Moody's: Fiat Is Junk. Bad Junk
Today, credit rating agency Moody’s cut the rating on Fiat’s bonds down two notches from Ba1 to Ba3. Merrill Lynch wrote in a letter to customers that it is ”worth remembering that Fiat debt is already junk rated so there will not be a change in the credit investor base for Fiat, but cost of refinancing goes up.”
Officially, bonds in the Ba family are regarded to be of “questionable credit quality”. In the business, “Ba1” is known as junk, B3 as “bad junk”. It is interesting what got Fiat the demerits: Chrysler.
“Today’s rating action reflects Moody’s expectation that the creditworthiness of Fiat and Chrysler will become more closely aligned over time as the strategy and operations of the two groups becomes progressively more intertwined,” Falk Frey, Moody’s lead analyst for Fiat, told Reuters. A lot of Fiat’s doubtful debt is imported from Detroit.
Fiat’s Marchionne himself said a few days ago and again that “the future of this industry is bound to lead to the elimination of marginal players,” and that excluding China, there will eventually be only five large car makers in the developed world. Of course, Fiat-Chrysler wants to be one of the Five and not a marginal player who is doomed to extinction.
The trouble is that membership in the Group of Five increasingly depends on success in the emerging markets. That’s where the growth is. Especially in hotbed Asia, Fiat is weak to nonexistent. Brazil, where Fiat has been traditionally strong, is slowing down. Fiat’s home market Italy is in trouble. In the first eight months of the year, Fiat’s European market share dropped from 8.3 percent to 7.4 percent.
Fiat’s ailing Alfa is getting paler around the nose by the day. Contacts in Frankfurt report that Alfa reduced its target for 2014 from 500k units to 400k units. A lot of things fell by the wayside: The mid-sized SUV due in 2014 has been scrapped. The compact SUV promised for 2012 is delayed until 2013. The Giulia won’t come in 2012, but in 2014. The launch of the new Spider has been moved from 2013 to 2014. And the list goes on.
Ferdinand Piech, who covets Alfa, would be grinning his trademark sardonic grin, would he not have other problems.
Speaking of Piech: Marchionne is being increasingly fingered as the Italian gigolo who has wrecked the German-Nipponese marriage between Volkswagen and Suzuki. Piech’s vindictiveness is legendary. Piech and Marchionne hold each other in mutually low regard.
The love affair of the stock market with Fiat turned into a tragedy: After shooting up to 8 Euro in January, and maintaining the 7 to 8 Euro level through most of the year, the stock crashed in August and lost half of its value. Moody’s isn’t the only one with a bleak outlook for Fiat.
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Moody's? Hm, that name sounds familiar. Oh, yeah. They're one of the rating agencies that completely blew it on credit default swaps that resulted in the world's economy crashing and is why we're still in recession four years later. When Moody's talks, is anybody still listening? I would think they're credibility would be right up there with Kim Jong-il.