THE FIAT GROUP IN

OUTLOOK
The world economy appears to be on the way to regaining its
balance in 2002. However, the recovery will only be gradual
and will occur primarily during the second half of the year in
the United States and Europe. The improvement in business
conditions is not expected to be sufficient to yield an upturn
in durable goods orders and investments.
This general climate will provide a backdrop for the different
trends that will shape the various automotive markets. In Europe,
demand for automobiles appears to have peaked after eight
years of growth and record sales in the last three years.
The commercial vehicles market, which expanded for seven
consecutive years, also reached an all-time high. Sales of
agricultural equipment remain generally weak, and demand for
construction equipment is at the trough of its long-term cycle.
The combined impact of weak economic conditions and the
cyclical nature of the principal markets of the Group entails a
high degree of volatility and uncertainty as to the magnitude
of the anticipated contraction of demand.
There is no doubt that 2002 will be another difficult year,
particularly during the first half due to the impact of the slowdown
that occurred late in 2001. Nevertheless, the Group remains
firmly committed to generating higher operating income and,
more importantly, achieving substantial debt reduction
compared with 2001.
To reach the first objective, we must act more purposefully
and incisively in implementing our strategies: We must achieve
competitive leadership by leveraging the benefits produced
by the industrial alliance with General Motors and complete
the integration process that CNH is pursuing. We must
redesign the Group’s core processes, focusing the
organization on increasing customer satisfaction and maximizing
the professional skills of our employees. We must expand our
presence in the more promising emerging markets. We must
develop product-based and enterprise services. And we must
continuously introduce innovation into our product lines.
In order to operate with greater agility and flexibility in a
challenging environment, the Group is implementing decisive
measures throughout its industrial organization, from the
restructuring and streamlining of its manufacturing facilities
to the reorganization of the entire Automobile Sector and
the structural reduction of its inventories.
In the financial arena, we must focus all of our efforts on the
absolute priorities of increasing the Group’s ability to generate
liquidity and cutting net debt in half by the end of 2002.
We are determined to achieve these goals and to help the Group
regain the ability to fund its own growth, in view of the particularly
conservative stance adopted by lenders and strategic buyers.
Against this background, we intend to augment the resources
provided by the recent capital increase with proceeds
generated by a new divestiture program, which will be
of crucial importance in reducing the Group’s debt.
An even greater contribution must be provided by the
Group’s regular operations and by an increased involvement
of all employees in the effort to improve results and increase
cash flow. With this in mind, we have upgraded our internal
information systems, making available to all managers a series
of operational and cash flow indicators that will allow them to
measure, in a timely fashion, their contribution to improving
the Group’s cash flow.
In addition, in order to increase employee awareness of the
importance of improving the Group’s financial position and
cash flow and to encourage their involvement in this area, we
have launched a training program that, from its inception until
September 2002, will be offered to more than 15,000 executives
and professional employees, starting with those working at the
Group’s three main Sectors— Fiat Auto, CNH and Iveco. The
program includes a series of workshops designed to promote
the development of ideas and special projects.
This program is representative of a process that the Group
has been pursuing for some time to transform and update
its corporate culture. This strategy is based on the belief
that it is only our employees, their professionalism and their
sense of responsibility that can provide the irresistible drive
to achieve excellence, which we all know the Group and
every one of its businesses must attain quickly and with
a measure of permanence.
Turin, March 27, 2002
Paolo Fresco
Chairman
Paolo Cantarella
Chief Executive Officer
Report on Operations – Overview 11
11