The Financial Times published this article on 15 May 2002, written by Fred Kapner:

Fiat, Italy's once dominant industrial group, yesterday said it would float its sportscar maker Ferrari at a time when it is trying to raise cash and stem losses at its less glamorous car and truck making units.

The initial public offering, slated for late this year, would come a year earlier than executives had indicated and highlights Fiat's intensified need to lower debt and cut costs at its haemorrhaging car division.

Fiat yesterday reported a first-quarter net loss of €529m ($476m), compared with a profit of €193m a year earlier. Fiat Auto, which produces Fiat, Alfa Romeo and Lancia cars, had an operating loss of €429m; higher than most analysts' expectations, due to weak sales.

The company's debt rose to €6.6bn from €6bn at the end of last year in spite of a €1.1bn capital increase. Total expenditures during the first quarter exceeded cash flow by €620m.

Paolo Fresco, chairman, warned that Fiat Auto could only generate an operating profit in 2004 in spite of a restructuring plan that has already intensified twice since it was first drawn up last December.

"Our group objectives are to achieve operating break-even for 2002 and to cut net debt in half," Mr Fresco said during Fiat's annual shareholders meeting. Fiat's restructuring plan calls for the partial or full closing of 18 assembly plants worldwide. Some 3,000 jobs will be cut in Italy, where Fiat has roughly halved its payroll for industrial activities during the past decade.

Fiat believes the plan will generate €4.5bn of savings over the next three years. Part of that will come from increased co-operation with General Motors, the US carmaker that acquired 20 per cent of Fiat Auto two years ago for $2.4bn.

Fiat has an option, exercisable in 2004, to sell the remaining 80 per cent to GM, but Fiat's inability to turn round its car division has prompted many observers to believe it could seek to sell out sooner to GM. "They're just not selling cars. They're production system isn't flexible enough to adopt to a big drop in sales," said one analyst.

Meanwhile, Fiat's truck unit, Iveco, saw first-quarter operating profit fall from €64m to €11m because of a weak truck market.

Fiat executives in recent weeks had hinted that the company could sell a minority stake in Ferrari, which analysts value between €1.2bn and €1.5bn. Ferrari, which also produces Maserati cars, last year had group sales of €1.04bn, up 17 per cent from a year earlier, while operating profits rose 36 per cent to €62m. The carmaker sold more than 6,000 cars including 4,256 Ferraris.

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