annual report - FIAT SpA

MAIN RISKS AND UNCERTAINTIES TO
WHICH FIAT S.P.A. AND FIAT GROUP
POST DEMERGER ARE EXPOSED
Following is a brief description of risks and uncertainties that could potentially have a significant impact on the activities
of Fiat Group post Demerger. Other risks and uncertainties, which are currently unforeseeable or considered to be
unlikely, could also have a significant influence on the operating performance, financial position and future prospects of
Fiat S.p.A. and Fiat Group post Demerger.
Risks associated with general economic conditions
The Group’s earnings and financial position are influenced by various macro-economic factors – including increases or
decreases in gross national product, the level of consumer and business confidence, changes in interest rates on
consumer credit, the cost of raw materials and the rate of unemployment – within the various countries in which it
operates.
For example, the global economic recession in 2008 and the first half of 2009 had a negative impact on the Group’s
earnings. Weak economic conditions resulted in a significant decline in demand for most of the Group’s products. In
2010, demand levels for the automobiles business in Europe also reflected the absence of significant measures
previously put in place by major governments and monetary authorities. In general, the sectors in which the Group
operates have historically been subject to highly cyclical demand and tend to reflect the overall performance of the
economy, in certain cases even amplifying the effects of economic trends. Given the difficulty in predicting the
magnitude and duration of economic cycles, there can be no assurances as to future trends in the demand for or
supply of products sold by the Group in any of the markets in which it operates.
Moreover, certain major economies are still in recession or have recently suffered periods of low growth or economic
stagnation. These conditions or the return to economic recession in markets that have recently recovered could
ultimately affect the industrial development of many businesses, including those of the Group. There can be no
certainty that measures taken by governments and monetary authorities will be successful in re-establishing the
conditions necessary for sustainable economic growth. As such, uncertainty remains as to the global economic outlook
and some national economies could experience extended periods of slow economic growth or recession.
Additionally, even in the absence of slow growth or recession, other economic circumstances – such as increases in
energy prices, fluctuations in prices of raw materials or contractions in infrastructure spending – could have negative
consequences for the industries in which the Group operates and, together with the other factors referred to previously,
could have a material adverse effect on the Group’s business prospects, earnings and/or financial position.
Risks associated with financing requirements
The Group’s future performance will depend on, among other things, its ability to finance debt repayment obligations
and planned investments from operating cash flow, available liquidity, the renewal or refinancing of existing bank loans
and/or facilities and possible recourse to capital markets or other sources of financing. Although the Group has
measures in place to ensure that adequate levels of working capital and liquidity are maintained, any declines in sales
volumes could have a negative impact on the cash-generating capacity of its operating activities. The Group could,
therefore, find itself in the position of having to seek additional financing and/or refinance existing debt, including in
unfavorable market conditions with limited availability of funding and a general increase in funding costs. Any difficulty
in obtaining financing could have a material adverse effect on the Group's business prospects, earnings and/or
financial position.
Risks associated with Fiat S.p.A.’s credit rating
The ability to access the capital markets or other forms of financing and the related costs are dependent, amongst
other things, on the Group’s credit ratings. Following downgrades by the major rating agencies in the first quarter of
2009, Fiat S.p.A. is currently rated below investment grade with ratings on its long-term debt of Ba1 (with negative
outlook) from Moody’s Investors Service, BB+ (with negative outlook) from Standard & Poor's Ratings Services and
BB+ (with negative outlook) from Fitch Ratings Ltd.
On 23 April 2010, following Fiat's announcement of the proposed Demerger, Standard & Poor's placed Fiat S.p.A. on
CreditWatch with negative implications. The CreditWatch status was confirmed on 1 October 2010 and the rating
agency is currently reviewing the Company’s status. On 21 July 2010, Moody’s Investors Service placed Fiat S.p.A.’s
Report on Operations Main risks and uncertainties to which Fiat S.p.A. and Fiat Group
post Demerger are exposed
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