ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
The Fiat Group
We are one of the largest industrial groups in Italy. We also have extensive operations in
the rest of Europe, the US and in other parts of the world.
We are engaged principally in the manufacture and sale of automobiles, commercial vehicles and
agricultural and construction equipment. We also manufacture, for use by our automotive sectors
and for sale to third parties, other automotive-related products and systems, principally
powertrains (engines and transmissions), components, metallurgical products and production systems.
In addition, we are currently involved in other sectors, including publishing and communications
and certain service operations. A detailed description of our business can be found in Item 4.
Information on the Company.
Our significant subsidiaries as of December 31, 2005, were:
Fiat Auto S.p.A. (Fiat Auto), an Italian corporation wholly owned through our
Dutch subsidiary Fiat Auto Holdings B.V.;
Maserati S.p.A. (Maserati), an Italian corporation formerly owned by Ferrari.
Maserati became a wholly owned member of the Group in April 2005, and its results
are now reported as a separate sector;
Ferrari S.p.A. (Ferrari), an Italian corporation which produces luxury sports
cars, of which we own approximately 56% of the voting shares;
Fiat Powertrain Technologies S.p.A. (FPT) a wholly owned Italian corporation
established in the first half of 2005, which carries out our powertrain operations;
CNH, a Dutch corporation that is the lead company of our agricultural and
construction equipment sector, of which we hold approximately 90% of the voting
shares, following the conversion in March 2006 of 8,000,000 Series A Preferred
Shares into CNH common shares. See Item 4. Information on the Company
Introduction Recent Developments Financial Initiatives;
Iveco S.p.A. (Iveco), a wholly owned Italian corporation that is the lead
company of our trucks and commercial vehicles sector;
Magneti Marelli Holding S.p.A. (Magneti Marelli), a wholly owned Italian
corporation that is the lead company of our automotive components sector;
Teksid S.p.A. (Teksid), an Italian corporation that is the lead company of our
metallurgical products sector, of which we hold 84.8% of the voting shares;
Comau S.p.A. (Comau), a wholly owned Italian corporation that is the lead
company of our production systems sector;
Business Solutions S.p.A. (Business Solutions), a wholly owned Italian
corporation that is the lead company of our services sector; and
Itedi-Italiana Edizioni S.p.A. (Itedi), a wholly owned Italian corporation that
is the lead company of our publishing and communications sector.
Beginning in 2006, the FPT sector also includes the powertrain businesses of Iveco, Centro
Ricerche Fiat (CRF, the Fiat Research Center) and Elasis (Fiats advanced research center
headquartered in Pomigliano dArco near Naples). See Item 4. Information on the
Since January 1, 2005, we have aggregated our activities into five business areas for certain
external communication purposes: Automobiles (including the sectors led by Fiat Auto, FPT, Maserati
and Ferrari); Agricultural and Construction Equipment (the CNH sector); Trucks and Commercial
Vehicles (the Iveco sector); Components and Production Systems (which includes the sectors led by
Magneti Marelli, Teksid and Comau); and Other Businesses (the sectors led by Business Solutions and
Itedi, as well as the results of our holding companies and other companies).
Selected Financial Data
The following selected consolidated financial data at December 31, 2005 and 2004, and for each
of the years in the two-year period ended December 31, 2005, have been derived from the audited
Consolidated Financial Statements included in Item 18. This data should be read in conjunction
with Item 5. Operating and Financial Review and Prospects and are qualified in their entirety by
reference to the audited Consolidated Financial Statements and the Notes thereto included in Item
The Consolidated Financial Statements and the Notes thereto for fiscal years ending at
December 31, 2005 and 2004 have been prepared in accordance with the requirements of IFRS. IFRS
differ in certain respects from US GAAP. For an explanation and quantification of such
differences, see Note 38 to the Consolidated Financial Statements included in Item 18. In the
tables below, we also present selected statement of operation and balance sheet data calculated in
accordance with US GAAP for each of the years in the period 2001-2005, as explained in more detail
in the US GAAP reconciliation footnote to our consolidated financial statements for the relevant
years included in our prior annual reports on Form 20-F.
The following selected consolidated financial data for 2005 and 2004 also reflect certain
changes in our structure during the years presented. See Principles of consolidation and
significant accounting policies in the Notes to the Consolidated Financial Statements included in
Item 18. In particular, this data reflects the following transactions that resulted in changes in
the scope of consolidation:
At the end of 2005, the Fiat Group acquired Enels share of Leasys S.p.A.
(Leasys), which rents and manages corporate car fleets, thereby obtaining 100%
control of the
former joint venture. For additional details, see Item 4. Information on the
Company Sectors Fiat Auto.
On June 1, 2005, Iveco sold to Barclays Mercantile Business Finance Ltd a 51%
stake in Iveco Finance Holdings Limited, a company comprising certain financial
services companies of Iveco operating in France, Germany, Italy, Switzerland and the
United Kingdom. As of that date, Iveco Finance Holdings Limited was no longer
consolidated on a line-by-line basis, but rather accounted for using the equity
method. For additional details, see Item 4. Information on the Company Sectors -
Trucks and Commercial Vehicles.
As of May 2005, the operations that had previously been transferred to the
Fiat-GM Powertrain joint venture were consolidated in FPT. Upon termination of the
2000 master agreement that had governed our former industrial alliance (the Master
Agreement) with General Motors Corp. (GM), Fiat re-acquired the full control of
all such operations with the sole exception of those in Poland (which continue to be
jointly managed by both parties).
In the first quarter of 2005, we sold 65% of our stake in the temporary
employment agency WorkNet to Generale Industrielle. For additional details, see Item
4. Information on the Company Sectors Services.
In the first quarter of 2005, Magneti Marelli increased its equity investment in
the Turkish automotive component manufacturer Mako Elektrik Sanayi Ve Ticaret A.S.
(Mako) to 95%, thus acquiring control from the Turkish group Koç. As a result, the
company, previously accounted for using the equity method, is now consolidated on a
line-by-line basis. For additional details, see Item 4. Information on the Company
In September 2004, Magneti Marelli sold its Midas automotive repair and
maintenance service business (Midas) in Europe and Latin America to the Norauto
As a result of our gradual acquisition of control of Magneti Marelli Sistemi
Elettronici S.p.A. (Electronic Systems) culminating in our acquisition of full
ownership, we have been consolidating Electronic Systems on a line-by-line basis
since the beginning of 2004.
We deconsolidated Fiat Engineering, S.p.A. (Fiat Engineering), as a result of
its sale in February 2004 to Maire Investimenti S.p.A. (now Maire Engineering
S.p.A.), a privately held Italian company.
Diluted earnings per ordinary and preference share (3)
Diluted earnings per savings share (3)
The unusual financial income recorded in 2005 represents the excess of the aggregate
subscription price paid by the lending banks for the Fiat shares received upon conversion
of our €3 billion mandatory convertible facility at maturity in September 2005 and the
aggregate stock market value of those shares on the subscription date of approximately
€2,141 million. We had no unusual financial income in 2004.
This item includes investment income, as well as writedowns of and upward adjustments to
equity investments accounted for using the equity method.
In accordance with IAS 33, the dilutive effects of the mandatory convertible facility have not
been included in the determination of earnings per share for 2004, as there was a net loss
for the period.
Fluctuations in the exchange rate between the euro and the dollar will affect the dollar
equivalent of euro prices of shares listed on the Italian Stock Exchange and, as a result, are
likely to affect the market price of our American Depositary Receipts (ADRs) in the United
States. Exchange rate fluctuations will also affect the dollar amounts received by holders of
ADRs on the conversion into dollars by the depositary for the ADRs of any cash dividends
declared and paid in euro on the shares represented by the ADRs.
The following table sets forth the Noon Buying Rate for euro expressed in dollars per euro
rounded to the nearest one hundredth of a US cent for the periods indicated.
Average of the Noon Buying Rate for euro for the last business day of each month in
The Noon Buying Rate for euro on June 26, 2006, was $1.2554= €1.0000 or $1.00 =
We have recorded significant losses in recent periods. Our future profitability and financial
condition depend on the successful implementation of our current strategic objectives.
From 2002-2004, our operating performance was negatively affected by a persistently
unfavorable business environment in the automotive market and the poor performance of Fiat Auto.
We recorded net losses under Italian GAAP of €1,586 million, €1,900 million and €3,948
million in 2004, 2003 and 2002, respectively. Our net loss in 2004 as recalculated in accordance
with IFRS was €1,634 million. In response to these challenging conditions, we have adopted a
series of organizational and industrial initiatives intended to refocus our efforts on our core
automotive businesses and bring us back to profitability. These initiatives aim to achieve
significant improvements in our results over the period through 2007 by restoring Fiat Auto to
profitability and reorganizing our businesses to develop our innovation capabilities and
expertise, while reinforcing our capital structure and maintaining a comfortable liquidity
position. They also provide for significant cost savings to be generated through cost structure
rationalization and improved manufacturing efficiency, further synergies among our industrial
joint ventures and inter-sector cooperation, and the adoption of a more dynamic and efficient
management structure. See Item 4. Information on the CompanyIntroduction Strategies and
Programs. The initial positive impact of these initiatives is reflected in our operating and
financial results for 2005 and for the first quarter of 2006. See Item 4. Information on the
CompanyIntroduction Recent Developments and Item 5. Operating and Financial Review and
ProspectsResults of Operations2005 Compared with 2004.
Our ability to further strengthen our capital structure, reduce our indebtedness and
improve profitability, while at the same time continuing to invest in new products, research and
development and our distribution network, will depend on the success of these organizational and
industrial initiatives, as well as on general economic and business conditions and the
performance of our companies. Any failure to implement a significant portion of these
initiatives successfully, or to realize the anticipated benefits, could have a material adverse
effect on our financial condition, results of operations and business prospects.
In addition, realization of our development plans for Fiat Auto over the period through
2008 is predicated upon specified financial and operating factors, including the Groups overall
ability to generate the necessary profitability, to access financing and state grants under
available regulations for research, development and innovation, and to realize specific
programs, as well as upon the cooperation of unionized labor. In order to be competitive, we
must also implement operational solutions that will allow for improvements in cost efficiency,
flexibility with regard to plant use and productivity. See Item 4. Information on the
CompanyIntroduction Recent Developments for additional information.
Our businesses are affected by cyclical economic conditions.
Our businesses depend upon general activity levels in our key industries, which
historically have been highly cyclical. In addition, we generate a substantial portion of our
revenues in Western Europe, and more particularly in Italy. Both demand for cars and our market
shares have been volatile in recent periods, though in the first quarter of 2006, demand for
automobiles grew by 3.3% in Western Europe as a whole, and by 9.0% in Italy, with Fiat Auto
increasing its market share in both regions. See Item 4. Information on the
CompanySectorsFiat AutoMarkets and Competition for more information on trends in the
automobile market. Any event adversely affecting activity in the
automotive industry, such as an economic downturn in a key market, an increase in energy
prices, fluctuations in the prices of other commodities or raw materials, adverse shifts in
sector specific factors such as weather, interest rates, government policies (including
environmental regulation), infrastructure spending or major epidemics (such as avian flu) could
negatively affect our profitability and business prospects.
We operate in highly competitive industries.
Approximately 93% of our net revenues are generated in the highly competitive worldwide
automotive industry, which includes automobiles, commercial vehicles, agricultural and
construction equipment and automotive-related products. We face strong competition in Europe and
Latin America from other international automobile and commercial vehicle manufacturers, and in
Europe, North America and Latin America from global, regional and local agricultural and
construction equipment manufacturers and suppliers of automotive-related products. We compete in
these markets in terms of product quality and features, innovation and development time,
pricing, reliability, safety, fuel economy, customer service and financing terms. We also face
strong competition in our other businesses.
We face intense price competition in the automobile and other sectors.
Competition, particularly with regard to price, has increased in several of our operating
sectors in recent years, and has had a negative impact on sales and margins in these sectors. In
addition, overall manufacturing capacity in the global automotive industry exceeds current
demand. This overcapacity, combined with already intense competition in the automotive industry
and persistent weakness in the global economy, may intensify pricing pressures. Our ability to
maintain or improve the quality of our products, increase market share and improve profitability
in the face of strong competitive pricing pressures will be fundamental to our future success.
Our future performance depends on our ability to innovate and on market acceptance of new or
Our ability to improve our position within our product and market segments through research
to improve current products, as well as the development of innovative new products and services
will have a significant impact on our future performance. Failure to develop and offer products
that compare favorably to those of our competitors, particularly in more profitable segments, in
terms of price, quality, styling, reliability, safety, functionality or otherwise, may result in
lower market share, lower sales volumes and margins, and may have a substantial adverse effect
on our operational and financial results. For example, Fiat Autos development plans call for
the launch over the 20052008 period of 20 new models, including the Fiat Grande Punto and the
Alfa 159, which were introduced commercially at the end of the third quarter of 2005, as well as
23 restylings of existing models of the Fiat, Lancia, Alfa Romeo and Fiat Commercial Vehicle
brands. See Item 4. Sectors Fiat Auto Product Development. The lack of market acceptance
of these and other new automotive models, potential delays in bringing new vehicles to market or
the inability to achieve efficiency targets without suffering quality losses would adversely
affect our overall profitability.
Downgrades of our credit ratings would raise our cost of capital and could limit our access to
financing and negatively affect our business.
We are currently rated below investment grade, with a rating of Ba3 with a stable outlook
from Moodys Investors Service (Moodys), BB- with a stable outlook from Standard & Poors
Ratings Service, a division of the McGraw Hill Companies, Inc. (Standard & Poors), and BB-
with a stable
outlook from Fitch Ratings. Our ability to access capital markets, and the cost of
borrowing in those markets, is highly dependent on our credit ratings. The rating agencies may
review their ratings for possible further downgrades, and any new downgrades would increase our
cost of capital, potentially limit our access to sources of financing, and could negatively
affect our businesses, especially our vehicle lease and sales financing businesses, which are
typically financed with a high proportion of debt. Moreover, the management and development of
the core automotive and automotive-related businesses in which we operate, may require large
capital investments. Consequently, we may find it necessary to secure additional financing or to
refinance our outstanding debt. We cannot give any assurances as to whether we will be able to
secure such funds or refinance existing indebtedness, or whether any additional measures may be
required to raise funds, nor whether we will be able to effect any or all of any such
transactions at all, or on favorable terms.
We may not achieve the expected benefits of mergers, acquisitions, joint ventures or other
similar corporate transactions.
We have engaged in the past and may engage in the future in significant corporate
transactions, such as mergers, acquisitions, joint ventures and restructurings, the success of
which is difficult to predict. We have also sold a number of businesses and equity investments
as part of the refocusing of our operations on our core automotive businesses. There can be no
assurance that we will be able to enter into such transactions without encountering
administrative, technical, political, financial or other difficulties. Each of our automotive
sectors participates in joint ventures, and Fiat Auto is currently exploring or has recently
signed additional cooperation or other agreements with various auto makers, including Tata
Motors of India, Severstal of Russia and Ford Motor Co. of the United States. See Item 4 -
Introduction Recent Developments.
Joint ventures involve special risks associated with the possibility that the joint venture
have economic or business interests or goals that are inconsistent with ours;
take action contrary to our instructions or requests or contrary to our policies
or objectives with respect to operations;
be unable or unwilling to fulfill their obligations under the joint venture agreement; or
experience financial or other difficulties.
We are subject to risks relating to international sales and exposure to changing local
A significant portion of our current operations is conducted and located outside of Italy,
and we expect that revenues from sales outside of Italy, and more generally outside of the EU,
will continue to account for a material portion of our total revenues for the foreseeable
future. We are subject to risks inherent in operating on a global basis, including risks related
exposure to local economic and political conditions;
multiple tax regimes, including regulations relating to transfer pricing and
withholding and other taxes on remittances and other payments by subsidiaries;
foreign investment restrictions or requirements, foreign exchange controls and
restrictions on repatriation of funds; and
local content laws.
The degree of risk and the potential magnitude of effects of unfavorable developments in
any one of these areas vary from country to country, and, depending on the circumstances, could
have a material adverse effect on our business prospects, results of operations and financial
Developments in emerging market countries may adversely affect our business.
We operate in a number of emerging market countries, both directly, in markets such as
Brazil and Argentina, and through joint ventures or other cooperation agreements, including in
Turkey, India, China and Russia. Our Brazilian operations accounted for approximately 8.3% of
our net revenues in 2005. As a result, economic and political developments in Brazil and other
emerging market countries, including economic crises and political instability, have had, and
may in the future have, a material adverse impact on our operating and financial results.
We are subject to extensive environmental and other governmental regulation.
Our products and operations are subject to increasingly stringent environmental laws and
regulations in many of the countries in which we operate. Such regulations govern, among other
things, vehicle emissions, fuel economy, vehicle safety and the type and level of pollutants
generated by industrial production facilities. We expend significant resources to comply with
such regulations, and expect to continue to incur substantial compliance and remediation costs
in the future.
In addition, government initiatives that affect consumer demand for our products, such as
changes in tax policy or the grant or repeal of subsidies to provide incentives for the purchase
of vehicles, can substantially influence the timing and level of our revenues. Such government
actions are unpredictable and beyond our control, and any adverse changes in government policy
could have a significantly negative impact on our business prospects, financial condition and
results of operations.
Labor matters could impair our flexibility to reposition our businesses.
Most of our employees worldwide are represented by labor unions. In Europe, our employees
are protected by various laws giving them, through local and central works councils,
consultation rights with respect to specific matters regarding their employers businesses and
operations, including the downsizing or closure of facilities and employment terminations. These
laws and the collective bargaining agreements to which we are subject could impair our
flexibility as we continue our efforts to reorganize and restructure our businesses.
The processes of reorganizing and restructuring that are under way could increase conflict
with our labor unions. Our policy, which we implement in accordance with local rules and labor
practices, is to seek to minimize labor unrest by maintaining constructive relations with
representatives of our workers and with their unions, in an effort to reach a consensus on
measures to manage the social consequences of these processes. For example, our initiatives to
reduce business governance costs are expected to result in a further streamlining of our
(predominantly white collar) administrative, technical and sales personnel. We seek to use
measures such as the so-called
program that provides a supplemental unemployment allowance to bridge the period prior to
retirement, to manage the impact of these initiatives, as we and our unions believe such
programs help reduce their social consequences. However, use of these programs is subject to the
Italian governments passage of specific legislation permitting us to do so.
In the past, union dissatisfaction with our restructuring initiatives has resulted in labor
unrest, including occasional wildcat and other strikes of varying severity and duration. See
Item 6. Directors, Senior Management and EmployeesEmployees and Labor Relations for
additional information. Any future work stoppages or labor unrest, whether involving our own
employees or those of other companies on which we depend for goods and services, could have a
material adverse effect on our business, results of operations and financial condition.
We are subject to risks associated with exchange rate fluctuations, interest rate changes and
other market risks.
We are subject to currency exchange rate risk in the ordinary course of our business to the
extent that our costs are denominated in currencies other than those in which we earn revenues.
Exchange rate fluctuations also affect our operating results because we recognize revenues in
currencies other than euro but publish our financial statements in euro. Similarly, changes in
interest rates affect our results by increasing or decreasing borrowing costs and financial
income. Our financial services businesses also involve risks relating to changes in interest and
inflation rates, consumer and dealer insolvency rates and the overall strength of the economies
in which these businesses operate.
We seek to manage these risks through the use of financial hedging instruments. However,
despite these hedging transactions, exchange rate or interest rate fluctuations may continue to
adversely affect our financial condition or results of operations. See Notes 22 and 34 to the
Consolidated Financial Statements included in Item 18 and Item 11. Quantitative and Qualitative
Disclosures about Market Risk.
Our success depends on the ability of our management team to operate and manage effectively.
Most of our current senior managers have been appointed relatively recently. Our Chairman,
Luca Cordero di Montezemolo, and our Chief Executive Officer (CEO), Sergio Marchionne, were
appointed in June 2004. In February 2005, Mr. Marchionne assumed the additional position of CEO
of Fiat Auto, Paolo Monferino, who was CEO of CNH, became CEO of Iveco, and Harold Boyanovsky
became interim CEO of CNH, prior to being confirmed in that position later in the year. In 2005,
following the creation of FPT, we also reorganized management at certain of our other sectors.
See Item 6. Directors, Senior Management and Employees- Senior Management.
Our success depends in large part on the ability of our executive officers and other
members of senior management continuing to operate and manage effectively, both independently
and as a group. The loss of the services of any executive officer, senior manager or other key
employee without adequate replacement or the inability to attract and retain new qualified
personnel could have a material adverse effect upon our business, operating results and