Stellantis NV (STLA) 2012 Q3 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to today's Fiat Group 2012 third-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 Mr. Marco Auriemma, Head of Fiat Group Investor Relations. Mr. Orama, please go ahead.

Thank you, [Richie]. Good afternoon to you all, or good morning as the case may be and welcome to Fiat Group's Webcasting conference call. Today we'll be reviewing the third-quarter 2012 results, and as announced earlier, presenting the management's views on the European market and the broad implications on the Group's development plans for the future.

As you now, the earnings release was issued earlier today, and is available together with the conference call chart stats on our investor relations website. As usual, today's call will be hosted by Chief Executive Sergio Marchionne and by Richard Palmer, the Chief Financial Officer.

After introductory remarks on the result for the quarter and the review of our strategy going forward, particularly for the EMEA, we will be available to answer any questions you may have.

Before we begin, let me just remind you that any forward-looking statements we might be making during today's call are subject to the risk and uncertainties mentioned in the safe harbor statement included in the present material. As always, the call will be governed by this language. With that, I'd like to turn the call over to Sergio Marchionne.

And good morning, good afternoon. I'm going to do the easy part this afternoon. I'm going to pass it on to Richard, he can deal with Q3. And I'm going to be dealing with what I consider to be probably the most problematic part of the presentation today, which is our views on Europe and how Fiat-Chrysler intend to respond to the challenges that the market is presenting.

But I think the easy part for the third quarter is that the quarter came in totally in line with expectations. There were no nasty surprises, and I think the important thing is that we've been able to confirm guidance full year 2012, and so hopefully Richard will be able to get away with this unscathed, until we get to the end. This sort of meaty issue of what we do with Europe. Richard.

Thank you very much, Mr. Marchionne, and good afternoon and good morning to everybody.

Q3 Group financial results came in consistent with the year-to-date performance and we'll look at them in the following pages. Worldwide shipments for mass market brands were more than 1 million units, up 11%, taking year-to-date shipments to 3.1 million units.

In September, Fiat brought a declaratory debt judgment in the Delaware Chancery Court to confirm the price we paid for the 3.3% of Chrysler Group equity, to be delivered by the VEBA in accordance with the call option agreement, and although it's difficult to predict the timing of this matter, given the involvement of the court, we hope the legal proceedings will conclude by the end of the year. Upon completion of the purchase, Fiat will hold 61.8% of the outstanding equity in Chrysler.

On page four, Group revenues in the quarter are up 16% over the prior year to over EUR20 billion, mainly thanks to the performance in NAFTA, APAC and LATAM. Luxury and performance brands were up 4% with components substantially in line with last year. Trading profit, total of EUR951 million for the quarter, up 12% versus last year with margins of 4.7%.

NAFTA contributed for EUR660 million, LATAM for EUR341 million and APAC for EUR73 million, more than offsetting the loss in EMEA of EUR238 million, which was due to the impact of continued reduced volumes and negative pricing pressure, only partially mitigated by cost-containment actions.

Luxury and performance brands trading profits were EUR89 million, while components totaled EUR39 million. EBIT was EUR880 million for the quarter, of which EUR664 million in NAFTA and EUR310 million in LATAM with EUR74 million in APAC. EMEA instead reported a EUR219 million loss, compared to a EUR136 million loss in Q3 2011. Excluding unusual, the loss in the region was EUR195 million, compared to a loss of EUR76 million in the prior year.

Net profit more than doubled from the Q3 2011 level, and came in at EUR286 million, after income taxes, EUR195 million. Profit attributable to owners of the parent amounted to EUR39 million, a positive swing of EUR85 million versus last year. Ex-unusuals net profit for the quarter was EUR362 million.

Net industrial debt at quarter end was EUR6.7 billion, due to the seasonal cash absorption in Fiat, excluding Chrysler, accentuated by market conditions in Europe, slightly positive contribution from Chrysler, despite summer seasonality and significant CapEx.

Total Group available liquidity inclusive of EUR3 billion of undrawn committed credit lines, was reduced, primarily reflecting negative cash flow from operations and EUR1.3 billion of gross debt reduction, together with negative exchange of EUR0.4 billion. Cash reduction at Chrysler was due to the annual payment of accrued interest on the VEBA note.

Moving to the next slide, we can see how the top line reflects continued strong growth in NAFTA, APAC and LATAM, while EMEA was down 13% due to continued demand declines. Group EBIT was up 6.7%, driven by strong regional performance of NAFTA, 65% up and APAC three times higher than the prior year. LATAM was down versus prior year, but volumes and margins improved from the first half. EBIT ex-unusuals in EMEA was down EUR119 million yearoveryear, due to the continued worsening trading conditions in the region.

Moving to slide six, the deals with the P&L agents were below trading profits. The net financial expansion for the quarter was EUR399 million, which included a small gain in the mark-to-market of the Fiat stock option related equity swaps. This compares to EUR543 million in 2011, which included a EUR138 million loss from the same equity swaps. Income taxes primarily related to taxable income of companies operating outside Italy and employment related taxes in Italy.

Moving to page seven, you can see the 16% increase in revenue for the Group. As discussed before, the majority came from NAFTA, together with APAC and LATAM, more than offsetting the decline in EMEA. Positive top-line performance from Ferrari and Maserati was mainly driven by North American growth. Group trading profit was up 12% with strong performance in NAFTA and APAC which more than compensated for declines in EMEA and LATAM. Luxury and performance brands were up 2% while components were down 34% due to the worsening trading conditions in Europe.

On slide eight, a change in net industrial debt was negative EUR1.3 billion in the quarter, bringing Group net industrial debt to EUR6.7 billion. Notwithstanding high CapEx levels and traditionally negative seasonality, Chrysler contributed positively for EUR0.1 billion, to the change in net industrial debt. A cash absorption for Fiat ex-Chrysler of EUR1.4 billion was in line with the same period of the previous year, driven by seasonally negative working capital of EUR0.8 billion, typical of the third quarter, and CapEx spending which exceeded EBITDA and interest and taxes.

Page 10 deals with the debt maturity profile for both Fiat, ex-Chrysler, and Chrysler, with the latter having no major maturities due prior to 2017. Fiat opportunistically tapped capital markets with a EUR600 million bond issued in July, to assure appropriate payments of future maturities, and continues to renew process of credit facilities with a large number of institutions.

It is worth noting that the debt maturity profile for Fiat ex-Chrysler includes in the underline, EUR1.3 billion of self-liquidating and automatically rolled over positions related to data flow upon financing in Brazil.

Page 10 deals with a detailed view of the EUR2.7 billion cash reduction over the past three months. The EUR1 billion reduction relates to operating needs, with seasonal cash absorption from industrial activities only partially offset by lower funding of financial services.

Net repayment of debt positions accounted for EUR1.4 billion, in particular in the quarter, Fiat issued a new bond for EUR0.6 billion, while an outflow of EUR1.3 billion related to bond repayments at maturity.

The remaining debt outflow occurred from slight reduction of bank and other debts, and that impact financing, along with a payment of interest accrued on bonds and VEBA notes totaling EUR0.4 billion.

Finally, the change in FX rate used to convert our period end the non-Euro dominated cash positions, in particular the Chrysler-US denominated liquidity accounts for EUR0.3 billion of nominal consolidated cash reduction.

Moving on to slide 11, it deals with the results obtained on production capacity and the continuous information of cost containment actions. The Group continues to maintain a rigorous alignment of production and market demands through industrial flexibility.

In NAFTA, we will introduce by year-end three-crew operations in Belvidere and Jefferson North Assembly plants. We also increased daily rates at Windsor, Saltillo Truck and other plants and enhanced efficiency and reduced downtime at Toluca and Stamping plants.

In LATAM, we have consistent use of having all flexibility measures including extra overtime and holidays to maximize output and respond swiftly to markets needs.

Moving to page 13, we can start to review the performance by region. NAFTA continued its strong performance. Revenues were up 38% or 22% of constant exchange due to high vehicle volumes up 23%, of which 29% in the US. Canada was down, mainly due to lower Ram shipments due to the product change of the light duty pickup. Mexico was up 28%.

Trading profit was up 67% or 47% at constant exchange, thanks to volume and net pricing gains, partially offset by high industrial costs and advertising to support growth. Trading margin increase 100 basis points to 6.1%.

Group vehicle sales were up 12% to 504,000 units, reflecting a 13% increase in US sales, where cars rose by 22% and trucks by 9%. In US and Canada, all brands are up with most recording double-digit increases.

Inventory levels were stable with prior period end with 65 days of supply at US dealerships at the end of September.

On page 14, we have the walk of the EBIT from prior year to Q3 2012, showing the EUR261 million increase in EBIT for the quarter. The improvement was driven by the impact of volumes, up 95,000 vehicles, partially offset by unfavorable mix, due to higher growth in car sales versus trucks and SUVs as mentioned before. The positive net pricing impact of EUR128 million reflects pricing actions started in late 2011 and continued through the first half of 2012.

Industrial costs were impacted by manufacturing of inefficiencies, due to production half-capacity limits at a number of plants, partially offset by purchasing efficiencies. SG&A spending increased due to higher advertising costs.

Turning to page 15, the US industry was up 14% versus prior year, with cars up 22% and trucks up 7%. Chrysler sales were up 13%, with September being the 30th consecutive month of year-over-year sales gains. Q3 mark-to-market share was consistent with the prior year, and the fleet mix decreased to 24% versus 26% in the prior year. In Canada, the industry was up 6%, with Chrysler sales up 5%, driven in particular by sales increases of the Chrysler 200 and 300 models.

Moving on to page 16, LATAM is experiencing good trading conditions, particularly in Brazil, where government stimulus measures, which have been confirmed to remain in place until year end to boost its sales. Revenues were up 4% or 10% at constant exchange, driven by higher volumes while trading profit declined by EUR56 million, mainly due to increased depreciation for new product launches, cost inflation and currency exchange impacts.

In the quarter, Group shipments were up 14%, with Brazil up 23%, 243,000 units. Argentina down 33%, and other LATAM markets down 8%. Group sales outpaced a strong market, consolidating our market leadership with 24.3% share in Brazil, a 230 basis point share gain over last year. Jeep and Ram brand experienced a strong performance, posting 90% and 25% increases respectively. Company and dealer inventory levels at quarter end are steady, and at adequate levels to support strong sales trend expected in Q4.

Slide 17 shows the earnings walk for LATAM. High volumes of 35,000 units, mainly driven by the Brazilian market, and product mix contributed for EUR68 million improvement. Pricing impact was flat, although we are seeing some improvement in pricing compared to the first half of this year.

Industrial costs rose due to cost inflation, and higher depreciation, partially offset by manufacturing efficiencies. The other items are due to FX impacts.

Page 18 shows the market trend for LATAM, Group sales outpaced a strong market in Brazil, consolidating leadership with a 24.3% share, showing the effectiveness of the company's prompt reaction to the increased demand. In Argentina, the declining market share was mainly attributable to reduced availability of products due to customs delays for imported vehicles.

At the end of September, the Brazilian government approved the so-called Inovar Auto Program to foster the long-term development of the domestic car industry, through subsidized incentive programs tied to energy efficiency, investment in R&D and engineering as well as domestic production.

Under this program, valid from 2013 to 2017, there will be an IPI rate increase of 30% for all vehicles, both the locally manufactured and imported, being partially or fully neutralized through various IPI credits, which are earnable by meeting certain conditions, such as local manufacturing activities of at least 80% energy efficiency, minimal level of local R&D and engineering expenditures to name the most important. Being the number one local producer, the Fiat Group is well positioned to participate in and fully benefit from this program.

Slide 19 deals with the market trend and business dynamics in APAC. The region enjoyed stable market conditions in the quarter with demand increasing in most of the Group's key markets. Revenues were up 39%, or 24% at constant exchange, mainly driven by the Jeep brand which represents 70% of total revenue. Trading profit was up almost two times, primarily driven by volume and some favorable FX impacts.

Trading margin increased 260 basis points to 8.8%. EBIT was nearly four times last year's level, also benefitting from an improved contribution from the India JV. Retail sales, including joint ventures, were up by 11% on the back of strong performance of Alfa Romeo and Jeep brands, with the latter almost doubling versus last year. Alfa Romeo sales were up 155% in Japan.

The quarter saw a strong comeback of the Chrysler brand with sales up 160%, as the all new Chrysler 300C is being relaunched in China and Australia. The newly formed India Distribution Company, formed to take over distribution activities in the Indian market, is on track to begin operations in 2013.

Moving to page 20, EBIT in APAC improved from EUR20 million last year to EUR74 million this year, thanks to positive impact from volume and mix and better pricing, which more than compensated for higher industrial costs and higher selling expenses to support new sales initiatives and drive growth in the region. Results from investments were also up and FX had a favorable impact in the quarter.

Page 21, a focus on the APAC market and the Group's performance showed sales including JVs were up 11%, in line with the industry, driven by the strong performance in most of the key markets. In China, Jeep showed a robust performance again, up 114%, driving Group sales up 18%, compared to an industry up 10%. The Group continued gaining market share in Australia, with sales up over 14%, against an 8% increase in the overall market, driven by a two-fold growth for Jeep, and the relaunch of the Chrysler 300.

In particular, Grand Cherokee sales were up 85%, gaining 360 basis points of share in the full-sized SUV segment. In Japan, the Group sales were up 20%, outperforming industry and led by Alfa Romeo and Jeep, up 150%, and 36%, respectively. Sales were up 21% in South Korea, driven by Jeep and Chrysler, despite the industry contracting by 6%.

Moving on to EMEA on page 22, the region continues to be negatively impacted by increasingly difficult trading conditions. Both passenger car and LCV segments were at historical lows in Europe, and are affected by persisting negative price pressure, particularly in the middle of the market.

Revenues were down 13%, mainly reflecting volume declines and the trading loss doubled versus prior year. Industrial efficiencies and lower-class manufacturing benefits and cost containment actions were unable to offset the negative volume and price effect. We are targeting to limit the regional losses in the year to about EUR700 million.

Total passenger car and LCV shipments were down about 15%, mostly attributable to Italy, down 24,000 units, followed by France and Germany. In particular, EMEA passenger cars were down 17%, to 159,000 units and LCVs now 9% to 44,000 units.

The earnings walk on page 23 showed the effects of the lower volume and price pressure, in part offset by SG&A, taking total EBIT to EUR195 million loss.

Slide 24 deals with the passenger car segment in Europe. The industry was down 9%, posting the fourth quarterly consecutive drop, with declines in nearly all major markets. A double-digit slump in demand was experienced in Italy, France and Spain, while Germany posted its first quarter of market decline in 2012. Instead, UK was the only major market to run counter to the trend with a 7% year-over-year increase.

Group sales were down 17%, to 167,000 cars, representing a 60 basis point decrease in Group share. Almost entirely attributable to unfavorable market mix, adding to this weight on European total is now less than 10% of the total market.

In Italy, market demand was down 23%, marking the worst Q3 performance since 1976. The Group share, a gain of 20 basis points, reflected positive performance in A and C segments, and strengthening of leadership in alternative fuel vehicles.

Page 25 focuses on LCV segment performance in the EU27 and EFTA area. The market was down 10% in Q3, with significant drops in demand in Italy. Fiat professional brand sales were 9,000 units lower than a year ago at 39,000 units. The market share in Europe was down about 100 basis points, mostly attributable to unfavorable market mix.

In fact, brand share was unchanged at 8.9%, in Europe, ex-Italy. Share loss in Italy was a result of tough comps with Q3'11, which benefited from significant fleet renewal activity. Ducato continued its strong performance in Europe, gaining 70 basis points of share in its category.

Moving on to page 26, we deal with the luxury and performance brands. Ferrari revenues were up 6%, to EUR556 million, on the back of higher volumes, more favorable sales mix and strong results from the customization program. In the quarter, 1,600 street cars were shipped, up 2%, and driven primarily by sales of Spider and FF vehicles.

Volumes in North America were up 18%. In EMEA, higher volumes in the UK were offset by declines in other markets in the region. Trading profit was EUR81 million, a 5% improvement, and margins remained strong at 14.6%. Maserati revenues increased EUR148 million, with shipments slightly decreased to 1,400 units. Trading profit was EUR8 million, with a margin of 5.4%, and in line with prior year.

The components businesses are dealt with on slide 27. Revenues at Magneti Marelli were up 4%, with lighting up 18% and electronic systems up 35%. All remaining businesses lines recorded revenue decreases. Trading profit was down EUR14 million as lower volumes in Europe and costs associated with production start-ups in the NAFTA region were only partially offset by cost containment measures and efficiency gains.

Teksid posted revenues of EUR183 million, down 20% over the same period in '11. Lower volumes for the cast iron business unit were partially offset by a 10% increase for the [aluminum] business. Trading profit total EUR1 million, compared to EUR12 million for the same quarter in 2011.

CAMAU reported revenues of EUR358 million, a 4% decrease over the prior year. Order intake for the period totaled EUR374 million, representing a nearly 50% increase over Q3 2011. Trading profit was EUR9 million for the quarter, up from EUR4 million for Q3 '11, primarily due to improved performance from body welding operations.

Moving on to page 29, talk about some product interest by region staffing with NAFTA. The all-new Dodge Dart began sales in Q3 through a staged launch, progressively introducing the different powertrain combinations. In September, the all-new Arrow version, the most parsimonious model of the Dart offerings, with a fuel economy of 41 miles on the highway, started production and will arrive in dealerships shortly.

Production ramp-up and sales rates for the Dart are fully on track with plan, with more than 28,000 units produced in the quarter. And October dealer orders exceeded plant production by over 8,000 vehicles. The new Ram 1500 pickup is arriving at dealerships now. It's the best-in-class truck for fuel economy, equipped with a Pentastar 3.6 liter V6 and segment exclusive 8-speed transmission.

Moving to LATAM on page 30, in July, the Fiat brand launched the new Punto in Brazil and Dodge launched the all-new 2013 Dart in Puerto Rico. In August, Fiat launched a sunroof option for the new Palio and Grand Siena, making the first automaker in Brazil to offer a factory installed sunroof in the B-sedan segment.

Slide 31 deals with APAC with a particular focus on China. The return of the Chrysler brand to China started earlier this year, is continuing with the introduction of a second product in the brand's lineup, the all-new 2013 Grand Voyager which will be in dealerships from Q4.

The Fiat Viaggio was officially launched in September, producing the JV with the GAC and based on the group's compact architecture. It's our first locally produced vehicle for the competitive Chinese C segment. The Viaggio is best-in-class of fuel economy and roominess, Euro V compliant and awarded five stars in China NCAP. The dealer expansion is ongoing, with more 20 dealerships added by year end.

Moving to EMEA on slide 32, Fiat launched the new 500L in September with a very good acceptance in the market. In fact, pre-orders for the opening edition exceed 1.5 times planned volumes. The rollout over Europe will continue through Q1 2013, also expanding the powertrain offerings. During 2013, the vehicle will go on sale in more than 100 countries worldwide, including the United States. The vehicle is produced in Serbia in the Kragujevac plant.

The new Panda is now featuring the widest range in its segment with four new additions to the lineup. The 4x4, the Trekking and the eco-friendly models, namely the Natural Power and the EasyPower.

On page 33, we outline our expectations for 2012 for the different regions. In NAFTA, after continued growth through Q3 with the US increasing 15% year-to-date, we expect the US market to be above 14 million units for the year while in Canada the year-to-date industry growth is 7%, underpins a solid full-year performance.

We revised slightly upward the market outlook for the LATAM region, mainly driven by improved prospects for the sector in Brazil. Due to the additional liquidity, lower interest rates and IPI tax cuts, we expect to drive the Brazilian market to mid-single digit growth for the year.

In APAC, full year demand is expected to be nearly 13% up, driven by double-digit growth in most of the Group's key markets with a slight contraction in South Korea. In EMEA, the persisting weak economic climate in the Euro Zone will lead to the fifth consecutive year-over-year decline in the market. Italy is projected to be at the lowest level since the late 70s. As far as LCVs are concerned, the industry is expected to be down around 10%, with Italy down 30%.

Moving on to page 34, worldwide shipments for mass-market car brands were in excess of EUR3.1 million for the first nine months of this year, with NAFTA up 19%, APAC up 40%, and LATAM up 3%, more than compensating for the 16% decline in EMEA. The September year-to-date performance confirms the full year's shipments target of around 4.2 million units.

Page 35 deals with our earnings guidance. We confirm guidance at the low end of the range with net industrial debt expected to improve from the EUR6.7 billion level at the end of September to around EUR6.5 billion. With that, I'll hand the call back to Marco.

I'll take it over, Richard. Brilliant effort, you haven't even stopped breathing, phenomenal. If I can just deal with the second part to the pitch today, which has to do with our views about Europe and how the Fiat-Chrysler Group intends to deal with the issues that have been raised by what Richard has referred to as being sort of substantial market decline, especially in Southern Europe.

I'm going to start off with page three, which I think it provides some context for the discussion that we're having. And a lot of notes and a lot of comments have been made about how well Fiat has performed in the last couple of years. I think we need go back to what we saw in 2010, and what we had set for ourselves as targets.

And I think, to be perfectly honest, the entry into Chrysler, the recovery of Chrysler and what Chrysler has been able to achieve has allowed us to make the numbers on a combined basis as we had originally foreseen, and effectively, when you see on the right hand side of the slide, all the targets that we set for ourselves for 2010 and 2011 have been met.

And it was done with a number of things being done concurrently, the creation of single-management structure to manage Fiat Chrysler, a phenomenal amount of work that has been done in providing platform convergence across the two organizations. We were able to repay the government loans. We've become now totally independent of any obligations for the US and Canadian governments.

We worked diligently on the relaunch of the Maserati brand. We have made sure that we started sort of transferring engine know-how between the two organizations. We've industrialized a small four-cylinder engine in the United States. We have been to leverage all the work that's gone on in the United States in terms of the new engine family of V6s. We started working at finally attacking the APAC market which has been sort of incredibly elusive for Fiat in the past.

I think the new organization is allowing us to starting to look at that market, and Rich made reference to the launch of the Viaggio and our continuing efforts to find the way in which we can begin to industrialize some of our brands in their countries, and effectively benefit for what we consider to be phenomenal growth opportunities that are coming forward.

The end of the story is that we are no longer sort of a marginal player. We started this process back in 2009 through this joint of organizations. We now face the future together as a 4 million plus vehicle producer and I think that the opportunities that available to the combined groups now are opportunities that neither one of us alone would have been able to extract and I think it gave us the kind of work that's gone on and the platforms from which we're working today give us an opportunity to look at the market in sort of a resolution of the European issue in a way that Fiat alone could have never done.

If you can get to page four, which deals with the way in which I guess, in some ways, the original forecast that we had about market development have actually turned out. A couple of comments. I think we were unduly pessimistic about NAFTA. NAFTA has outperformed our expectations.

I think we were sufficiently prudent back in 2009, given the fact that we were coming out of a very painful 363 process in assessing market growth opportunities and I think in so doing, we properly tooled ourselves to make sure that we could deal with the market, which has ended up being effectively higher than we'd originally forecast.

LATAM, I think that we were slightly over our expectations. I think that we have seen the market in Latin America in 2011 and 2012 performed in a somewhat uneven way. I think the latest round of interventions by the Brazilian government have given us a lot of comfort that the path that was established for us back in 2010 is in fact achievable.

I think that 2014 number that we had in mind of about 4.5 million cars for Brazil may have been excessive, but I think we are restoring and retooling our forecast in a way that will allow us to eventually get to a decent number, but I think it will take us a touch longer to get to that level of development.

The real problem for us obviously has been Europe, and when we put our plans together back in 2010, we had forecast a recovery of the European market to pre-Chrysler levels and then some growth thereafter. In the so-called decline, for a lack of a better word, of the European market was something that realistically could not be foreseen.

It doesn't mean that the issues that confronted European car makers could be ignored, but certainly this drop in volumes which we're seeing today, we're looking at numbers for 2012 of 14.1 million cars, against an original forecast of 16.5 million. So a very large gap between what we saw in 2010 and what we're experiencing today.

And our forecast for next year, which is an equally important observation, is that we see the market coming down further, as we find the true bottom of this market before some level of economic activity brings demand back.

If you can go back to page five, one of the things that we have been able to do in the other two markets that are really at the heart of our development as we begin to gear up for our involvement in Asia, NAFTA and Brazil have been at the heart of our earnings capabilities and our earnings performance. They are at the heart of the third quarter, and effectively, they are the heart of the whole 2012 and possibly 2013 forecasts.

One of the things that we have been able to do, and if you can look at the chart on page five, on the North American -- these are the traditional slides which we present from time to time which have to do with the harbor definition of capacity utilization and the technical definition, which is a more stringent and more aggressive metric, whereby we try and estimate utilization of our plants.

You can see that we started in 2010 with harbor definition, or roughly 73%. We are running the plants now in excess of the 100% harbor number, and that's simply because of the fact that if you look at the bottom of that slide, we were able to go from 1.6 million to 2.4 million cars by not only relying on efficiency gain and line speed increases, but by adding on additional shifts and effectively getting our people to work during traditional periods of shutdown, whether they be summer holidays or traditional holiday periods.

And we have had an incredibly strong response from our workforce. They have totally committed, and joined with management in achieving these numbers, and we need to be forever thankful for what they've done. And a similar behavior has been observed in Brazil where we've been running these plants at over 100% harbor capacity of utilization. Now, for a number of years, and whenever we have asked them to give more, because market demand was there, they have delivered.

And if you move on to slide six, we start seeing a completely different picture, which is really an indication of the nature of the problem that we're facing and we can dispute as to -- we can have differences in the numbers, being ourselves and the rest of the mass producers in Europe, but this level of underutilization is a consistent theme across mass car producers in Europe.

And so we have five years in a row, 2012 is going to be the fifth year running of volume declines in Europe. We're down 20% from the peak at [12.5 million]. The Italian market itself is 40% down. More than 40% down against the 2007 peak, and this is due to a variety of things that were in place at the time; eco-incentives and a variety of other inducements, which effectively ended up warping demand beyond its natural shape.

The more concerning thing to us is also due to the performance of the light commercial vehicle business, which has been at the heart of our profitability in Europe, and which you have seen has gone down by more than 30% from the peak of 2007.

All of this has obviously brought with it, which is sort of traditional in economics, a phenomenal amount of pricing pressure on all of us. And to add insult to injury, we have now decided to embark on sort of free trade agreements. Escapade, we just signed one with Korea last year, to which both Fiat and I think [ISEA] in its totality were against and opposed for a long period of time.

We were unsuccessful in stopping the signing of the FTA. Hopefully, we're going to be slightly more successful in connection with the Japanese and the Indian FTAs which are being considered by the commission today.

And when you stand back from all this, one of the things that we have noticed is that the market has become bipolar. I mean this is not a psychiatric assessment of market performance, but it's become bipolar where you've ended up segregating the world into two parts fundamentally.

There's the so-called premium brands which have been able to maintain some level of pricing power, and then there's everybody else. And that everybody else is a very large pool of people who are desperately trying to find a space in the marketplace for their volumes and they sacrificed a lot to get that done including sacrificing the integrity of their brand equities in some cases.

We're not immune to this. I'm not telling you that we are sort of above the fray on this, but it certainly it's tested our wits to the end and I think that we have begun to see a series of coordinated responses, uncoordinated responses to the crisis by having people like Ford and Peugeot Citroen announcing plant closures to try and reduce their capacity and effectively restore some level of strength. And that's the charts that you see on the right on page six.

We're now running at 45% technical capacity in the European context. This includes JVs and includes the joint venture that we have in Turkey, and it includes our operations that we have in Poland. And I didn't do it intentionally, I didn't not strip out those plans from the calculation, but if I were to strip them out and look at the pure Italian side, obviously, the situation is worse.

The problem that we all face is that, as optimistic as we all want to be, it's very difficult to get an intelligent level of visibility about the future and so to the extent the structural overcapacity overhangs the market for any extended period of time, I think it's reasonable to assume that we will not see any substantial price recovery at least in the short term, which is one of the reasons that this is not intended to provide a series of arguments in defense of the position that Fiat has taken over the last three year of not investing.

But it's certainly, in hindsight, it's proved out to be a wise choice because launching this market, and we are seeing this now, we've tested the waters with the introduction of the Panda and having spent more than EUR800 million in industrializing their project. We now have a plant that runs on and off and it's certainly not achieving its full potential because of the lack of demand of the marketplace.

It's not a reflection on the car which I think is probably the best vehicle that has ever been produced by this group, and we keep on improving the quality of what we produce every time we launch, but it is the best quality product that we have. It is certainly being produced today in the plant which is being recognized by others as an example of industrial efficiency.

So when you take all this, and you take the level of improvement in terms of running our business that is being offered by regulation, especially on the emission side, you realize that this has become truly a very difficult business to run, and where I think forecasts of profitability become incredibly tenuous and really hard to sustain.

If you can move on to page seven, I'm not going to spend much time with the plusses. I think it's true that the strength of Fiat historically has been in the light commercial vehicles. We have been able to sort of position our A segment cars properly, both the Panda and the Fiat I think are unique examples of how to execute a project well in the small car segment.

We continue to hold for five years in a row, our leadership in CO2 emissions. We do have the lowest CO2 emissions fleet of any of the European car manufacturers. And obviously we have, in the midst of our portfolio, we have at least three brands which are capable of being viewed as premium, if not at the very high end of the car offering world. It doesn't take much to sort of highlight and single out Ferrari as being an example of how to run a premium car brand, but it is in a unique space in the car market.

It's impossible to duplicate, I think, honestly, what has been achieved at Ferrari, but we do have two other brands, both of which have been historically underdeveloped. We have started a process of industrializing Maserati in the last two years. I think a good start was provided by Ferrari back in 2002 when they worked on a new Quattroporte.

I think the car that we're about ready to launch now in January of 2013 is a significant step forward from where we were, and I think we will have two cars coming out under the Maserati badge in 2013, which will begin the process of reestablishing Maserati as a premium sports car brand.

The important thing that we did, and I think this is a key issue, is that we conserved cash in the period of 2008 to 2012. So we were incredibly prudent, very frugal on capital during that period of time and it allowed us to effectively survive the storm and start looking at 2012 and 2013 with some ability to access our liquidity and to start rebuilding the future now that the worst of the storm is over.

On the negative side, I think this is almost trite, but the fact that we have historically been able to only access successfully the A and B segment is probably one of the biggest limitations that Fiat on its own had, prior to the association with Chrysler. Every time we tried to leverage ourselves into the C and higher segments, to put it bluntly, I think it was a very unsuccessful attempt. And I think that we've learned the hard way that perhaps having single intrusion in these markets without really having architectural integrity and without having the wherewithal to access a much larger volume base to get it done, should be avoided at all costs.

And I think that one of the things you will see now, and it's an issue that has been remedied because of our association with Chrysler, where the largest portion of the volumes that Chrysler is currently producing of the 2.4 million cars is effectively in C and higher segments. So they've been able to complement the other side of Fiat, and notwithstanding the fact that we endowed Chrysler itself with the architecture, which is at the heart of the Dart, that's going to be the heart of the Liberty successor that we launched in the second quarter of 2013.

You know, we were able to technically endow Chrysler with the architecture and yet we have never been historically capable of leveraging those architectures that have followed us, because it was not in the DNA of the house.

We still have a lot of work to do with dealers, and obviously as I said earlier, the Alfa Romeo brand which I think probably holds the biggest potential for us in terms of volume ambitions has never been able -- we have never been able to industrialize it intelligently because of the lack of base volumes and the base volumes now are available as a result of the association with Chrysler.

I'm going to spend a little time on slide 8, and this is a fundamentally -- all those things on that slide are true statements of fact. I think we have made significant inroads, both in terms of engines and transmissions. To put the combined group, and what I consider to be the leading edge, and in leading edge positions, we continue to work away at improving the combustion cycle.

I think there's a lot of work that needs to be done, still, but I think that when you look at the offerings that we have in the marketplace in the US and in Europe, I think we have nothing to be ashamed of, although I think to do this remains relatively large.

Most of you know that we are the leading European producer of natural gas powered vehicles. We have developed some very, very viable technology in terms of dealing with alternative fuels, as our success in Brazil has indicated with Tetrafuel cars.

And so when you get to page nine, and you've gone through this sort of thorough analysis -- and we have spent the last few months, by the way, tearing ourselves to smithereens to make sure that we could actually get to the stage and start dealing with page nine intelligently, because the quandary is large, and it wasn't an easy process to get here.

It's been agonized over and it's been thought through very carefully by not just me but by a number of people on the leadership team who have taken this issue as being the single largest issue that Fiat-Chrysler needs to put to bed in the next few years.

And so the choices are not really that complicated. I mean, we could have taken a traditional route of saying this is the market which is oversaturated, we need to close one or two plants and we're going to bring ourselves down to a level of capacity that we can satisfy, but effectively.

In so doing, we would have probably shut down upsides and you know, when you look at the reason why we have chosen the second option, these are sort of very obvious. You don't have to get to harbor to figure these out, but we do have installed up to date capacity that's available in EMEA. And I have strangely enough, very little capacity left anywhere else in the global system.

We are now, as you are seeing from the NAFTA numbers, we are running at over 100% harbor definition capacity utilization of our NAFTA plants. On a combined basis, we are full, flat out in Latin America. Not that the current barrier environment that the tariff environment would allow us to come in and come out of Brazil easily, but we have no capacity left in the system. And so the real issue is we are going to set aside what we consider to be global demand for the collection of our brands, we would have to expend money to get this done somewhere in the world.

And so, then we went the other step, and I said that's absolutely wonderful, but in order to do this, we need to have some brands that have got margin potential inherent in their product offering that would allow us to deal with any type of dislocation on the cost side, that's associated from a location production that would act as sort of an international distribution hub.

And we have at least three brands that are capable of competing in the higher-margin business, and we have included Jeep in this brand, in this lineup. And the reason why we've included Jeep is because there's at least some portion of that market that has got margin capability beyond the traditional, mass-market offering.

The other thing that made us comfortable in getting to the second choice is that we have spent the last three years reinforcing our know-how and reinforcing our knowledge of the available architecture. We have simplified our world, where with the exception of light commercial vehicles, obviously on the pickup truck side, which run on their own architectures and their own world, fundamentally. The passenger car, including SUVs and CUVs, effectively share three architectures, and they're going to be running 80% of the volume of the Fiat-Chrysler world going forward.

The other thing that changed for us with Chrysler in 2009 is that all of a sudden, we ended up having access to a NAFTA distribution network. We have over 2300 dealers in the United States, not all of whom would be obviously be able to participate in the development of the three global brands that we have, but certainly a large portion of them are sound business people who will be able to assist and participate in our global development of Alfa Romeo and Maserati.

The point that I make at the bottom of the slide is that as crude and as blunt as the statement is, we have to stop chasing our own tail on EMEA. The problem with sort of circular reductions in capacity is that eventually, unless it is done in a sort of very structured way, as it was done in the US back in 2008 and 2009. This process is bound to create phenomenal dislocations in Europe, and certainly in the case of Fiat would have been, would have relegated us to being a minor player in the European market because of the social consequences associated with the decision.

So when you get to slide 10, it tells you in very short language what the strategy going forward is. I'll deal with the third bullet. I think that we're going to focus on Alfa Romeo and Maserati to access the higher end of what we consider to be a permanently bipolar market now.

The Fiat 500 and the Panda are going to become pillar vehicles, and these are fundamentally brands within a brand. We have known since the launch of the Fiat 500 that it was a brand within the brand because of the success that it had. And we need to be able to leverage that brand within the brand concept to effectively purify Fiat. So ultimately, we'll end up being as having a set of products in Europe and in the United States, which our other 500 derivatives, or in some ways, a Panda extension.

So it's easier for us to envision a set of 500 extensions than it is for Panda, but even when you look of the introduction of the Freemont in Europe, although the fact that it really doesn't appear to have come from the same family, directionally, it is the kind of vehicle that could fit within that pillar.

I think we also need to be honest with ourselves about the fact that Elantra as a brand has gotten very limited purview. We have toyed with Elantra for a number of years. I need we need to recognize that the only viable car that Elantra has been able to produce now historically, certainly now on my watch, has been the Elantra Epsilon. That's the one that's economically viable. And I think we need to recognize that fact to move it on.

So whatever else is associated with Elantra will be purely as a result of the intervention of Chrysler of the United States that will complete the brand, but I think we need to stop having illusions that we can recreate the Elantra that once was. The clock has past and I think what we need to deal with the reality in this marketplace and move it on. We need to protect Epsilon because I think it is -- it's certainly a significant player in the Italian market, and economically it has been at least given the alternatives, it has been a rewarding choice.

We need to continue to work on Jeep. I think there are parts of the market that Jeep is currently not accessing, including the smaller SUV market in which other people have had success. I think the Jeep brand is capable of occupying that space as a matter of right, and so I think we need to get there quickly because the opportunity is in the market both in Europe, and especially in Europe, but also in the United States. And obviously, this keen emphasis and keen interest that we have in LCVs needs to be nurtured, so we need to do everything that we can to support our involvement with Ducato.

Ducato, as you well know, is now being industrialized in North America and together with a version of the Doblo will become an integral part of the Ram offering in the United States. We need to continue to get better at this and really leverage our light commercial vehicle expertise on a global scale.

The objectives of this relatively simple set of strategies is to ultimately fully utilize the EMEA production base so that we can develop our global brands, Alfa Romeo, Maserati, Jeep and the Fiat 500 family. This is -- I don't call the Fiat 500 family a premium brand, but I think it can be distinctive enough in a mass market to isolate itself from the traditional competition. But I think we need to learn how to build our future off these global brands and effectively access the EMEA production capabilities to set aside the product development side of this.

And so, when I said that we're going to shift a significant portion of the product portfolio towards higher margin opportunities, they're totally in relation to the Alfa Romeo and the Maserati brands with some potential for Jeep to play in that area.

If we can move to slide number 11, and slide number 11 is as detailed we're going to get about product offerings. We've had a lot of internal discussions as to whether I should provide a higher level of granularity in terms of product offering and product launches. And because of the phenomenal amount of consternation that has been caused after we launched Fabbrica Italia back in 2000, and the inability of the system to react to our reaction to degrading demand function, and the fact that project that effectively had to be shelved because of changing market conditions, we have decided to follow what our competitors have done historically, which is not provide a lot of details, and effectively execute under development plans as they saw fit.

The chart on page 11 effectively segregates by start-up production dates, a series of launches and the legend is relatively clear, but it says, these are the kinds that will be coming down the pike. The ones with an Italian flag are the ones that are going to be produced within the Italian context.

And what they do at the end of the day, is they end up providing for full utilization of our blue collar and white collar force by 2015, and effectively deals with the issue of our European overhangs. It says very clearly that as a result of all this, we will no longer have underutilized capacities in Europe. That doesn't mean by the way, that some of these plants will be operating at below nameplate capacity. Because of the way in which we calculate nameplate capacity is in terms of standards jobs for hours. The extent that we move towards the higher margin business, the numbers of ours associated with the production of these vehicles increases substantially.

And so the objective for us is ultimately to make sure that we provide full employment levels across the Italian sites and we do this in as short period of time as we can muster.

If you look at page 12, the other way of looking at this is that we will have a set of products coming out of the EMEA region, which complementary to what is being produced in NAFTA and LATAM. And effectively, it is also complementary to the Chrysler requirements.

And the objective here is to get at 15% output which will be capable of being used for export. And so there's one car for Jeep which is currently not within the product lineup of Jeep in the US market. It's a smaller Jeep which has never been produced by Chrysler in the past and which will be industrialized in Europe, but will have a large market presence, obviously, here, in Europe, but it will also have some overflow in to the US market.

And in terms of architecture allocation, it simply says that we're going to try and shift a higher value-added production, these are in terms of the premium brands. I'm talking about Maserati and Alfa Romeo into the Italian sites. We're going to try and use the more economical environments to try and run the smaller segments where margins are razor-thin and obviously we're going to continue to work with the Italian government, as we started doing about a month ago to try and improve the competitiveness of the system, especially as it relates to an export function.

So the bottom line out of all this, is that we know we're going to lose roughly EUR700 million in 2012. We see that number somewhat improving by 2013. It's going to take us a while before we get all these products up and running. Our forecast is that it will take us from 24 to 36 months, and so we're going to get to a break-even of this business by 2015, 2016.

I've seen other people's comments about what they think they could take European profitability, and I make no comments about specific competitors. I think there's an embedded level of optimism but I'm not in a position to share with those forecasts today. I think the market is going to be a lot tougher than a lot of people they are. I think we've taken a very prudent view as to what we think is achievable. And more importantly, I think we've taken a very prudent view of what we can finance out of the house, given the ambitions that we have.

A couple of comments about the architectures and the models that we're talking about here. All the architectures that we need to get this done are in house and the majority of the powertrain, the base hard frame know-how that is required, is within the house today. And so, we don't have to go shopping for missing pieces of the recipe going forward. I think we are now, for a large portion of this portfolio offering, we are effectively in execution mode and we'll be able to start rolling this out across the Italian plants, a piece at the time, but certainly within the next 12 months.

That takes us to page 14, which is a summary of the group financial targets. I've seen some of the newswires suggest that we're going to lose EUR19 billion in terms of a plan. We're going to lose what we're going to lose, that's not the issue. I mean, when we came up with the plan back in 2010, the world looked completely different than it does today. I think we feel relatively comfortable that we're going to be, by 2014, we'll be at about EUR100 billion in revenue, and we're going to be able to make a 5% to 5.3% margin.

What's embedded in that number, obviously, is the fact that Europe will still be with a negative sign in front of it by 2014, because we cannot get to break-even by that period of time. There's a huge amount of work that needs to go on between now and then. A lot of it is not based on a recovery of the European market, but it's based on our ability to execute our industrial plan and start leveraging our global organization to get distribution.

We feel relatively comfortable that the EBITDA numbers and the CapEx numbers are doable and which are crucial, because of the fact that we obviously, we need to be able to finance this project, and this has been a big concern that we've all had and we've got to come to grips with, in order to finalize our views but if I can take you now to page 15, which is really the last slide that I have, it says that, and I don't want to sound like an eternal pessimist, but I think EMEA not only for the car market, but I think from a social and political standpoint is going to provide great challenges for everyone for many years to come.

I don't think that a solution is around the corner, certainly within the forecast period that we have pitched here, we're going to be seeing a lot of developments. I think that the industry is making the right moves in terms of dealing with some of the issues of capacity, I think in the Fiat-Chrysler position, not to take on capacity but effectively retool the organization to deliver the product portfolio that I've indicated, is the best economic alternative. I've run the numbers both ways. I feel comfortable that given the choices, this is the best economic choice that we can make.

We do have all the necessary elements to execute and as you can see, it goes anywhere between brands to architecture to the powertrains. And equally important, I think we have the financial resources to execute it. My words of wisdom for anybody who is listening to this, is that this is truly not for the faint hearted. I mean, we have never shied away from a fight going back to 2004. We never shied away from the challenges of helping Chrysler reestablish itself as a viable car maker.

I think we have to do it one more time, and I think that we have to deal with EMEA in a way which provides what I consider to be a permanent solution to EMEA's quandary and I think that we have the wherewithal to accomplish and execute the plan. I think we have the leadership team in place to execute it, and that's equally important for the financial -- as important as the financial resources than the architectures are.

So we're looking at the future with some level of trepidation and excitement. I think that building things is a lot more exciting than retrenching into defeat. I think that we need to come out fighting. I think we'll do this in a way which is prudent and it doesn't endanger the financial instability and integrity of the house, but we have now done with our reflections and our analysis, and I think the time has come for us to execute.

And so, on that basis, that I turn it over to Marco and I guess we'll be able to take questions as we go.

Thank you, Mr. Marchionne. Now, we are ready to start the Q&A session. Please, go ahead.

Thank you. Ladies and gentlemen, today's question-and-answer session will be conducted electronically. (Operator Instructions). Will now take our first question from Richard Hilgert of Morningstar. Please go ahead.

Thanks, good morning or good afternoon. Why not a combination of capacity rationalization and moving upscale. It seems as though the amount of overcapacity that is in Europe today as well as the ability to be a flexible manufacturer and generate more than one particular model and more than one particular brand off one assembly line should enable you to become much more profitable and much more efficient, if you were to still reduce capacity but still also emphasize the Alfa Romeo, Maserati and Jeep brands globally?

I've got a couple of answers for you. The first one is, and I hate to say this, but we've probably already given, we've shut down a plant -- announced the closure of the plant in 2009 which finally closed the store last year. Then in Sicily, we've taken over 100,000 cars of the European system.

But equally important, I think that one of the things that I mentioned in my comments is that one of the things that will happen for example, is that the plant in Mirafiori and the plant that we acquired out of bankruptcy from Bertone, and the plant is currently manufacturing the Maseratis, will effectively be joined as being the premium-end maker.

And because of the nature of the production there, we are going to effectively never fully saturate, for example, the painting capacity of Mirafiori, but we will able to saturate in time the full blue collar complement because of the higher manual intervention that's required in the production of these high-end cars. And so when I look at nameplate capacity and I look at output, for example, from a plane such as Mirafiori, the numbers will not match and we are going to end up with an effective reduction in capacity by simply redirecting its use in a different way.

And so I feel relatively comfortable that we have achieved what you suggested. We have just done it without taking a particular plant down. The other thing that you need to realize is that some of these plants need to run flat out, so one of the first plants that will be the beneficiary of investments is the Melfi, because that plant is going to house the first application of the SUV, CUV world which we have now finalized the architecture for, and that plan needs, for economic reasons, needs to run three shifts and needs to run flat out.

So we've been able to distinguish and carve out from our industrial landscape plans by vocation, and effectively deal with our manpower utilization objectives by effectively allocating products and leveraging the know-how of the particular plants and the environments in which we find them.

It has been a very thorough analysis and I think we feel comfortable that we have done as much as we can. There's very little bottom line that I could have done more to the Italian system, without building capacity somewhere else. The real issue is that I'm now out of -- if I shut down one more European plant, I would have had to build the equivalent somewhere else, and that would have been a nonsensical decision, so to be perfectly honest, the answer is no, it's economically unviable.

Okay, then with regard to that, the following one would be then, with the number of models that you do show coming out on slide 11, 2012, if you're still having losses in 2013, there is still cash burn. You still don't have access to the Chrysler cash. Where is the cash flow going to come from to generate the number of new models that you've got coming out in '14, '15 and '16.

Given what I've told you about the volume ambitions by some of these name plates, the level of capital expenditures associated with their industrialization is substantially different than it is for a mass-volume, for volume production. So the CapEx associated with these nameplates is lower, number one. Secondly, you cannot ignore the cash flow that's coming out of Latin American or all of the other businesses that we currently manage. I mean both Ferrari -- and now, as a result of the investments that we've made in Maserati, they will be cash generative going forward.

So on a net-net basis, we should still be able to self-finance these capital expenditures. And that's really been the heart of the analysis here, because we've had to satisfied that we could pay the bills because in the absence of cash flow generation from the other side of the house, I think that the EMEA project would not have been doable. So there's enough cash coming out of this damn thing, don't worry about it.

Okay. Production. You had mentioned that next year EMEA would probably lose less than what it's using this year. I'm assuming that the way that the unit volume is going to go is that in 2012, you've done more to adjust inventories and bring inventories down, so production has been lower than what it would have been if we are at normalized run rate, where we're at right now. So that would mean then that next year, production would be operating at a more normalized level, considering the anemic demand that we've got.

Is that where the year-over-year improvement comes from or is there more head count reduction, and that kind of thing going on that gets you to the lower loss levels in 2013, even though you're not expecting an uptick in demand.

Yes, there is to some extent, a piece of it is that. A piece of it is, we have a full year for the new Panda and all its variants. We have a full year for the 500L. We will continue, we will start to distribute the Jeep Liberty from the US. So we have a product arriving as well to improve our performance in Europe, even if the market is substantially flat.

At the end of the day, if I can just help Richard, you're dealing with an organization that is going to be fully engaged on the E&D side now that the product portfolio has been nailed down. And I think that we will begin the industrialization process of some of these plants relatively quickly. That by definition is going to give us an ability to start certainly absorbing some of these costs for purposes other than, in sort normal operating costs.

A lot of the E&D associated with these activities are project-related because they are specific in nature. So we'll be able to shelter some of the cost structure for the CapEx program. Obviously, from a cash standpoint, it's irrelevant because the cash is out. But from a P&L standpoint, the loss itself, which is the reference that we've made to in terms of the forecast, is going to be partially offset by the capitalization of these costs.

The machine needs to start operating relatively quickly because the Grugliasco plant which makes Maserati, will have the second car in production by the third quarter of 2013. So as we roll out these products and start pushing them out for international distribution, especially through NAFTA, which is still today the single largest market for Maserati, we're going to be seeing some of the numbers coming back in terms of blue collars, to try and supplement the production requirements of that plant.

So overall, our view is that we'll be able to improve the cost position compared to 2012, and that's why I think we left ourselves some room by saying it's going to be similar to '12, if not slightly lower. I really wouldn't count on a phenomenal improvement and performance in 2013.

Okay, very good. Thank you again for taking my questions.

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

Good afternoon, good morning everybody. Three questions, if I may. The first is on CapEx, because they were revised significantly higher than the previous plan and my expectations. I presume it is mainly related to the European CapEx that you presented as a change in your strategy but if you could elaborate a bit more on this issue, just to understand the difference between the EUR6.2 billion and then EUR7.5 billion over the next two years.

The second is on net debt, because I didn't find in your guidance chart an indication concerning net debt item. Now, if Richard is willing to share with us some left indication and the underlying assumption on net working capital.

And the third, if I may, you already commented the trend next year in Europe, but what could be the ideal path, because we know the starting point and the arrival, but just to have an idea what are the steps that you have in your ideal world for the European and also LATAM, thank you.

Richard, over to you.

So, in terms of CapEx, clearly to some extent, we are recovering for our CapEx that we've been saving through the last few years in the European environment, so we've been conserving cash, as we mentioned. And we've basically waited for our opportunity also to have the platforms, the engines and the brands that would justify the investment. So the CapEx isn't just Europe. We're looking at global products here for global brands, and they will be financed by cash flows from the Fiat-Chrysler organization as a whole.

In terms of net debt, you're right, it's not on the charts. It must have been an oversight. And joking aside, I think for next year, we're going to have, the Chrysler organization is going to continue to grow in line with its 2009 plan, so with that in mind, we will have over $1 billion of free cash flow generation from Chrysler. On the Fiat side, we would expect with the market being stable or slightly down, but for sure Italy shouldn't be down anywhere as far it was this year. We would expect the working capital impact on the European side to be significantly lower, so overall, I would expect us to be able to contain the net debt number to a similar level as it will be at the end of this year.

I presume going forward, we expect an assumption starting from 2014 in terms of debt because of networking capital improvement, because of growing volumes?

No, as the market starts to recover on the European side, the US growth continues. We get products that we can sell internationally more effectively than what we have today, and we will get help from working capital. I missed your last question.

Yes, the ideal path on Europe. We know EUR700 million losses as a starting point, and we know the point of arrival of break-even by 2015, '16. So we understood that it is a recovery next year, but just to have an ideal path that you have in mind for Europe and also Latin, taking into account the recent introduction of new incentives in Brazil.

Let me tell you something, Richard and I have spent a lot of time to understand exactly how much level of detail we're going to give you. Every time I look at my competitor's presentations, I wonder why all this keen interest only comes up with Fiat and Chrysler is doing an analyst call. You wouldn't ask this of any other CEO anywhere, whether they can be given a yearly path to anything.

Look, this is going to be a gradual recovery. The important thing to keep in mind is that all of these things are linked to product introduction. So to the extent that we're working in '13 and '14, over the next 24 months, to get at least the initial part of the portfolio industrialized and a substantial part of the portfolio. You're not going to see a benefit coming through in terms of earnings and you should start looking at a rapid improvement in performance at the end of '14 into '15. Hopefully we can break even by then, and obviously, the objective is to try and close that gap at the speed of light.

But if we can get there quickly, we will. But the first two years are years, they're investment years, so we're going to be dragging along some operating losses that are required in order to support the business in 2014 and 2015. So I -- don't ask for a magic number. It's all built into the combined projections. I think that we have a level of prudence embedded in those forecasts that make us comfortable that we can beat the numbers, but I think we need to work on this. Don't ask me for granularity. I don't think it's going to be helpful to you or to us.

Okay, thank you. If I may just on that LATAM, because of the introduction of new incentives, what's the potential that we can expect from that?

An ideal world will take us to the 2010 and prior year environment.

Got it. Thank you, bye.

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

Yes, good afternoon. Thanks for taking the question. Just on this idea to not terminate capacity, I think there's at least some similarities from where I sit to what was presented in 2010 about you willing to grow the Company. It was obviously with a different focus, and I think at that time, you said that there would be alternatives you would be thinking of.

How should we look at this plan, in case you're not seeing really any improvement, call it, in two years down the line? What is really the alternative for Fiat and why is it not, that especially in Italian asset base, you're, as one of the previous commenter said, you're looking at a combination of actually trimming capacity down and hopefully improving pricing for some of your brands.

And secondly, when you look at your competitors in the premium space, obviously everybody's targeting growth. Now you're adding in that as well. Which regions do you think Alfa Romeo can really be competitive and deliver the level of growth that you're hoping to achieve in order to make that viable? Thank you.

By the way, I'd hate to tell you this, but I would be severely shocked if our competitors in the higher margin business did not target growth like we are targeting growth. I've been public on the fact that I think the most fertile ground for us to occupy as premium car manufacturers, starts with NAFTA and it moves over to Asia, and it moves its way back into Europe.

Europe is, and I hate using the term, but it is shark-infested waters, and so you're bound to lose some parts of your anatomy if you try and compete and swim with people who have got better trained teeth than I do. And so we're going to try and make our entry in markets which I think by nature are more willing to accept new introductions with effectively reflect high levels of technology and a great brand heritage.

And I think we can do this in North America, I think we can do this in APEC. On the basis of their strength, we will make our way back into Europe. I think this is fundamentally a strategy that I firmly believe in. We've seen this at least operate to some extent with Chrysler, where we were able to take market share down to about 5.5% at the end of 2000, and 9% in order to cleanse our distribution practices and we built it to over 10% by the end of 2011, so we need to go in places where I think we're going to be received better than for example the German market, which will continue to be an incredibly competitive environment for us to play in initially. So that's where it's coming from.

May I just ask, what's the dollar assumption that you're doing for trying to bring the Italian plans to a viable export business case, and in that...

125 to 130, and if you're in excess, I've got some swamp land for you in Florida to buy.

And on that same note, when NAFTA sells cars in the future in the US, mostly your German competitors are telling us that the US market is actually a lower-priced market and adjusted from is at least a less profitable market for Alfa, this would be different.

No, it is correct and I think that we're going to fight with them on the same pricing schemes that they're in. I think that when I look at the alternative in the mass market business, there is still margin left in excess of what I would have ever been able to get out of a mass produced car in Europe. Don't be fooled, and you shouldn't be crying about the fact that our German premium-end competitors are using money in the US. They're not.

Okay, thank you.

We will now take our next question from Stephen Reitman of Societe Generale. Please go ahead.

Yes, good afternoon. First question, in terms of the volumes you expect Alfa Romeo to grow out of, it looks like it's tending towards about 100,000 units this year. Can we assume that you're looking at the volumes you were targeting in previous plans of taking up to about 300,000 units or so again. With Maserati, are you also looking to bring it more into the sort of the volume end of the premium market, so in other words, are you five-series E class, perhaps as well as so in orders, an increase in tens of thousands of units.

And looking at Chrysler itself, you know, we've seen the results today or [EBA] yesterday a 4.6% margin with a strong increase in shipments. And we also saw Ford today reporting a 12% margin in North America. What do you think are the steps, or how far can Chrysler go to get closer maybe that kind of margin.

Let me deal with the answers backwards. You know that everybody in this business has dreams at night. I dream of selling as many pickup trucks at Ford and then I think we can get to double-digits in the same level of speed which Ford got to. So I like the pickup truck business a lot. I drool over it, actually.

And that's why I think there are a number of products that the Ram brand is launching in 2012 or 2013, which I think are going to create an unsurpassed fleet of pickups that I think will be serious contenders in the US market for, certainly better market share than we currently have.

The issue about Maserati is an interesting question, because I think that there is space, obviously which is currently being occupied exclusively by German producers that Maserati has access too. I think we will be able to tell a lot from the introduction of the Maserati Quattroporte in terms of its performance against the relevant class. But certainly the segments that you made reference to are effectively of interest to us, and they are the ones that are going to be jointly developed by the Mirafiori and the Grugliasco plant here in Turin. And the first question, I'll pass it on to Richard. It was a numerical question, so I passed it on to Richard.

I think it would be a good start for us to get to the volumes of the prior plan, and then we'll see.

Okay, thank you.

We will now take our next question from Stuart Pearson of Morgan Stanley, please go ahead.

Good afternoon. I have two or three questions left. Just firstly, on the business plan and the change to the targets, particularly on the volume side, the volume coming out of the plan versus [before it], basic equivalency entire Europe franchise [fate], I guess before the crisis. So presumably there's some cuts elsewhere and it doesn't seem to be on the Chrysler side. I know you said the Brazilian market hasn't added to what you're expecting, so I wonder when we think about trading profit, what are your assumptions for the margins in LATAM going forward? How conservative are you now being on pricing and margin fate in the Brazilian market? Secondly --.

Let me give you an answer to that one. I think that in the medium term, they're going to go below the double-digit mark.

For the medium term, you mean 2013, 2014?

You define medium term, right? I only go up to 2014, so it's whether you pick 2014, or '15, right?

Okay, and then carrying on from that, are you expecting to recover thereafter?

Look, we're going to increase capacity. We'll have over 1 million cars produced in Brazil by 2015, 2016, so the combination should yield margins that are certainly at the high end of the single digit and hopefully we'll be able to go back to a double digit environment. A lot of it depends on how competitive the marketplace is, but certainly if demand is there, we'll be able to reap the benefits.

You know, one of the things that people need to realize is that we operate the largest car plant in the world out of Belo Horizonte, all right? I mean we make over 700,000 cars a year out of one facility. There's a car every 20 seconds that comes out of the assembly lines, so it's a unique phenomenon and something nobody's ever seen. We have efficiencies of scale which are unmatched and unparalleled in the world, and I think we need to continue to nurture that environment and make sure that it delivers the highest possible earnings it can.

Okay, thank you. And the second question was just something following on from that, whether you can give any more detail in splitting these targets. I think in the past you get in some sense what's coming from the Chrysler side, what from the Fiat side, particularly on the trading profit, but also on the CapEx side and you touched it earlier, but could we see Chrysler funding some of the CapEx of the Jeep vehicles to be produced out of Italy, or that will all come from the Fiat side?

Well at the end of the day, if any brand belongs to the other organization, and to the extent that in the case of Jeep, for example, which is owned by Chrysler, if Fiat is manufacturing a car for them, the only requirement that it should really worry about is that this, the alternative production that is being provided by Fiat is available at least $1 cheaper than Jeep could do it on its own. So as long as that benchmark standard is met, then the financing ought to follow, right? If you were willing to fund it on your own terms, then you should be able to fund it for somebody else.

So the possibility of that happening is not part of the plan, and I think it's something that we need to continue to develop, especially if it's being done exclusively for the benefit of the other.

Okay, and presumably whoever's providing the CapEx will earn the margin on that production as well.

Yes, obviously. One of the benefits of the association with Fiat does bring is the multiple utilization of the same architecture and the same plan, so although we're going to be making a smaller Jeep, we're also going to be making a CUV for Fiat on that architecture, and that will allow Jeep to share the cost of the investment, which would not otherwise be available to Jeep on itself. I mean, this is one of the benefits of the aggregation, right?

Okay, and on the aggregation, just a final question. This, the much heavier CapEx plan, how does that -- if it's all changed the process and the timeline, for stepping up to full ownership of Chrysler?

Yes, I think it's fair to say if I were to develop, dig up the cash utilization given our plan here, there's no room left for the acquisition of the minority interest in Chrysler.

Okay, and would you consider alternative ways to raise capital, say after disposals, etc., to make that happen, or is it a case of waiting out?

I think everything is on the table. Anything which is value or creative and allows us to execute on this plan is on the table.

Okay, thank you.

We will take our next question from Kristina Church of Barclay's. Please go ahead.

Hi. Thank you for taking my questions. I've just got two remaining questions. Firstly, on the pension, could you give us a little bit of advice on what we should expect to see for the benefits now going forward under the new IAS 19 accounting rules? And secondly, I was just wondering how the Giulietta has been performing against your plan. You have given that the new targets are very much focused on pushing up scale. How is the Alfa Romeo brand been performing in 2012, versus your expectations, and what significant changes do you expect going forward?

So Kristina, we're still working through the IFRS 19 impact. We expect there to be an impact in terms of the income statement above an operating income of EUR100 million to EUR200 million, compared to the old accounting standard. And also a similar impact also and interest charges about the unfunded part of the liability.

Okay, thank you.

Sorry, could you repeat your second question because I missed it.

The second question was just regarding Alfa Romeo and Giulietta, how that car had been performing this year?

It's been performing very well, gaining share in Italy but one of the issues we're talking about with Alfa is we need to expand this brand outside of its traditional markets, and actually the Giulietta is a great vehicle. But we need to support it with other vehicles to make it a more effective commercial process.

Yes, and by the way, and just to add to what Richard is saying, that vehicle and that segment has become incredibly price-sensitive. I think that we have seen a lot of unnatural activity from our competitors in this segment, so we're responding without being foolish, but it is being occupied currently, especially in terms of some of the volumes that we're seeing in the market, by very unrealistic pricing, and we will not follow. I think we need to preserve some level of integrity and of the brand equity associated with Alfa and there are some areas where we will not go.

Thank you.

We will take our next question from Charles Winston of Redburn Partners. Please go ahead.

Yes, hi, good evening. Just two questions for me. The first one, I noticed that the gross cash holding in Fiat fell between the second quarter and the third quarter, suggesting that perhaps there was a certain amount of debt which matured, which you didn't refinance. That's a bit of a change of practice compared to the past couple of quarters. Should I read anything into that? Is that a meaningful decline in gross cash, or would we see that figure go back up by the end of the year?

And then the second question, I just need to come back to you about this whole issue of not requiring to close further capacity in Europe as part of the plan. Just, maybe I don't understand it properly, but if you say yourself in your presentations, 45% technical capacity utilization in the EMEA region this year, whatever you do with Maserati or Alfa or anything else, and however intelligently you allocate those products to sort of the more labor-intensive facilities you have, surely you're not going to make much of a dent in terms of your overall utilization levels, when your starting point is only 45%. I'm sort of struggling to see why you make the assertion that there's no further capacity closures required? Thank you.

I think you need to understand how the capacity utilization is determined. Capacity utilization is based on a presumed jobs per hour for every vehicle that comes across the line. There are some cars that are being manufactured on less than 20-man hours per car, there are others that take 60, depending on the nature of the vehicle itself.

Capacity utilization is a function of what the plant produces. I can tell you right now that if you were to use that standard, if you were to use a traditional Fiat standard on a Ferrari plant, you'd get a 10% utilization number on a technical basis, and I'd trade the 10% for Ferrari margins any day. You've got to be very, very careful when you do these calculations. It's based on the product portfolio that you run through the machine. The limiting factor, by the way, for your information, is also the paid capacity of the system which is really the bottle neck for a lot of these installations.

We have adequate paying capacity in all of our structure to deal with a variety of product portfolios and there's not, I don't have to invest in the paying capacities of the system, which makes a lot of that capacity valuable. Because I can tell you, we're running through huge issues in the US, actually across NAFTA, where we've ended up effectively replacing a large portion of our paying capacity across our plans.

And so, the issue is really product portfolio dependence, and we feel relatively comfortable. That's why I made reference to the fact that we're really going to be fully utilizing the workforce associated with those plans. And that to me remains the primary objective going forward.

I just want to follow up on that very quickly, is there a retraining exercise that will be required? I don't know, but I would imagine there may well be in these more labor-intensive vehicles. Perhaps a higher degree of labor skill required compared to a mass market car that takes less than 20 man hours to produce?

The answer is yes, but we're lucky enough, and that's why we singled out both the Grugliasco and the Mirafiori plant as being capable of doing that. We have, especially in this region, we have all the requisite skills to get that done.

And on the resize issue?

Yes, on the cash issue. We, as we discussed earlier in the year, we basically pre-financed a number of maturities this year, as the market was available. And we will continue to do so going forward, so we would like to bring that number back up as we pre-finance further maturities next year.

So it should head up back towards [10%] by the year end probably.

I wouldn't say by year end, but I would say that we'll continue to pre-finance maturities when the market is available. So it will go back up, but not by year end, I don't think.

The best answer is that this is a dislocation. Normally, we would have done this earlier.

Okay.

Our final question comes from Philippe Houchois of UBS. Please go ahead.

Yes, thank you, good afternoon. A couple of questions, still. One is, Richard is on the IAS 19, can you quantify with the balance sheet impact that I would assume that it's like EUR2 billion to EUR3 billion negative impact on your book equity, tell me something way out there. Can you remind us, Mr. Marchionne, what VEBA can do from next year, to request an IPO of Chrysler and what you can do to agree or not agree?

And then finally, on the whole presentation about what you're trying to do with Fiat going forward, etc., you're most likely going back in house. Are you going to start being the disruptive agent of change in Europe, and more recently with reports that you were talking to Opal and Peugeot about doing a combination, et cetera. Are you going to stop that? Have you given up on those opportunities, or you're really focusing on your own issues and then wait if the opportunity is coming?

Are we talking about -- you're referring to the Bloomberg story that came out earlier?

Yes, and all those noise we hear all the time.

Yes, turn down the volume of the radio. I mean I wasn't the guy talking to Opal, by the way, about anything.

But you have a number of times in the past, that's why I'm just asking you.

By the way, it's public information. There are pictures of me and Chancellor Merkel together, so I did speak to the German government and to General Motors back in 2008 and '09 about doing something with them. But we have not had conversations since and by the way, our relationship with Peugeot-Citroen is a good relationship. We continue to operate together out of our Seville plant and there are occasions where we meet both the executives of Peugeot-Citroen and the Peugeot family with whom we have had historical strong ties. So don't read anything into us having coffee at the bar. There are other things and combinations of mergers that people talk about from time to time.

As far as the issue on the IPO of Chrysler, VEBA can request the registration starting in January 2013. And once registration is in place, I think that they could ask that we take it public, and we will comply if they so desire.

Okay, so it is that you don't have an option to block. It is a normal process on that part.

No. But doesn't concern me. I mean, I think the important thing is that we need to be able to preserve our call option rights. About 40% of their holdings. I think let's put these couple of issues to bed quickly, like the acquisition of the first chunk, which hopefully will be adjudicated at the speed of light, which is my sincere hope.

You think that will be done before the year-end?

As Richard says, it's kind of hard to tell and neither one of us knows how these courts work. And our indication from our professional advisors is that we should be able to get an answer by the end of the year.

Okay. And on IAS 19, am I wrong, there's a multi-billion dollar impact on equity, no cash, but just on equity?

You're not wrong. But I emphasize a number for you, I'll give you an update at the end of the fourth quarter, but you're not wrong.

Okay, thank you.

That will conclude the question-and-answer session. I would like to turn the call back over to Mr. Marco Auriemma for any additional or closing remarks.

Thank you, Richie. We would like to thank everyone for joining today's call. We'll be communicating shortly. Bye.