Standard & Poor's announcement

We see weakening demand in Europe's oversupplied mass vehicle market, particularly Italy's, as likely to pressure Italy-based Fiat SpA's profits and cash flow.

We are placing our 'BB' long-term and issue ratings on Fiat and its senior unsecured debt on CreditWatch with negative implications. We will resolve the CreditWatch after we have assessed the risks and mitigating factors following the publication of the first audited financial statements consolidating Chrysler and receipt of updated information on operations and strategies.

On Feb. 6, 2012, Standard & Poor's Ratings Services placed its 'BB' long-term corporate credit rating on Italy-based Fiat SpA (Fiat) and the 'BB' issue ratings on the company's senior unsecured notes on CreditWatch with negative implications. The 'B' short-term rating has not been placed on CreditWatch and is unaffected by this rating action.

Rationale

We have observed substantial overcapacity in the European mass market, especially in the Republic of Italy (unsolicited ratings, BBB+/Negative/A-2), Fiat's second-largest market, coupled with weak demand due to Italy's austerity measures to deal with Italy's fiscal pressures and consumer fears of their impact. Standard & Poor's believes this environment will cause Fiat's European operating performance to deteriorate in 2012. Concurrently, Brazil, Fiat's strongest market, is the site of increasing competition that has eroded the company's leading market share. Resolution of the CreditWatch will incorporate Standard & Poor's view of how severely these conditions will affect Fiat and the extent to which new products, cost cutting, and other measures by management can mitigate the negative impact. A downturn in operating profitability and cash flow could result in significant cash outflows, given new model launches and other investments that we understand are planned or underway. The European and Brazilian markets are particularly important to Fiat's credit quality, because the recent relative strength of its 58.5%-owned and consolidated North America-focused Chrysler Group LLC unit (B+/Stable/--) benefits Chrysler's creditors before Fiat's. Conversely, increasing industrial and strategic integration of Fiat with Chrysler may cause the business or financial risk of the companies to converge over time. Fiat will also become subject to a cross-default being declared with Chrysler when the latter becomes a material subsidiary and is consolidated into the 2011 audited financial statements. Standard & Poor's ratings on Chrysler are not on CreditWatch.

Liquidity

We view Fiat's current liquidity situation as "adequate", although our review of the CreditWatch status will consider the extent to which liquidity at Chrysler is available to Fiat SpA, given Chrysler creditor agreements that limit Fiat's access to Chrysler's liquidity. A downturn in trading profits could cause material cash burn, but this will be evaluated in the context of substantial available cash and credit facilities when resolving the CreditWatch.

Recovery analysis

The senior unsecured debt issued by Fiat Finance & Trade Ltd. and Fiat Finance North America Inc. is rated 'BB', in line with the corporate credit rating on Fiat, and is also on CreditWatch with negative implications. The recovery rating on this debt is '4', indicating Standard & Poor's expectation of average (30%-50%) recovery in the event of a payment default.

CreditWatch

Standard & Poor's aims to resolve the CreditWatch placement within the next 90 days after analysis of the first full audited financial statements that consolidate Fiat and Chrysler, with a particular focus on the cash flows and liquidity available to Fiat SpA to service its obligations. We will hear from management its plans for addressing Fiat's key challenges, particularly: excess capacity; weak demand; severe competition; and a difficult labor environment in Italy. The most likely outcome when we resolve this CreditWatch is a lowering of the long-term rating by one notch to 'BB-'. A two-notch downgrade is less likely, unless it becomes clear that Fiat's and Chrysler's risk of default is more integrally linked than we have so far assessed it to be. An affirmation of the long-term rating at 'BB' is similarly a less likely outcome. During our review, we will determine and define what we believe to be the most meaningful credit metrics for measuring Fiat-Chrysler group's credit quality at the Fiat SpA level, taking into account the group's structure and industrial integration, creditor agreements, and disclosure that we expect to see in the future.