PERFORMANCE IN THE FIRST HALF OF 2004

Positive contributions by most Sectors enabled the Group to increase revenues by 1.3 billion euros in the first half of 2004. The operating loss was cut back sharply, falling to 140 million euros (loss of 543 million euros in the first six months of 2003). This positive trend was underscored by the Group’s return to operating profitability (+18 million euros) in the second quarter of 2004.

The net financial position was negative by 4.25 billion euros (negative 3 billion euros at December 31, 2003), mainly due to an increase in working capital, in particular in the first quarter of the year. The Group was able to hold its liquidity at about 7 billion euros, roughly the same as at the beginning of the year, after redeeming bonds for 1 billion euros and repurchasing for cancellation US$540 in bonds exchangeable into GM shares.

The Group’s net revenues grew to 23.5 billion euros, an increase of 6.1% over the 22.2 billion euros booked in the first half of 2003. Virtually all Sectors contributed to this improvement, with gains of 7% for Fiat Auto, 5.4% for CNH (despite an unfavourable exchange rate), 8.7% for Iveco, 17.8% for Ferrari-Maserati, 8% for Magneti Marelli (excluding the consolidation of the Electronic Systems business unit), 6.2% for Teksid and 16.3% for Itedi.

The operating loss of 140 million euros was sharply lower than in the first six months of 2003, when the Group’s operations lost 543 million euros. Profitability improvements at CNH, Iveco, Magneti Marelli and Teksid account for most of this gain. Fiat Auto’s operating loss also shrank, falling from 656 million euros in the first half of 2003 to 474 million euros in the same period this year.

The loss before taxes totalled 407 million euros, down from a loss of 749 million euros in the first six months of 2003. A decrease in the operating loss and lower financial expenses account for this improvement. The consolidated net loss decreased to 669 million euros, compared with a consolidated net loss of 820 million euros in the first half of 2003.

At June 30, 2004, the Group’s liquidity (cash and marketable securities) amounted to just under 7 billion euros, about the same as at December 31, 2003. Consolidated gross indebtedness (financial payables and related accruals and deferrals) totalled 22.4 billion euros, down slightly (155 million euros) from the beginning of the year. On July 9, 2004, the Group used available liquidity to redeem the outstanding bonds exchangeable into General Motors shares that were presented for redemption. The total amount was US$1.7 billion.

Net indebtedness of the Group’s industrial operations totalled 5.9 billion euros, about 800 million euros more than at December 31, 2003. At June 30, 2004, the Group's net financial position was a negative 4.25 billion euros, compared with 3 billion euros at December 31, 2003. This change reflects primarily a seasonal increase in working capital requirements in the first quarter of the year.

During the first six months of 2004, the Group operated in a business environment in which Europe, and Italy in particular, participated only to a limited extent in the upturn that characterized the global economy. Consequently, the Group’s results for the second half of the year should benefit from any acceleration in the European growth rate.

As for the individual Sectors of the Group, Fiat Auto’s performance should be aided by the contribution of its new models (new Fiat Multipla, Lancia Musa, Alfa Crosswagon Q4, Alfa Sportwagon Q4 and Fiat Panda 4x4), but automobile markets will continue to be characterized by intense competition and aggressive sales policies.

The highly successful launch of several new products should enable CNH to report good sales results in the second half of the year as well. The same should be true for Iveco, which is operating in a favourable market environment and can count on a solid order backlog.

Consistent with the presentation made by Sergio Marchionne, Fiat’s Chief Executive Officer, to the financial community at a meeting held in Balocco at the end of July, the Group is continuing to pursue a clearly defined strategy, focused on the automotive operations, and it is showing steady improvement.

Moreover, there is a strong possibility that all of the Group’s businesses can improve their operating performance, and we are doing our best to reach this goal, even though it has become necessary to revise the timings by which certain Sectors will attain their objectives.

In view of the above, the Group reaffirms its goals of attaining operating breakeven in 2004 (compared with a loss of 714 million euros in 2003) and of substantially reducing negative cash flow. These objectives will be achieved mainly thanks to the contributions of CNH and Iveco, which have already made significant progress. As for Fiat Auto, it is expected to attain operating breakeven in 2006 and report further loss reductions in the interim.

In order to facilitate the analysis of the results for the first half of 2004 and their comparison with the corresponding period of 2003, the most important transactions affecting the scope of consolidation of the Group in the first half of 2004, as compared with the same period in 2003, are illustrated below:

- On May 2, 2003, the agreement to sell the Toro Assicurazioni Group to the DeAgostini Group was signed and its operations were deconsolidated from that date.
- On May 27, 2003, as part of the agreement signed by Fiat and Capitalia, Banca Intesa, Sanpaolo IMI and Unicredito on March 11, 2003, and following approval by the competent authorities, the sale by Fiat to the Banks of a majority interest (51%) of Fidis Retail Italia was concluded. At that time, Fidis Retail Italia controlled part of the European activities of Fiat Auto Holdings in the field of retail consumer financing for automobile purchases. The sale to Fidis Retail Italia of the equity investments in the other financial companies covered by the agreement was finalized in October 2003.
- In execution of the contract signed on July 1, 2003 and after having met the conditions precedent, the sale of the aerospace activities of Fiat Avio S.p.A. to Avio Holding S.p.A., a company 70% owned by The Carlyle Group and 30% by Finmeccanica S.p.A., was finalized. Said activities were deconsolidated effective from the date of the agreement.
- In February 2004, 100% of the interest held in Fiat Engineering S.p.A. was sold to Maire Investimenti S.p.A. and the company was therefore deconsolidated as of the beginning of the year. At the same time, Fiat Partecipazioni S.p.A. subscribed to a capital increase at Maire Investimenti S.p.A. and now owns 30% of the capital of this company. On said 30% interest, both parties hold put and call options that are exercisable within three years at a predetermined price.
- Effective January 1, 2004, the Group consolidated Magneti Marelli Electronic Systems on a line-by-line basis following gradual acquisition of actual control over this strategic supplier of Fiat Auto and other automotive groups. In 2002 this business had been sold to the Mekfin Group, which in turn sold it to the Ixfin Group. So that the company would punctually respect the commitments it had made to its customers and continue pursuing its growth strategies, an agreement was initialled at the end of 2003 between the Ixfin Group and the Fiat Group, on the basis of which Magneti Marelli, pursuant to an agreement providing for an usufruct on the Company’s voting shares, started becoming increasingly involved in management of the Electronic Systems activity in 2004. Finally, on July 28, 2004 the Fiat Group decided to acquire full ownership thereof by exercising a call option. To allow a meaningful comparison with prior period data, the figures for the first half of 2003 used in the analyses presented in the following pages have been prepared on the basis of the so-called "continuing operations", i.e. excluding data of companies that were sold in 2003 (the Toro Assicurazioni Group, FiatAvio, Fraikin, IPI, Fidis Retail Italia and Fiat Auto’s retail financing activities in Brazil).

It should be noted that in the first half of 2003 the continuing operations included Fiat Engineering, that was deconsolidated effective January 1, 2004 and had reported revenues of 159 million euros and operating income of 7 million euros in said period.

Figures for the first half of 2004 include 240 million euros in revenues generated by the Electronic Systems business unit as well as an operating income of 6 million euros.

Net revenues

- Fiat Auto posted net revenues of 10,462 million euros in the first half of 2004, compared with 10,149 million euros in the first six months of 2003, including 9,780 million euros for continuing operations. Thus, on a comparable basis, the improvement was 7%. A total of 929,800 units were sold in the first half of the year, up by 7.2% overall compared with the first half of 2003.

In Western Europe, the Sector sold 641,000 vehicles, up 1.4% compared with the first half of 2003. Revenues were positively impacted by sales of models launched in the last part of fiscal 2003 and the beginning of 2004 and by overall market growth. In the Sector’s principal markets, sales were up in Spain (+12.4%) and Great Britain (+4.2%), in contrast with decreases in France (-7.5%) and Germany (-2.2%), due in part to softness on local markets. Sales in Italy remained at the same level of the corresponding period last year. In Western Europe, the Sector’s market share increased by 0.1 percentage points to 7.6%; in Italy, the Sector’s share was 28.4%, up by 0.7 percentage points with respect to the same period of 2003.

Outside Western Europe, sales volumes increased strongly in Poland (+30%) and Brazil (+16.2%), increasing at a rate higher than the growth in demand on both markets.

- CNH posted revenues of 5,059 million euros in the firs t half of 2004, up by 5.4% compared with the first half of 2003, notwithstanding the negative foreign exchange effect caused by the strengthening of the euro. On a comparable exchange basis, the improvement would have been approximately 11%, thanks mainly to the strong sales performance posted in America and higher prices.

In the agricultural equipment segment, sales volumes increased significantly during the first half of 2004 on both the North American market, where volumes expanded faster than demand, and in the South American market, where they were in line with the high rate of growth. Sales contracted in Western Europe due to weak demand, particularly for combine harvesters, while Sector sales elsewhere in the world improved, albeit at a rate slower than market trends.

Construction equipment sales posted strong increases in North America, in line with market performance, which was especially brilliant in the heavy-range segment, and in Latin America. On the other hand, they contracted sharply in Western Europe due to a soft market for light-range equipment, while heavy-range equipment sales expanded.

- Iveco posted revenues of 4,539 million euros in the first half of 2004, up 8.7% with respect to the 4,175 million euros posted in the corresponding period of the previous year reflecting an increase in sales volumes and higher prices.

Overall sales totalled approximately 79,200 units, up 7.2% with respect to the first six months of 2003. In Western Europe, Iveco sold approximately 63,200 vehicles, with an increase of 4.2% with respect to sales in the first half of 2003, thanks to buoyant demand. The most significant changes were reported in France (+17.8%), Germany (+5.5%), and Spain (+5.4%), while a decrease of 2.3% was posted in Italy, influenced by market performance for certain types of vehicles. The Sector also reported strong sales growth in Latin America, due to recovery on the local market, and in Eastern European countries.

- Ferrari – Maserati posted revenues of 735 million euros in the first half of 2004, up 17.8% with respect to the corresponding period of 2003. This increase is attributable to an increase in sales volumes for both brands. The 360 Challenge Stradale and 612 Scaglietti models made a significant contribution at Ferrari, which started selling the latter model in March 2004. Maserati sales grew strongly thanks to the success of its new Quattroporte model, while the Coupé and Spyder models continued to suffer from competitive pressures.

- Magneti Marelli had revenues of 1,982 million euros, including 240 million euros in revenues for the Electronic Systems business unit that was consolidated by the Sector effective January 1, 2004. Excluding the impact of this component and of the negative foreign exchange effect, revenues would still be up by approximately 10% with respect to the first half of the previous year, thanks to higher levels of activity for all business lines. In particular, the Engine Control business unit performed well, benefiting from sales of the diesel system that was introduced in 2003.

- Comau posted revenues of 765 million euros, a decrease of 29% with respect to the 1,082 million euros recorded in the first half of 2003. This decrease is attributable in part to the sale to Fiat Auto and Fiat-GM Powertrain of the respective Dies and Service activities. The Bodywork business unit also reported decreases in contract work in Germany and the UK, in addition to the decrease in contract work on the NAFTA market, due to the low level of outstanding orders at the beginning of the year and the lower dollar-euro exchange rate.

- Teksid had revenues of 466 million euros in the first half of 2004, an increase of 6.2%with respect to the 439 million euros recorded in the first half of 2003, due to higher sales volumes. The Cast Iron business unit reported higher volumes (+11.5%) taking advantage in particular of higher demand mainly in North America and Brazil. The Magnesium business unit also recorded a significant improvement (+11%) due to the positive sales performance in North America as well as to expanding demand in Europe where the Sector availed itself of the output of a new plant located in the United Kingdom that started production during 2003.

- Business Solutions had revenues of 769 million euros in the first half of 2004, down by 18% from the corresponding period of 2003, as a consequence of changes in the scope of operations (principally the sale of Fiat Engineering, which was only partially offset by the consolidation, starting from January 2004, of the activities of the telephony company Atlanet). On a comparable basis, revenues were down 1.4% mainly as a result of lower levels of activity in the ICT segment. Captive customers accounted for approximately 51% of the revenues reported in the first half of 2004.

- Itedi posted revenues of 221 million euros in the first half of 2004, an increase of 16.3% with respect to 190 million euros of the first half of 2003. This improvement is mainly attributable to higher advertising revenues resulting from new advertising contracts booked by Publikompass as well as to brand extension initiatives.

The Operating loss improved markedly, from a loss of 367 million euros in the first half of 2003 to a loss of 140 million euros in the first half of 2004. The recovery is even more apparent if compared with continuing operations alone, which reported an operating loss of 543 million euros in the first half of 2003. The operating income of CNH, Iveco and Magneti Marelli increased, while the loss at Fiat Auto contracted.

Operating Performance and Financial Position of the Fiat Group and of Fiat S.p.A. in the First Half of 2004

- Fiat Auto closed the first half of 2004 with an operating loss that, at 474 million euros, was smaller than both the loss reported in the same period last year (568 million euros) as well as that reported by continuing operations (656 million euros). Sales of new models led to an improved product mix and higher sales prices. The result for the period also benefited from the contribution of higher volumes in countries outside Europe and the savings realized on product costs due to ongoing streamlining measures, which were offset in part by the effects of the well-known labour unrest at the Melfi site.

- CNH reported operating income of 229 million euros in the first half of 2004, an improvement of 124 million euros from the first half of 2003. This sharp improvement was made possible by a significant increase in volumes and higher sale prices, obtained in both the agricultural and construction equipment segments, as well as by savings on product costs.

- Iveco significantly improved its operating income, which totalled 147 million euros in the first half of 2004, as compared with 22 million euros in the first half of 2003. This sharp improvement resulted from the positive volume/price effect, and major efficiency gains realized on all the components of product costs.

- Ferrari - Maserati closed the first half of 2004 with an operating loss of 59 million euros against an operating loss of 16 million euros in the first half of 2003. This lower result was mainly caused by the negative foreign exchange effect and higher R&D and advertising expenditures for new models, which were not offset by the positive volume/mix effect.

- Magneti Marelli recorded a significant improvement in profitability, moving from an operating income of 3 million euros in the first half of 2003 to an operating income of 43 million euros in the first half of 2004. This result benefited in particular from material and overhead cost containment initiatives and the positive effect of higher volumes, notwithstanding strong price pressures. The consolidation of the Electronic Systems business unit made a positive contribution of 6 million euros to the operating result.

- Comau recorded an operating loss of 3 million euros, an improvement with respect to the operating loss of 7 million euros recorded in the first half of 2003, as a result of improved margins which made it possible to offset the negative effect of an overall drop in revenues.

- Teksid closed the first half of 2004 with operating income of 16 million euros, against operating income of 5 million euros in the first half of 2003. The improvement was realized thanks to efficiency gains on costs and the effect of higher sales volumes, offsetting the negative impact of higher raw materials costs and the foreign exchange effect.

- At Business Solutions, operating income during the first half of 2004 was 15 million euros, against 17 million euros in the first half of 2003. On a comparable basis, the comparison instead shows an improvement of approximately 14 million euros, spread out amongst all the principal areas thanks to the benefits deriving from efficiency gains.

- Itedi had operating income of 9 million euros in the first half of 2004, up by 4 million euros from the first half of 2003. The growth benefited from higher margins at Publikompass (correlated to higher earnings) and the lower cost of paper.

In the first half of 2004, Group EBIT was a negative 224 million euros, against a loss of 146 million euros in the first half of 2003 (-237 million euros for continuing operations alone). The net gains deriving from sales of discontinued operations totalled 487 million euros in the first half of 2003 (390 million euros of which for the sale of the Toro Assicurazioni Group) and 60 million euros (sale of Fiat Engineering) in the current half-year period. The comparison with continuing operations net of these gains shows an improvement of 440 million euros, virtually in line with the improvement reported in the operating result.

Net Income from Equity Investments totalled 39 million euros in the first half of 2004, against net investment income of 27 million euros for continuing operations in the corresponding period of 2003.

In the first half of 2004, the balance of non-operating income and expenses was negative by 123 million euros and mainly included restructuring costs and provisions, which were only partially offset by the net gain (60 million euros) realized upon sale of Fiat Engineering and sale of the direct investment in Edison (32 million euros).

In the first half of 2003, the net non-operating income of continuing operations totalled 279 million euros and included, in addition to the aforementioned gain upon sale of the Toro Assicurazioni Group, the gains on the sale of the Brazilian retail financing activities of Fiat Auto and IPI, which were partially offset by the residual loss on the sale of Fraikin and other non-operating costs and provisions.

The Group’s loss before taxes in the first half of 2004 was 407 million euros, compared with a loss of 570 million euros in the first six months of 2003 (the loss before taxes of continuing operations amounted to 749 million euros). This result reflects the improvement in EBIT mentioned above and lower financial expenses.

Net financial expenses in the first half of 2004 totalled 183 million euros, against 512 million euros for continuing operations in the first half of 2003 (-424 million euros at the consolidated level). Excluding the net effect of a non-recurring income of 291 million euros deriving from the termination of the Equity Swap on General Motors shares, the improvement during the period was largely attributable to the lower level of average indebtedness and lower interest rates.

The net loss in the first half of 2004 was 669 million euros, compared with a loss of 737 million euros in the corresponding period of 2003. The net loss of continuing operations was 820 million euros in the first half of 2003. This improvement was caused by the reduction in the loss before taxes which was in part offset by the higher tax burden.

Income taxes totalled 262 million euros in the first half of 2004 and included 67 million euros for IRAP (the Italian regional tax on production activities). In the corresponding period of 2003, income taxes for continuing operations totalled 71 million euros, including approximately 46 million euros for IRAP. The increase with respect to the corresponding period of 2003 is due to the increase in the results of CNH, Iveco, Teksid, and Magneti Marelli that are taxable abroad and the effect, in 2003, of tax credits on dividends.

Group interest in net loss in the first half of 2004 was 658 million euros, against 708 million euros in the corresponding period of 2003.