Moody's: Fiat Is Junk. Bad Junk

Bertel Schmitt
by Bertel Schmitt

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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  • Fred schumacher Fred schumacher on Sep 22, 2011

    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.

    • Aristurtle Aristurtle on Sep 22, 2011

      You are implying that there are ratings agencies that did not "completely blow it". Moody's, S&P, and Finch were all in the same boat, and there aren't really any other players in that space (other than the internal analysis people at each actual investment firm). Some people still listen to them because there's nobody else to listen to.

  • Pch101 Pch101 on Sep 22, 2011
    You are implying that there are ratings agencies that did not “completely blow it”. No, he isn't. He's actually making an opposing claim -- he doesn't believe that the rating agencies have any credibility. To an extent, I don't blame him. Their underlying mission is to get paid by those who package up deals to slap a marketable brand (the AAA rating) onto marketable securities. They know who butters their bread, and it isn't the investors. Some people still listen to them because there’s nobody else to listen to. The lesson: If you want trustworthy due diligence, do it yourself.

  • MrIcky I would like to compare the answers here against the answers in the recent civil forfeiture article- but I won't because research is hard. It's true though that currently a ticket has no punitive value on those with means and maybe an outsized punitive value on those without. That's not communism, that's just the way it is. Speeding tickets are too arbitrary anyway though: officer discretion, speed trap towns, excessively low speed zones in areas to increase ticket revenue instead of safety, etc. I could clearly see a case where expensive cars are selectively enforced over cheap cars because you only have so much time in a day to up the revenue. It's a gray rainy crap morning and I'm sure the government will do it wrong.
  • 28-Cars-Later Feels a bit high but then again... forget it Jake, its Clown World.In 2021 someone in Sewickley had an MY01 soft top in a manual with 54K otc which I am fairly certain was a 996 and not a Boxster - $20K. I already had my C70 at the shop being reborn and could have done the $20K but it would have been tight and just didn't make sense. Still...
  • SCE to AUX Q: Should Speeding Fines Be Based on Income?A: Yes. Rich people (the guy with $1 more than you) should pay less, because giving his income to the government means he has to lay off a worker at his business.Laws are for poor people./s
  • SCE to AUX "Volvo has suggested it’s capable of yielding 275 miles of range"Every non-US car's range estimate is based on WLTP - worth mentioning.EPA range never 'backs up' WLTP; it's always about 15% lower - so figure maybe 234 miles. Not great, except as a commuter.As for the interior - it's obviously a Model 3 clone, but the screen is substantially smaller. Incidentally, I suspect Tesla made the Model 3/Y interior so minimalist to save money - not just to be different. When you're trying to become profitable on EVs, every dollar counts.
  • SCE to AUX "there haven’t been a lot of good examples hitting the market recently. Most models are aimed at the affluent, resulting in 9,000-pound behemoths with six-figure price tags"I hope you were joking, because that is blatantly false.