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Milan: Investors are harbouring serious doubts about Fiat's ability to meet its 2009 targets, given fierce competition in the sector, expensive raw materials and the car maker's dependence on two markets: Italy and Brazil.
Those doubts came into sharp focus last week when a downgrade by Merrill Lynch sent Fiat's stock tumbling more than six per cent on Wednesday to a two-week low.
"Can Fiat defy gravity into 2009? We don't think so," said Merrill, which cut Fiat to "underperform" from "buy".
Like its French peer Peugeot-Citroen, Fiat held fast to its targets for 2008 and 2009 after publishing solid quarterly results last month.
Chief executive Sergio Marchionne acknowledged the challenges, but stuck to the ambitious targets set under his plan for the group.
"I'm 56 and I've never had to change a forecast so far," he said on a conference call about the quarterly results.
One key target for 2009 is a 25 per cent rise in trading profit to as much as 4.5 billion euros ($6.69 billion).
Although analysts expect Fiat to meet its targets this year, they think its luck will run out in 2009. At least three brokerage houses including Citigroup do not see trading profit coming close to the four billion euro mark for next year.
Marchionne did a great job helping Fiat recover from near bankruptcy, they say, but even he was working against the odds.
"The doubts are well founded," said a fund manager in Rome.
Other players
The same can be said for the rest of the sector, according to SG Securities analyst Eric-Alain Michelis. "Nobody believes PSA [Peugeot Citroen], Renault, Fiat or anybody else will meet their targets," he said.
In Fiat's case, the scepticism is focused on its car business rather than other parts of the group because it is the single biggest contributor to total sales and profit.
Known as Fiat Group Automobiles (FGA), it houses the Fiat, Alfa Romeo and Lancia car brands, as well as Fiat vans. Its latest success has been the revamped Cinquecento (500) car.
Fiat and other auto makers have had a tough time this year.
Car sales in their main European markets have fallen as high fuel prices, a credit crunch, inflation and a slower economy have discouraged potential buyers from going to the showrooms.
Profits are getting hit by costly raw materials like steel.
France's Renault has admitted the difficulties in meeting its forecasts and cut its volume sales target for 2009. It has also said it might have to revise its margin targets if the economy further deteriorated.
Fiat has tried to avoid doing the same by launching new models and shifting production to countries with lower costs. It has formed alliances with other automakers to cut costs, has raised prices of some cars and shut plants temporarily.
Despite these efforts, Commerzbank, which began covering Fiat on Friday with a "reduce" rating, said its undoing would be its dependence on Italy and Brazil.
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