PARIS (dpa-AFX) - Moody's Investors Service on Wednesday downgraded the corporate family rating or CFR and probability of default rating or PDR of Fiat S.p.A. (FIATY.PK) to Ba3 from Ba2, reflecting the decline in demand for Italian cars this year.
Moody's also downgraded the debt issued by Fiat's rated subsidiaries Fiat Finance & Trade and Fiat Finance North America to B1 from Ba3. The rating of Fiat Finance Canada was cut to (P)B1 from (P)Ba3. The outlook on the ratings is negative.
Falk Frey, a Moody's Senior Vice President and lead analyst for Fiat, said, 'The one-notch downgrade of Fiat's ratings to Ba3 reflects the decline in demand for Italian cars recorded so far this year and in our outlook for demand till the end of 2012 and beyond.'
Italy forms more than half of Fiat's European car registrations. Hence, the deterioration is the key driver of 'rising losses among its mass market brands and of its cash consumption in EMEA region,' Frey added.
Fiat is facing overcapacities in Italy, despite closing its factory in Sicily at the end of last year. Moody's cautioned that the delay in model renewals and the absence of major new volume model launch might further derail Fiat's competitive position in Europe, amid major new model launches from Peugeot (PEUGF.PK) and Renault SA (RNT.L, RNSDF.PK, RNSDY.PK).
Fiat's consolidated financial results benefit from the improving performance of Chrysler Group LLC, but Fiat's standalone credit metrics have deteriorated over recent quarters, Moody's said. The ratings agency expects further deterioration in Fiat's standalone credit metrics in 2012, with limited improvement likely in 2013.
Additionally, Fiat could be vulnerable to greater competitive pressures in Brazil, its most profitable market. Moody's cited the substantial additional capacity that will be implemented over the next two to three years within the country, which will significantly outpace Moody's market growth expectations, leading to overcapacities that could result in declining profitability.
The stock closed down 0.23 percent in Milan on Tuesday at 4.28 euros.
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