Europe. We have been able to record it for the fourth year in a row. And this was achieved again in 2010 with an average of 125.9 grams per kilometer, which is a huge improvement of five grams per kilometer against 2009.

If we move onto slide number 11, this is light commercial vehicle side. This is really the Cinderella story of Europe. We've continued to do incredibly well. 46.9% in Italy, 12.8% in -- across Europe. What you see as a slight decline against the first quarter of 2010 is a mix issue which hopefully, over the next nine months, should be corrected.

You can see from the bottom of slide 11 that we have reached almost record share in Germany and we have had the best quarter in France. So the business is in good shape. This is a good margin business for us. And certainly, it has offset what I consider to be unacceptable performance on the automotive car side, on the passenger car side in Europe in Q1 of 2011.

Latin American operations, on slide 12, we continue to maintain leadership in the Brazilian market. We're expecting the market to come in at about 3.5 million vehicles this year, which is totally in line with projections to see more than four million cars in Brazil by 2014. The Argentinean market is also on a recovery path. We were able to add on a second shift in Cordoba, in our Argentinean plant, to supplement the requirements of our Latin American market.

For those of you who are interested, we are producing about twenty -- a car every 20 seconds out of our large Brazilian plant. And that's what has necessitated the need to expand operations in Brazil and that's why, as of the end of 2010, we announced a relatively large project in the state of Pernambuco, which will become operational in 2013, both in the manufacture of cars, the manufacture of passenger vehicle engines.

We continue to work on the portfolio. The recently introduced Uno has had tremendous success in Brazil. We do have what is in our view, a highly competitive product line-up and we do have fully coverage of the A and B segment, which is really at the heart of the Brazilian market.

The slide number 13 deals with some of the other product introductions that we were able to accomplish in the first quarter of 2011. The first one is the introduction of the Fiat Freemont, which is a vehicle derived from an American-based Dodge vehicle. They will be going on sale -- and it was introduced in Geneva -- at the Geneva car show, will be introduced in Europe in the second quarter of this year. It will be available, both gas and diesel engines, and they will also become available in a front-wheel drive version and eventually an all-wheel drive version within 2011.

We continue to have success with the introduction of Giulietta, which is the first car off the new architecture that we have established as being the core architecture for both Fiat and Chrysler going forward.

We will be introducing the TwinAir engine into the Fiat 500 within the second quarter of this year. This is the greenest engine available in the marketplace and it will probably find its way into the US market at some point in time. And we have begun commercializing the Fiat 500 in Canada, the US and Mexico. The plant -- it started in March and, obviously, we're slowly but surely expanding the dealer coverage in the United States to provide the right cover for the introduction of the brand there.

Page 14, which deals with the Alfa Romeo 4C, which was shown in Geneva. It was shown in Geneva as a concept. It is in the process now of being industrialized. We hopefully will be taking orders for this car in the United States in the fourth quarter of 2012. And we do expect to have some deliveries in the United States within the first quarter of 2013. But it will be available in Europe a touch earlier -- probably at the end of '12 or the beginning of '13.

Slide 15 deals with the revamping of the Lancia portfolio. We have now fully integrated the product offerings of Chrysler in Lancia in Europe. What was effectively a two-car vehicle -- a two-vehicle brand as of the end of last year has now been able to add on some pretty valuable completion elements by introducing the -- finally, a luxury sedan, which is launch of Thema. This is taken off and developed off the Chrysler 300 platform, which is now launched in the United States.

We're also launching in the second quarter of this year, the highest volume launch which we saw which is the Ypsilon. That will be available -- it was launched in Geneva and will be available in the market within the second quarter of this year.

And we have also shown a couple of concept cars -- the Flavia Sedan and the Flavia convertible, both of which are extensions of the Chrysler 200, which was launched in the United States in February of this year. The convertible will probably find its way into the US marketplace within 2011.

Slide 16 deals with the relaunch of the Jeep brand in Europe. This is something that has been -- in which we believe very strongly. I think we had a press event at our testing site in Balocco last week with most of the specialized press on the European side. As you can see from the product offering, this is the full complete offering of SUVs in the marketplace. The Grand Cherokee, which was launched in the summer of 2010, has received 21 industry awards and it continues to accumulate recognition for the outstanding work that was done by the Jeep team in engineers, which is considered to be an absolutely outstanding vehicle.

The Wrangler has now received a 2.8 liter diesel engine, which has come out of VM. So -- and we have completely reengineered and really made substantial modifications in terms of the aesthetic appeal of the Compass, which is being relaunched in Europe, both in a four by four version and a front-wheel drive version.

The Fiat distribution capabilities in Europe have assumed full responsibility for distribution of the Chrysler brands in Europe. There will be 430 dealers in Europe that will be carrying the Jeep brand and we expect great things from the brand as we continue to improve its offering and modifying it and making sure that we adapt it to the European requirements.

I made reference to what's happened to the marketplace in terms of shifts and segments. This is indicated on page 17. And if you look at what has happened in the A and B segments in the mini and small segments that you see on the chart, there has been a substantial deterioration of the relative share of total cars sold within 2011.

In the case of minis, they've gone from 12% to 10% of the market. And in the case of smalls, they've gone from 28% to 26% over a two-year period. And we see a shift and we see the number of SUVs have increased over the same period of time.

There has been also a shift in what -- in large vehicles. There has been a shift in the mix of products being sold, all of which has been driven by the removal of the eco-incentive systems and especially in Italy, which has got a very large emphasis in terms of percentages.

And so the collaboration between Fiat and Chrysler is designed to effectively address what I consider to be perhaps a permanent shift in distribution of vehicles, with much more being sold in the compact and higher segments. It is crucial, therefore, that we continue to work with Chrysler to try and provide the vehicles that are required to service these market segments.

A couple of words on the luxury brands, Ferrari has done an incredible job. Again, sales were up 19% over 2010. I think we've had incredible reception to the Ferrari FF, which was launched at the Geneva car show. I think that the 458 Italia continues to perform incredibly well. There is a long waiting list for this car. And I think the international expansion of Ferrari continues with India now being added as the 58th market for Ferrari and also becoming a market for Maserati, as you can see from the next slide, which continues alongside Ferrari in its international expansion.

Maserati itself has had a good quarter. Obviously, the product portfolio of Ferrari -- of the Maserati awaits the renewal of the Quattroporte. The car has already been -- the design of the car has been finalized. We are obviously in discussions now with the industrial system here in Italy to try and find out exactly where to produce it, if in fact it is Italy and if we can find and reach agreement with the labor unions on what we consider to be the appropriate and absolutely mandatory work rules associated with our new car industrial policy.

Magneti Marelli continues to perform well. As I said, over 55% of this business' volumes now are with third parties. They're not with the Fiat Group. I think this is a great sign of diversification. I think we have done well across all of our businesses on the back of a recovering market. The order book continues strong. It almost appears completely booked until 2014. And margins, although not exceptional, were in a good sign of recovery at 2.3%.

Fiat Powertrain has also had a good quarter, with trading profit of EUR23 million. This is obviously on the back of some recovery across the European side and strong activity in Latin America. I made reference to the completion of our product portfolio in terms of diesel engines, which have now come from VM Motori and which will continue to play a significant part as we continue to develop our involvement in diesel.

Page 22 deals with Chrysler. This is not designed to preempt the discussion and the release of earnings on May 2nd for the first quarter of 2011. These are -- this is public information on the basis of sales data that was released at the conclusion of March.

We do -- as you can see from here, we've had an industry which has been benefiting from significant growth that was up 20% in the US, and 2% in Canada which has always had a much steadier pace than the US. But the US side is up 20%.

We're up at 3.1 million cars. We do expect the industry SAARS for the year to end up well above 13 million and I think that we have had good sales and good performance. In the US we were up, on the retail side, roughly 51% compared to Q1 of 2010. And overall sales were up 23% against the first quarter of 2010.

Canada continues to perform well, as you can see from the chart. We have had and we continue to have a number of vehicles which are on the top ten selling brands in Canada. So strong performance there and expected to continue strongly for the remainder of the year.

The outlook for the year on page 23 is something that I've already mentioned. We confirm all the targets that we've outlined earlier, certainly at the conclusion of 2010, with trading profit between EUR900 million and EUR1.2 billion. Net income of roughly EUR300 million and capital expenditures of between EUR4 billion to EUR4.5 billion as the total -- as the most extreme expression of our desire to invest capital. And I think that we will perform substantially below that number. And as a consequence, I think our net industrial debt may end up being better than EUR1.5 billion to EUR1.8 billion. I think we're going to wait, probably until the end of Q2 or better at the end of Q3, once we see the impact of Japan on volumes.

We think we have enough latitude in our forecast to accommodate the decrease -- the potential decrease in volumes associated with production disruptions caused by Japan. I think it's incorporated in our trading profit forecast of EUR900 million to EUR1.2 billion, which even includes a potential loss of roughly 100,000 vehicles in the event that that were to happen. And it also includes what is unfortunate a miss on the purchasing side caused by raw material price hikes. That fundamentally is the presentation -- other than the fact that we have a calendar on page 24 that says we will be disclosing Q2 results on July the 25th.

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

(Operator Instructions). We will take our first question from Laura Pennino from Banca Leonardo. Please go ahead.

Good evening. I have just a few questions. One is regarding the Fabbrica Italia project and, in particular, in Pomigliano. Can you give an update on how it is working, how much you have invested, and how you -- already how much you -- if the investments are confirmed and if the Panda will actually start in production by the end of 2011?

And the other question is on Chrysler. You said that seen -- in past conference calls, you said that Fiat could act as an accelerator for Chrysler to access the capital markets. Can you give -- what does this mean? Will -- could you consider some intercompany borrowings or not? And another question also on Chrysler, would you see Fiat achieving more than 51% after the requirements are fulfilled and with which state would you be happy with?

Let me try and start backwards. Obviously, to the extent that we structured a deal that would allow us to get 51% that defines happiness for Fiat. I think that it was intentionally designed to allow Fiat to control Chrysler. At some point in time, I think that the mechanics of that control mechanism are relatively clear. We are required to earn this 5% tranche as a result of the performance of some events in the United States and outside of NAFTA. We have achieved two of the three. When we achieve the third, hopefully within 2011, we'll get to 35%.

And then there is -- there is a call option which is available to Fiat, which allows it to effectively purchase 16% of the company from the company on a pre-established formula basis. That option is only exercisable within 2011 if all the loans are repaid to the United States and Canadian government. So until that happens, there is no possibility of gaining control. The -- and so, if we ever get to 51%, I think Fiat will be more than delighted.

In terms of the intercompany borrowings, I think it's possible that there could be some intercompany borrowings, although to be perfectly honest, I don't see the necessity for any type of exchange, any type of lending activity between the two entities. I think that Chrysler has enough liquidity on hand to manage its business.

What we have made very clear -- or at least I have made it very clear -- is that our objective within Chrysler was to refinance its current exposure to the United States Treasury and to the Canadian government by accessing the capital markets and replacing them with debt instruments in that market. And so that remains the key objective.

I don't think that Fiat has to intervene in that financing exercise, which, as you well know, has been on the table and is being studied by Chrysler and the board now for quite awhile.

In terms of Fabbrica Italia, I confirm the fact that we are in the process -- we have started the hiring process. We're beginning to train people. The car will go into production within the fourth quarter of this year. Start up production is between October and November of this year. We will be placing the market -- the car in the market as of January of 2012.

I think that the original investment was expected to be north of EUR750 million. And so there's nothing -- we're proceeding full blast with that process. And there is no indication today of a delay in the program.

Okay. Thank you.

We will take our next question from Thierry Huon from Exane BNP. Please go ahead.

Yes. Good afternoon. It's Thierry Huon speaking from Exane. So I've got three questions, if I may. First about inventories. Could you give us the [inventory] levels for Fiat in terms of selling days or absolute numbers? Because I'm a bit confused by the difference between the production and the sell-out you achieved during the first quarter.

Second question regards Brazil and the competition there. You have a lot of newcomers, which would be probably happy with a margin much below the one you are probably achieving. So do you feel that you have more competition and especially in terms of pricing from these newcomers?

And last question about Magneti Marelli. You mentioned that the 55% of the business is now done with third parties. But the operating margin remains well below the one of the major competitors. So if that means that the margin achieved with Fiat is lower than the one you are doing with third parties and, in this case, would support the Fiat Group automotive margin development?

Just to be clear. There's no cross subsidy of margins from Marelli to Fiat. I think that the depressed margins that you're making reference to, which I concur with you are below par and certainly not in line with the competition or reflective of the startup costs with a variety of activities that Fiat -- that Marelli is carrying on as part of its expansion program. And if you read the press release and you see all the activities that have been started on a global scale by Marelli, these have had a significant dent on profitability in the first quarter of this year and we expect that situation, certainly on a margin basis, to be rectified within full year 2011.

As far as Brazil is concerned and increased competition, there's no doubt that the market is sufficiently attractive to bring in additional competitors. As you well know, because of import regulations and tariffs that exist within Brazil to ensure protection of the local market, I think a lot of these people will be forced over time to try and -- in localized production to remain -- to be competitive. That -- we've allowed for that in our plans and that is why, I think, that when you look at 2014 share in the market, which is expected to be in excess of 4 million cars, we feel relatively comfortable that we can keep all of our production sites fully occupied between Argentina and the two operating plans in Brazil.

As far as margin compression is concerned, I think, at least for the time being, we have not seen unruly behavior from the competitors side. I think everybody is benefiting from a buoyant market and I think there's no indication or threat that these conditions will change, at least in the short to medium term.

In terms of your first question, I must have missed it. You wanted to know which?

What is the inventory level at the end of the first quarter in terms of selling days?

We have 1.7 months worth of supply, which is taken as an average of the latest three months.

Could you repeat? I didn't get the number.

1.7 months.

Okay.

And that's between dealer and company stock. And that is not different from what it was at the end of December and it is the lowest point that we've had, just to be clear, since the fourth quarter of -- first quarter of 2010, where we effectively were going through a full sell out of the eco-incentivized inventory pool.

So we're now at levels that we have not seen since 2008, to be honest. And we continue to apply some pretty rigorous management to that stuff. As you can see, we have made a number of announcements about taking production down on the European side to match demand. So we are not sitting on any sort of abnormally high inventory positions at all.

Okay. Thank you.

Thanks.

We will take our next question from Martino De Ambroggi from Equita. Please go ahead.

Yes, thank you. Good morning. Good afternoon, everybody. I have a question on Ferrari because we had many different statements concerning the possible listing over the past few weeks or months. Even I remember Montezemolo's statement telling that -- mentioning that it will never be listed. So I was wonder if you could clarify if the listing of Ferrari is a real option that you will pursue over the next, I don't know, 12, 18 months or is it something that will become a sort of never ending story. And --

Mr. Martino, let me give you an answer. Yours was a compound question. You asked me whether it was an option and whether it will happen.

Yes.

If it's an option, there's no guarantee that it will happen.

Okay.

I will not give you a guarantee that it will happen, but I will tell you that it will continue to be an option for this Group that it may exercise at the relevant time.

Okay. And I see two main reasons to list Ferrari. One is the unlocking of the value. And the other one is the cash in. I don't see any need for the cash in and I will ask you another question on the huge liquidity. So the only thing I see is the devaluation that is there. Is it the only reason for such an option to be exercised?

Look, one of the problems that you have -- and I will give you a very general answer to your question and then you can derive whatever conclusions you may derive from what I say. But in any situation where you've got a valuation of Fiat that effectively reflects multiples that are at the very left of the distribution curve, it indicate a valuation below par against its competitors. And you have an asset like Ferrari within it, which as you well know, has intrinsically a value well in excess of anything which is known within the automotive confines, and which would, in all likelihood, if listed, pray that a multiple which much more closely aligns the business with a luxury goods maker.

You're always confronted with the situation of providing and crystallizing value to the highest possible extent with your shareholders. And that's why it continues and it will remain an option for this Group until we can cure the anomaly in the valuation of the business itself.

We can do one of two ways. I can tell you what it's worth or I can prove to you what it's worth. And if the market needs proof, Fiat will continue to be a viable option. But I agree with you that the Fiat of today does not require the liquidity necessary from a positioning of Ferrari in the marketplace. But I think it's outright bizarre that the value of Fiat, in all likelihood today, barely covers the value of a standalone Ferrari.

And just to correct your statements about Mr. Montezemolo, I think the last statement that Mr. Montezemolo made is that a EUR5 billion number, which was being kicked around the financial circles, did not even reflect half of the value of what he thought it was worth. So I'll leave that with you.

Okay. Thank you for the answer.

The second question was on the liquidity. So I understand you don't need any additional liquidity. But what's the normal level of the liquidity and when do you think you can achieve it? So I would have expected already not a significant reduction, but a reduction already in Q1.

And during your speech, you mentioned initiatives to be pursued during the year. I understand there is the Chrysler call option. But is there any other additional cash out -- requiring cash out that should be taken into account to justify such a huge amount of cash?

Other than Chrysler, I don't know of any other initiative that may require abnormal utilization of our cash pool. I think that we have adopted an incredibly conservative stance vis-a-vis liquidity levels within the Group, following what you guys collectively have managed to accomplish in 2008 and 2009 to the banking sector and to the capital markets.

And until I see a restoration of what I consider to be decent capital market conditions, we will continue to hold liquidity to provide all the safety cushions that Fiat requires going forward.

It is my expectation, and I've been public on this that I've thought that roughly a EUR5 billion cash pool was more than enough to try and cover the requirements of Fiat going forward. In a normalized environment that remains the target, I think we need to get our -- we need to get comfortable with the condition of capital markets and the ability to refinance the organization as we go forward, especially after what we lived through in 2009 -- the early part of 2009.

So I expect that number to go down. It is costing us an incredible amount of money to keep that liquidity in place.

Yes. That was my point.

No, I know. And we're fully aware of this and we understand the carrying cost of that liquidity. We understand that it's significantly denting our profitability, which when you combine it with this unsustainable tax rate, which is reflective of, fundamentally, a very anomalous unsatisfactory industrial performance of our businesses in Italy compared to the rest of the world. Until those two issues correct themselves and do it quickly, I think we are going to be, I think, unnecessarily penalizing the P&L.

Having said this, we expect to restore it in short order. I think that hopefully within the next 12 months we'll have a much better view as to where we need to be. But I don't think it should last longer than this.

Okay. Thank you. Bye.

We will take our next question from Massimo Vecchio from Mediobanca. Please go ahead.

Good afternoon. My first question is on Japan. Can this event be a market share, let's say, mover? In other words, I assume that you, versus your competitor, you have little over share of suppliers coming from Japan or importing product from Japan. Can this be an advantage for you in terms of market share gain versus all the Japanese or the Koreans or Renault-Nissan Group, for instance?

I think -- I can't comment on Nissan, which obviously, I think, has got a very high exposure to the Japanese supplier base. And I think that we're seeing this in terms of the forecast of volumes being impacted across the Japanese carmaker range from Honda to Nissan to Toyota.

I think you should not be fooled by our supply position. Unfortunately, the problem is not limited to Tier 1 suppliers. And because of the way in which components manufacturer has developed, there are a number of people who are now inextricably linked one to the other. And so some people who appear to be wholly European, effectively rely on a supplier base which is Japan origin.

And so I don't think that we are in any different a position, either here or at Chrysler, from the rest of the crew. And so I -- the volume loss that we're forecasting potentially, I think is reflective of what I think, on the average, a traditional automaker ought to experience. I think we'll be updating the market on May 2nd on Japan. We'll have ten more days of interfacing with the suppliers to help us clear unresolved issues going forward. But I -- and by the way, I keep on reiterating this. I think the position keeps on improving daily as we go forward.

I think that we have had all the disclosure or at least most of the disclosure that we needed from both Tier 1 and Tier 2 suppliers. And so we're dealing with those issues and addressing them in a pretty effective way. Obviously, some of the solutions that we're deriving are not elegant because of the fact that we have, perhaps, to downgrade some of the offerings to reflect the non-availability of particular components.

But overall, this a situation that can -- should not last more than six months and we should be back fully active in the marketplace with a full offering by October of this year.

And the 50,000 units that you expect to lose, you -- could you not use the current inventory level that you have? Is there an issue of mix in inventory versus mix of demand or you are already giving us the net effect?

I'm giving you the net effect of the full utilization of stuff that's available within the system, stuff that's in inventory, and even the utilization of our spare parts that is available within the parts and service business of Fiat. So I think all of us have gone back and looked hard and long at our supply chain and made sure that we've accessed every available pool of components that we can get our hands on. And that's our best estimate of what we can deliver by the end of 2011.

Okay. And last question is mostly a clarification. Tax rate for the full year 2011, if I understand correctly what you said at the beginning of the call, there is nothing -- Q1 tax rate could be a good indication of the full year tax rate. Is it -- I understand correctly or --?

Yes, you might see some improvement going forward. I think we do expect to see a restoration of -- still abnormally high rates, but certainly to something which is slightly more sensible.

Okay. Thank you very much.

We'll see an improvement, I think, as the performance of the components business improves and FPT improves in the remainder of 2011.

Thank you very much.

We will take our next question from Jochen Gehrke from Deutsche Bank. Please go ahead.

Yes. Good afternoon. Two questions, if I may. First of all, on Chrysler, Mr. Marchionne, you stated obviously again and again the ambition to step up above 51%. Could you talk about what that, to your best knowledge, would mean for your credit rating? Obviously, Chrysler is not rated today and carries still significant leverage. Would that be any concern to you and trigger any preemptive moves such as asset disposals prior to a full consolidation or is that something that we can put aside and you would be happy even to live with a potential rating downgrade for Fiat S.p.A.?

And then secondly, with regards to the Italian market development, in your appendix you're showing a negative price mix move in the quarter. I suspect that price was essentially larger negative than the overall EUR90 million that you're displaying. Could you talk a little bit about the Italian market development that we've seen in the first quarter, in particular, given that Volkswagen seems to be gaining market share at a very significant pace and what to your view is triggering that? Is this product offering or is this equally price aggressiveness? Thank you.

Just to answer your -- give you a gut answer. I'm looking at my colleagues here to give you an answer. But I don't think that EUR90 million is a net of a bigger number with a smaller number. I think that the price erosion is contained within the EUR90 million.

And I don't mean this to be a derogatory remark about any competitor, including Volkswagen, but I think that there has been, undoubtedly, price deterioration in the marketplace in Q1 of 2011. I think there's been an attempt because of the poor condition on the Italian side to try and get share on the basis of price.

This is a pretty widespread phenomenon. I don't think anybody in Europe -- and I will take lessons from people who have another view or other set of facts but I think none of us are in phenomenally great shape on the European side because of pricing conditions.

And so until we sort of readjust the industrial machines to try and deal with this new environment and until -- certainly in the case of Fiat, we start supplementing the product offering to try and occupy spaces which are -- in segments which are normally and traditionally outside of the traditional area of Fiat's coverage, most of which are going to come as a result of the collaboration with Chrysler. I keep on repeating, as a result of the expansion of the Giulietta platform. I think that we will be -- we will continue to be victims of what I consider to be poor pricing conditions.

The attempt that was done and the initiative that we've undertaken with Fabbrica Italia was to effectively cure at least the industrial under-absorption problem associated with running an industrial framework within this country. And this is what has caused, I think, all the, perhaps repercussions with the unions about the working conditions that are now required to try and accomplish that end.

But it is absolutely clear that in the absence of a commitment by the industrial network in this country, to direct this production effort outside of Europe, that the viability of the industrial structure long term is in doubt. And so, if we cannot address the problem by setting up proper industrial practices in the plant, we will have no option but to effectively curtail production here in a substantial and perhaps radical way.

Vis-a-vis your Chrysler comments and the injection by Fiat of cash in Chrysler and its impact on its debt ratings, I think two things, those comments and evaluations that were done by both Moody's and Standard & Poor's were done in the absence of an interface between Chrysler and those rating agencies. And I think that a lot of work has already been done by Chrysler to try and get itself ready for a potential reentry into the capital markets in whatever fashion they may take. And so I think that both rating agencies now are certainly in better knowledge of what the Chrysler situation is and I think that that will hopefully, positively impact the valuation of an intervention by Fiat on the capital side of Chrysler.

But even if that were not to happen, I feel relatively comfortable that we're not subject to a downgrade. I think that the organization, certainly with the liquidity levels that we carry today, is sufficiently strong to manage the business going forward. So I don't expect any negative repercussions from a capital injection into Chrysler.

Okay. Thank you.

We will take our next question from Ranjit Unnithan from JPMorgan. Please go ahead.

Hi, there. Thanks for taking my question. I wanted to spend some time on the [EBIT growth] for Fiat Group autos which you have on slide 29. So first, in terms of the production cost absorption, I was looking at the data and production is actually very similar to the levels it was a year ago, at about 549,000 units. And yet the production cost absorption was up -- was a positive EUR22 million in the quarter. So -- which is a pretty decent number if you annualize it. So if you can explain why that number is so positive, that would be very helpful. Second --

It's all Latin America and commercial vehicles.

So it's mix, is it?

It's purely mix.

So -- and that shows up in the production cost absorption. Not in the price mix section?

Correct.

Okay. In terms of the price mix element, which is down EUR19 million, did you say earlier that the price element of that was actually not -- was less than EUR19 million? In other words, fairly marginal?

Yes, I think that overall -- not marginal. I said it was included in the EUR19 million.

Yes. I guess what I'm trying to understand is was the mix a positive number and was the pricing a negative number?

They're working out the numbers. We'll give you an answer in a moment.

Okay. And then the other element was the SG&A, which was EUR22 million negative. Just trying to understand if that's a number that will stay at that level to the remaining quarters?

Sorry, let me deal with mix. The mix issue is positive marginally. The rest is all price.

Okay. So the mix is more or less neutral and price is negative.

Yes. That's right.

And SG&A, I was wondering if this EUR22 million negative number, we should expect, I guess, an increase in selling and admin expenses for the remaining quarters as well?

You will.

Okay. And in terms of the production costs absorption, as long as you have LCVs in Latin America, that should also be positive for the remaining quarters?

It's expected to be in line with these numbers in the next three quarters.

Okay.

It can only improve as we launch vehicles.

Okay. Okay. And then in terms of your CapEx, you've been very clear that you're probably not going to get anywhere near the EUR4.5 billion. Is there sort of a level that you're comfortable with, like is it EUR3 billion -- is that a number where you're prepared to give us, that you think is acceptable for your product overhaul that you're doing at Fiat?

I think below EUR4 billion for 2011 will be an acceptable number.

And that level can continue into 2012 as well?

I'm not -- I'm -- I can't tell you, to be perfectly honest. It depends on -- I don't know. I think that we have forecast -- and I have to go back to the original plan, but I think we have forecast similar investment cycles for 2011 and 2012. I think we will give you an update on that as we go forward. I think the best time to call that number is at the end of Q3.

Okay.

After we've got nine months of this year under our belt and then we'll be able to make a call as to what the next 15 months will look like.

Okay. And my last question is on Japan. You quantified this impact. You seem to think that the majority of the impact will happen in Q3. So if you can explain why that will be, that's helpful. And then in terms of a trading profit impact, if I take the midpoint, 75,000 units, should I view roughly EUR150 million trading profit impact on you, which you are effectively overcoming through, I guess, other aspects, which is why your outlook is unchanged?

You're estimate is about a third high. The number at the upper -- the number at the upper end is roughly EUR100 million, if you take it all in. For a variety of reasons, because it's impacted by mix and everything else, so you've got to be careful on how you extrapolate the number. For us, it's worth about EUR100 million. But it's built into our trading profit forecast of EUR900 million to EUR1.2 billion, so we can absorb it without causing a revision of our forecast.

Now, I -- the EUR900 million to EUR1.2 billion is still a doable number within 2011, notwithstanding the Japanese impact, because I think that the 100,000 vehicles is the extreme view. I think that we'll do better than that. And the reason why most of this has been pushed to Q3 is because we're working off our stocks. We have obviously -- there's a number of stocks -- there are a number of components that were in transit that we have found within suppliers that are fueling production within April, May, and June.

We will not see, really, the impact of all these things except for probably the first time in June of this year. And it will obviously be accelerating within Q3 because that's the time when the machines -- the industrial machines in Japan or elsewhere in the world will not be able to deal with demand. All of this is supposed to come back on stream within October so we should be resuming normal supply cycles within the fourth quarter of this year. But it's purely a question of what we have on hand and what is in the pipeline in terms of distribution.

Okay. Thank you very much.

We will take our next question from Fraser Hill of Bank of America. Please go ahead.

Hi. Good afternoon. Just two questions left from my side. Raw materials. I just wanted to check that you're expectations hadn't changed from for the year. I think, on the last call, you were talking about a EUR200 million expected headwind for the year. Is that broadly where you see things today? And I was going to ask a similar question on Japan and the likely effect on your profits from those lost units. If you just ignore that effect for the time being, would you still be happy to say that you expect to be towards the top end of that profit guidance range because, again, that was a comment that you gave with the full year results, that you expect it to be closer to the EUR1.2 billion. Is that still the case today?

The answer is probably yes on the last question. I think we'll have a better view on this at the end of Q2 once we see the impact of Japan. But let me give you some indication of the raw material impact. We have forecast negative headwinds of about -- north of EUR200 million for the year. That number has now gone up from about EUR200 million to almost EUR400 million, roughly, north of EUR350 million.

And so, net-net we're still positive for the year and we're still expecting to do -- we're supposed to do -- we're expected to do about 25% of what we set for ourselves as the target, which is roughly EUR300 million. That was announced back on the April 2010 plan. That number is coming in at about EUR80 million net for the year and that's purely as a result of the impact of the increased raw material prices that we've seen in -- and effectively, our inability to lock in better pricing. But it's not -- we're not the only ones that are suffering through this now.

So to the extent that this is -- these reflect permanent conditions, I think, with the exception of Europe, you're going to see a very clear attempt at pushing these raw material price increases out in price. But Europe, as I mentioned earlier, because of the pricing dynamics of the market, I think is wearing this through the margin line.

And when you think about your purchasing for the year and your visibility on that, how much of your [steel], for example, have you --?

We're done. We've locked in all of '11.

Okay. Thank you.

You're welcome.

We will take our next question from Philippe Houchois from UBS. Please go ahead.

Yes. Good afternoon. Just -- a lot of questions have been asked already, but can you explain to me why -- the way you continue reporting Powertrain differently from Fiat or FGA, what's different in your organization compared to pushover, no we don't report there -- engine operations separately? If you can clarify that? The other question I had was more on -- there's a bit of a guessing game in the price. It seems about when Alfa returns to the US could you give some clarification about where you are in replacing models and if you are indeed going to have a bit of a hold in your product cycle or if you're still on track to launch Giulietta.

We're still on track to launch Giulietta. I don't like the Giulietta that we have developed as a design. So we continue to work on solutions today. But I don't think there's going to be a material deterioration in the time schedule. We expected to be back in the US at the end of 2012. If that moves at all or move by quarter, at the most four months. But I think that we'll be there.

Yes.

In terms of the reasons why we segregate Powertrain is because when we created the Powertrain division, we wanted it to be actively engaged in selling engines to third parties. We believe that that was a viable business. We continue to believe the fact that it can provide viable Powertrain solutions to third parties. And as long as we maintain that view, the aggregation with the car side is probably improper.

Then --

I think it would certainly benefit margins if we added them back to together.

Yes. So you are, in effect, in some form, understating the FGA margins by doing that.

Yes, I am, on a comparative basis, I am.

Yes. Okay. One last question, if I may. If you think about, besides the difficulty short term with getting an agreement on the Fabbrica Italia, if you think about your plan, you told us last year your capacity utilization was around 50% in Italy. What do you think it will be end of '11, end of '12, using that 50% as the base?

It will be marginally up within 2011 as Pomigliano comes on. I think the substantial improvement will be visible in 2012 as the CSUV comes on stream in our Mirafiori plant. So I would expect -- I don't have an exact number here, but I think Marco can provide it to you.

Yes.

But we can give you our indications on the next earnings call as to what we -- certainly by half year as to where we think capacity utilization will be.

Yes. Okay. Thank you very much.

You're welcome.

We will take our next question from Stuart Pearson of Morgan Stanley.

Yes. Good afternoon. Just one more general question. I guess there's been a lot of talk and speculation on Chrysler from a financial perspective. But maybe you could just update us from an operational perspective on the integration between Fiat and Chrysler, respect to the synergies, but in regards to purchasing R&D cost production. Are you happy with the way these two organizations are starting to function together and do you think we could see the synergies you've planned come either sooner or later than planned or even be greater or smaller than originally planned? So just an update on how the two organizations are progressing and when we might start to see the full impact of those synergies in the earnings numbers.

I think in the case of -- in the case of -- I -- to be perfectly honest, I think the first evidence of the interface between Chrysler and Fiat is being seen through the leverage that we now have on the purchasing side, which effectively combines Fiat and Fiat Industrial and Chrysler as one entity. We're talking about annual purchase volumes which are well in excess of EUR30 billion.

So these are substantially -- substantial numbers which have allowed us to effectively deal with the supplier base in a more constructive and, I think, ultimately, cost efficient manner. I think the benefit of the interface is something which is taking shape as we go through -- as we go through the development of the architectures. The convergence of the architectures between Fiat and Chrysler is something that does take time.

And I think that we will see the first product -- other than the Fiat 500, which has been launched in the US market out of purely a Fiat platform, everything else that you will see -- more than half of the volumes that Chrysler will be producing by 2014 will be based on the derived architectures which are shared with Fiat totally. And so the benefit of that convergence and that ability to effectively continue to top at vehicles of established platforms is really the benefit of the alliance, not to mention the joint distribution capabilities which have made these organizations that have continuous distribution abilities. We -- Chrysler was not very strong in Europe and Latin America. We were non-existent in NAFTA. And so the ability to bring these organizations together and effectively start providing distribution power one to the other, is really at the heart of the alliance.

In terms of our question as to whether I'm happy with speed or the progress that has been made so far, the answer is absolutely yes. I am -- we are running this organization as if it were one. We are keeping, obviously, the right mechanisms in place to ensure proper arms length treatment of the transactions between the two organizations. But fundamentally, these two businesses are now running as one. I don't distinguish between Chrysler and Fiat.

I make sure -- and one of the main objectives is to avoid any duplication of effort across the two organizations and to ensure the highest level of collaboration and cooperation on development going forward. So I'm having -- I shouldn't be saying this too loudly, but given the fact that less than two years have passed by since Chrysler came out of bankruptcy in June of 2009, I think we have made significant progress. And I'm happy with what's happened here. I don't regret any of it.

Okay. Thank you.

We will take our final question from Erich Hauser of Credit Suisse. Please go ahead.

Good afternoon, everybody. Thanks for taking the question. Being mindful of the time, two very quick ones. First one is I was just wondering why your provisions for employee benefits went up by 12% over the course of the quarter. If you could just tell us what is behind it. And secondly, while everybody keeps on talking about raw material price inflation, both companies that I speak to have got significant exposure to Brazil. They're actually more worried about labor cost inflation in that market. I was wondering if you could just give us an idea how you think the Brazilian business can deal with inflation in that market and how that's going to impact your operations? Thank you.

I think that the inflation picture in Brazil is totally in control in terms of wage rates. I think we have been able to achieve phenomenal productivity improvements out of our industrial operations in Brazil to deal with inflationary wage pressures. We have not seen a deterioration in margins or an increase in conversion costs as a result of what has been a relatively peaceful labor environment where these -- there's been sort of broad line agreement on wage rates.

So I -- as long as we continue to operate the machine at the level of efficiency that we've been able to accomplish, I think that we're in good shape. I don't see any impact on margins as a result of wage increases. And my colleagues here are looking at this employee benefit stuff. Maybe Marco can come back to you. I have no idea of what the answer to your question is. I just don't have that level of detail. But Marco will come back to you.

Sure. Thank you.

That will conclude today's question-and-answer session. I would now like to turn you back to your host, Mr. Marco Auriemma for any concluding remarks.

Thank you, Laurie. We would like to thank everyone for attending the call with us. We look forward to follow-up on any questions and have a good evening. Bye-bye.

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