The Board of Directors of Fiat S.p.A. met today in Turin under the Chairmanship of Luca Cordero di Montezemolo to review the consolidated results of the Group for the third quarter and first nine months of 2005.

• TRADING PROFIT UP SHARPLY TO € 232 MILLION, AGAINST A TRADING
LOSS OF € 30 MILLION IN Q3 2004, ON LARGELY STABLE REVENUES, UP 2% AT € 10.6 BILLION
• NET INCOME OF € 0.8 BILLION
• NET INDUSTRIAL DEBT HALVED TO € 4.7 BILLION, THANKS TO CONVERSION OF THE MANDATORY CONVERTIBLE LOAN (€ 3.0 BILLION) AND COMPLETION OF THE ITALENERGIA BIS TRANSACTION (€ 1.8 BILLION)
• SOLID CASH POSITION OF APPROXIMATELY € 6.0 BILLION AFTER € 1.2
BILLION BOND REIMBURSEMENT IN THE QUARTER
• TRADING LOSS OF THE AUTO SECTOR AT € 85 MILLION, SLASHED BY OVER TWO-THIRDS COMPARED TO Q3 2004
• ON TRACK TO ACHIEVE 2005 GROUP TARGETS

The Group

In Q3 2005, all of the businesses of the Fiat Group continued to improve their performances. Revenues totalled € 10.6 billion, reflecting the typical negative seasonality associated with Q3. The Group achieved a slight (+2%) increase in revenues over the comparable 2004 quarter despite the impact of announced new model launches (Fiat Grande Punto and Alfa 159) on sales of existing products.

Group trading profit was € 232 million, compared with a loss of € 30 million in Q3 2004. The € 262 million increase in trading profit was due to a € 197 million reduction in trading losses at Fiat Auto combined with positive performance of all other industrial Sectors. CNH improved its trading profit by € 21 million, from € 112 million to € 133 million, Iveco by € 28 million, from € 74 to € 102 million, and Components and Production Systems by € 21 million, from € 56 to € 77 million. Fiat Auto reduced its trading loss by more than two-thirds, from € 282 million in Q3 2004 to € 85 million this quarter; this sharp drop, and the expected benefit to Q4 results from the contribution of the new car models launched since September, underscores that the Sector is on track to achieve its 2005 targets.

Group Q3 2005 results benefited from non-recurring income, including the gain realized on sale of the investment in Italenergia BIS (€ 878 million) and unusual financial income of € 858 million related to the capital increase of September 20, 2005 following conversion of the Mandatory Convertible Loan. The result for the quarter also absorbed € 420 million in restructuring charges and other unusual costs (€ 284 million) connected with the Group’s ongoing reorganization and rationalization processes.

Net income for the quarter was € 0.8 billion. On a pro forma basis, net of unusual items (chiefly the gain on Italenergia BIS and the Mandatory Convertible Loan, restructuring charges and other unusual items) and assuming conversion of the Mandatory Convertible Loan and closing of the Italenergia BIS transaction as at July 1, 2005, net income for the quarter would have been € 14 million. Net industrial debt decreased during the period by € 4.5 billion (€ 4.7 billion in the first nine months of 2005), chiefly reflecting reimbursement of the Mandatory Convertible Loan and of the financial indebtedness related to the Italenergia BIS transaction. The Group’s cash position at September 30 was approximately € 6.0 billion, substantially unchanged from the December 31, 2004 level, after reimbursement of € 1.2 billion in bonds in Q3 2005.

Automobiles

Fiat Auto had revenues of € 4.3 billion, a slight 0.6% increase from Q3 2004. Improved product mix and the positive foreign exchange effect stemming from sales in Brazil and Poland effectively offset lower volume. Sales were impacted by intense competitive pressure and a slowdown in sales of existing models ahead of upcoming new product launches. In the second half of September, the Italian public was offered a first opportunity to get acquainted with the new Grande Punto through a series of open-door events that attracted over one million people into Fiat dealerships. The new model is currently going on sale throughout the key European markets. A total of 35,000 orders have now been received for the Grande Punto. Similarly, the new Alfa 159 went on sale in late September. The Alfa Brera, Panda SUV, and the larger Fiat SUV Sedici will be presented to the international press in November.

Among the key automobile markets for Fiat Auto, Western European demand rose by 2.2% in the quarter, with Italy up 4.8%, while Brazil rose by 8%. By contrast, the market contracted sharply in Poland, where new vehicle registrations fell by 12.9%. In this context, Fiat Auto delivered a total of 378,700 vehicles, down 5.9% from the same period of 2004. Unit sales decreased in all major European countries (-6.1% in Italy), with the exception of France, where they were up 5.8%, and Spain, where they were unchanged. Deliveries also fell in Poland, while Fiat unit sales outpaced the market in Brazil (10.4% against 8%), lifting market share from 24.5% to 24.8%. The market share of Fiat Auto during the quarter was 27.7% in Italy (28.0% in Q3 2004) and 6.1% in Western Europe (6.9% in Q3 2004). The performance of Commercial Vehicles remained very strong, with a 10% share of the European market and over 40% of the Italian market. Fiat’s share of the Italian commercial vehicle market increased from 41.8% to 42.7% in the first nine months of the year.

In the third quarter of 2005, Fiat Auto had a trading loss of € 85 million, a two-third reduction compared to the € 282 million trading loss posted in Q3 2004. This improvement, achieved in the face of lower volumes, underscores the effectiveness of the sector’s operational strategy, which focuses on higher margin retention due to a more favorable product mix and greater use of more profitable sales channels. The trading performance also benefited from reduction in product and governance costs, as well as streamlined R&D.

Maserati had revenues of € 114 million in the third quarter, up sharply (+37%) from the same period in 2004. The improvement stemmed from higher volumes, thanks to the success of the Quattroporte and sales of the special MC12 highway models. The trading loss of Maserati was € 10 million, as compared to a loss of € 13 million in Q3 2004. The improvement was the result of higher volume and a better sales mix, more than offsetting the negative foreign exchange effect.

Ferrari posted revenues of € 302 million. The significant improvement from the same period of 2004 (+18%) is attributable to the success of the new F430. During the period, sales totaled 1,206 units, a 28% increase from Q3 2004. Ferrari closed the quarter with a trading profit of € 42 million, up € 12 million from the Q3 2004 level. The increase reflects higher sales volumes and efficiency gains, offsetting negative foreign exchange effects.

Fiat Powertrain Technologies, the new Sector encompassing all Group engine and transmission activities, posted revenues of € 670 million in the quarter. (Reported data for 2005, relates only to passenger car engines and transmissions). Production was partially allocated to the Automobile Sector of the Group, while sales to third parties totaled € 137 million. Trading profit was € 9 million.

Agricultural and Construction Equipment

In the third quarter of 2005, CNH revenues totaled € 2.5 billion, virtually unchanged from the Q3 2004 level, as lower agricultural equipment volume was offset by higher sales of construction equipment. These results reflect diverging trends in CNH’s two reference markets. During the quarter, the world agricultural equipment market remained stable overall, as lower demand in America and Western Europe was offset by higher demand in the rest of the world. By contrast, the world construction equipment market was up 13%, with increases in lightrange equipment in virtually all countries. Sales of heavy equipment rose sharply in all world markets with the exception of Western Europe, where demand was unchanged.

In the third quarter of 2005, CNH recorded trading profit of € 133 million, up from € 112 million in Q3 2004. Higher sales of construction equipment, improved pricing, cost efficiency gains and greater profitability in financial services more than offset higher raw material prices and lower volume in agricultural equipment.

Commercial Vehicles

Iveco had revenues of slightly over € 2 billion in the third quarter of 2005, up by 1.6% compared to Q3 2004; industrial activities were up 3.2%. The commercial vehicle market in Western Europe remained positive during the period, expanding by 3.7%. Higher demand, recorded across all market segments, was particularly strong in the heavy vehicle segment, up by 9.2%. Demand for heavy trucks was up in all countries, notably France and Spain, with the sole exception of Italy, where the market remained stable.
 

In the third quarter, Iveco delivered a total of 37,600 vehicles, up 4.5% over Q3 2004. Iveco posted a trading profit of € 102 million in the third quarter. The € 28 million improvement compared to Q3 2004 primarily reflects higher volume and pricing, offsetting the increase in raw materials costs and a less favorable geographical mix. During the period, the powertrain activity produced 96,800 engines (+3%), generating revenues of € 533 million, 56% of which represents deliveries to the Commercial Vehicles Sector. Trading profit of the powertrain activity was € 15 million, against € 16 million reported in Q3 2004.

Components and Production Systems

Magneti Marelli had revenues of € 923 million. The 5.7% increase compared to Q3 2004 partly reflected inclusion of Mako, a company consolidated since January 1, 2005. On a comparable consolidation and foreign exchange basis, revenues increased by 2%. During the period, the strong performance of Magneti Marelli operations in Brazil and Poland enabled it to offset lower sales volume in Italy.

On a comparable scope of consolidation, the trading profit of
Magneti Marelli was in line with that of Q3 2004 (€ 36 million), as higher raw material prices were offset by wideranging efficiency gains. During the quarter, the powertrain activities of the Sector had revenues of € 182 million, up 8% over Q3 2004, and a trading profit of € 8 million, down from € 13 million in the comparable 2004 quarter. Teksid had revenues of € 252 million, up 17% from Q3 2004, reflecting higher pricing to absorb the increase raw material costs, as well as positive foreign exchange impact and higher volumes. Both the Cast Iron Business Unit, with a 2.9% increase in volume, and the Magnesium Business Unit, up 2.3%, contributed to the positive result. The increase in contract work at Teksid during the first nine months of the year was satisfactory. Teksid recorded a trading profit of € 14 million.

Comau posted revenues of € 422 million. Compared with the third quarter of 2004, the 4.1% drop stems from the transfer to Iveco, Magneti Marelli, and CNH of Comau’s European service activities. Net of changes in the scope of consolidation, Comau revenues rose by 10% during the quarter, due to strong performance of the Car Bodywork and Maintenance areas. Comau’s trading profit rose an impressive € 15 million to € 25 million in the third quarter of 2005, as the company began to benefit from the restructuring and cost-reduction plans implemented by its North American operations, in particular.

Other Businesses

Business Solutions had revenues of € 206 million in the third quarter, down 16.3% from Q3 2004. The decrease stemmed partly from the sale of the temporary employment agency Worknet. On a comparable basis, the decrease in revenues was approximately 8%, reflecting lower activity in the administration area, following redefinition of the services provided to Group companies. The trading profit of Business Solutions was € 13 million during the period, up from € 9 million in Q3 2004. The increase primarily reflects efficiency gains.

Itedi had revenues of € 83 million. The 2.5% increase from Q3 2004 resulted mainly from higher advertising revenues achieved by Publikompass. During the third quarter of 2005, a traditionally weak period in the seasonal advertising market, Itedi had a trading loss of € 3 million, against a loss of € 2 million in Q3 2004. The decline reflects costs incurred for promotional activities, which are expected to have a positive impact in the final months of the year. The result of residual activities, together with eliminations and consolidation adjustments, shows a decrease of € 32 million in the third quarter, mainly due to lower volumes for the “High Speed Railway” (TAV) project contract, the different mix of services provided by Group Sectors, and higher consolidation adjustments.

Group results during the first nine months

In the first nine months of 2005, Fiat Group revenues totaled € 33.4 billion, substantially in line with revenues achieved in the corresponding period of 2004. Revenues were impacted by the lower automobile demand in Europe – and notably in Italy – in the first half of the year, as well as slower sales of existing products ahead of now model launches. The Group’s trading profit more than tripled, rising from € 175 million to € 639 million, thanks mainly to the good results achieved by CNH and Iveco and the strong improvement posted by Fiat Auto, which more than halved its trading loss.

Fiat Group Financial Highlights

Net income before minority interests was € 1.3 billion, against a loss of € 1.0 billion in the first nine months of 2004. The improvement reflects growth in trading profit as well as the positive contribution from the General Motors settlement (€ 857 million net of taxes), the gain on the Italenergia Bis transaction (€ 878 million), and the one-off financial income connected with the conversion of the Mandatory Convertible Loan (€ 858 million), net of restructuring charges amounting to € 502 million and other unusual costs for € 318 million.

Net industrial debt was halved from € 9.4 billion to € 4.7 billion due to conversion of the Mandatory Convertible Loan (€ 3.0 billion) and the financial indebtedness related to the Italenergia Bis transaction (€ 1.8 billion). The cash position of the Group at September 30, 2005 was approximately € 6.0 billion, largely unchanged from the December 31, 2004 level, after reimbursement of bonds for € 1.6 billion.

Full-year outlook

In the first nine months of the year, the Fiat Group and all of its main Sectors sharply improved their operating performance and financial results. Consequently, Fiat is on track towards achieving its stated targets. Since the beginning of the year, the Group also succeeded in finding optimal solutions to pending financial issues. With net stockholders’ equity of approximately € 9 billion and net industrial debt of less than € 5 billion, Fiat can now focus on its manufacturing infrastructure, distribution networks, and product offerings, with the support of its main shareholder, which in recent weeks chose to maintain and strengthen its commitment to the Group.

In particular, Fiat Auto drastically reduced its losses, while introducing a host of new models that have been very well received by customers. As part of its aggressive program to renew its product range, Fiat is planning on launching 20 new models and restyling an additional 23. Between 2005 and 2008, Fiat will invest € 10 billion to support this plan, including € 4 billion in R&D. So as to further strengthen the Automobile Sector, Fiat continued to seek strategic alliances with major partners. Fiat recently signed two memoranda of understanding, with Ford and with the Indian group Tata Motors Ltd, to study collaboration opportunities. The talks with Ford are aimed at assessing the feasibility of jointly developing two new vehicles in the small car segment (the future Fiat 500 and the successor to the Ford Ka), while the agreement with Tata would focus on broader cooperation in the automotive arena, including development, manufacturing, components, purchasing and distribution. In October, Fiat signed a letter of intent with Suzuki Motor Corporation (SMC) to study the feasibility of licensed manufacture of the new Euro 5-compliant 2.0 JTD Multijet diesel engine, developed by Fiat Powertrain Technologies. Production of the new engine will start in Italy in 2008, and pursuant to the letter of intent, manufacturing in Asia could commence in 2010, with a targeted volume of approximately 100,000 units.

These agreements represent further steps in the alliance strategy implemented with PSA Peugeot Citroën and Tofas for the joint development and production of a light commercial vehicle, and with Suzuki to develop and manufacture an SUV that will debut in conjunction with the Turin Winter Olympics in Q1 2006.

Based on the promising results achieved to date, Fiat Auto can confirm its 2005 target of reducing its trading loss to approximately 1.5% of revenues. The other Sectors are proceeding with their own profit improvement plans, and charges have been booked in the third quarter to reflect the acceleration of their restructuring activities. The Fiat Group can therefore be cautiously optimistic about its future and confirms its 2005 targets.