Italy's Fiat is to separate its autos business from its better-performing industrial and truck businesses, and wants to achieve ambitious revenue and profitability increases across the board by 2014.
Fiat CEO Sergio Marchionne kept shareholders waiting for the much-anticipated spin-off news in a strategy update that lasted over six hours and set out targets for each unit as it embarks on the rocky road to recovery after a deep industry crisis.
Marchionne finally announced that CNH, Iveco and Fiat Powertrain Industrial and Marine activities would be separated from the autos businesses and listed in Milan as Fiat Industrial.
He said he hoped to have the process completed by the end of 2010, if economic conditions remain stable.
Keeping together autos and industrial businesses that have different earnings cycles and capital requirements did not make sense, Marchionne told investors.
The car side has for a long period of time relied on the support of the industrial business. It's not fair, he said.
Asked later if Fiat Auto would team up with another carmaker, following its 2009 alliance with Chrysler, Marchionne, a strong advocate of consolidation in the autos sector, replied: For the moment, there's no need but that doesn't mean it won't happen.
Fiat Auto and its U.S. partner Chrysler together would target cumulative synergies of 1.5 billion euros by 2014, Fiat said.
The combined carmakers would yield around 6 million cars by 2014, the minimum required to be a competitive global player.
Marchionne became something of a car industry guru when he predicted in 2008 that only 5 or 6 carmakers would survive after the crisis, and said car companies would need to produce around 6 million units per year to maintain profitability.
THE NEW FIAT
News of Fiat's spin-off plans reversed earlier losses for Fiat shares, which ended the day up 1.73 percent at 10.60 euros, having already gained more than 9 percent in anticipation on Tuesday. The STOXX European Autos index .SXAP was down 0.1 percent.
Marchionne said the New Fiat, which would include the autos business, some powertrain activities and components activities, would generate revenues of 64 billion euros ($86 billion) in 2014 and would enjoy a greater contribution from U.S. partner Chrysler.
New Fiat would generate a trading profit of between 3.2 and 3.8 billion euros in 2014, Fiat said.
Fiat Industrial would target 29 billion euros of revenues in 2014 and a trading profit of 3.2 billion to 3.4 billion euros, Fiat said.
The spin-off is positive for the valuation, and now the group will be able to compare itself with peers. The timing of the spin-off is positive news - October approval, listing by November-December, said Nicolo Nunziata, analyst at JC Associati.
Fiat on Wednesday named a new chairman, John Elkann, a scion of the controlling Agnelli family after Luca Cordero di Montezemolo stepped down.
Elkann will be chairman of the autos division, while Marchionne will be chairman of Fiat Industrial, Elkann said. Marchionne remains CEO of the autos business.
The Agnelli family will remain committed to Fiat, Elkann said.
Q1 SCRAPPING BOOST, UNCERTAINTY AHEAD
Fiat also earlier reported first-quarter sales up nearly 15 percent and a 352 million euro trading profit, but Marchionne said the European car market would fall by 15 percent in 2010 as government incentives ran out.
Rival carmakers' quarterly results also showed that scrapping incentives had helped in the first quarter, but the rest of the year looked more difficult.
Europe's largest carmaker Volkswagen's first-quarter operating profit nearly tripled, while PSA Peugeot Citroen posted a jump in first-quarter sales and said it expects to post an operating profit in the first half.
VW CEO Martin Winterkorn said a good start to the year put it on the right track, grabbing an above-average share of market growth, but the group forecast only a slight recovery in the 2010 world market, driven by Asia demand.
Volkswagen shares ended up 2.76 percent at 75.63 euros, while PSA shares ended 0.09 percent lower at 22.86 euros.
Chrysler also reported first-quarter results on Wednesday, adding another $197 million net loss to the $3.8 billion it has lost since it emerged from bankruptcy in June.
It did manage an operating profit, however, and said cash flow had turned positive due to sweeping cost cuts.
Earlier in the week, German carmaker Daimler unexpectedly hiked the 2010 earnings target for its luxury Mercedes arm, sending its shares soaring.
Data released this month showed that first-quarter car sales in Europe as a whole rose 9.2 percent, reflecting orders placed before some government scrapping incentive schemes, including Italy's, closed at the end of last year.
(Reporting by Marcel Michelson, Massimo Gaia, Ian Simpson, Jo Winterbottom, Helen Massy-Beresford, Christiaan Hetzner, Soyoung Kim and David Bailey; Editing by Will Waterman and Hans Peters)