Moody's was concerned that Fiat and Chrysler's marriage means they will have " to support each other in the event of financial difficulty," as well as citing Fiat's failure to invest in sufficient new models in Europe and growing pressure in Brazil from rivals where it earns its greatest profits.

"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 yesterday.

The downgrade, which pushes up the cost of borrowing for Fiat, comes during a bad recent run for the carmaker. Two day's ago Sergio Marchionne said that he is targeting a breakeven of Fiat's European operations by 2014, as a slowdown in Fiat's key markets takes their toll combined with ageing models and a chronic lack of investment in new products. He also said raising the Chrysler Group stake (currently standing at 53.5 percent and set to trigger up to 58.5 percent by the end of the year) has been put on hold, as has raising cash through a partial IPO of the Ferrari division.

"We have actually dropped forecasts for 2011 car sales in Italy,” Marchionne was reported as saying by Bloomberg during an interview in London. He added that the new austerity cuts being pushed through by the Italian government as it tries to reduce public spending, "will ultimately impact 2012 [sales] volumes" although he noted that "Northern and central Europe is doing relatively well."

Moody's pointed to Fiat's lack of new model introductions compared to its competitors as being part of the reason for the carmaker's European slump. Fiat's cupboard is relatively bare and while its latest new model, the third-generation Panda, is now getting ready to arrive in the showrooms after debuting in Frankfurt last week, for the first time it faces a serious challenger for the A-segment top spot in the shape of VW's new keenly-styled Up! which also premièred in Germany last week. Frankfurt also saw the most recent business plan for Fiat's Alfa Romeo division torn up with one proposed model cancelled and several - including the crucial D-segment 'Giulia' sedan - pushed even further back into the future. The replacement plan outlined at a conference on the sidelines of the show by Alfa Romeo CEO Harald J Wester showed little coherence and it is unclear how the sports brand's future will unfold.

Its been a dismal year for the Fiat Spa in Europe. After the first eight months of the year the European (EU27+EFTA) new passenger car market is very slightly negative overall (-1.1 percent) while Fiat Spa with 667,096 sales combined across its brands is down by 12.5 percent on the same period last year. That leaves the Italian carmaker right at the bottom of the pile in year-on-year performance terms: the next worst performer amongst the big groups exposed across Europe is Renault, it's down 10.0 percent on the same period last year. Fiat Spa's market share for the year-to-date has shrunk from 8.2 to 7.3 percent year-on-year.