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Executives

Marco Auriemma – Head, IR

Sergio Marchionne – CEO

Antonio Picca Piccon – Treasurer

Richard Palmer – SVP and CFO, Chrysler Group LLC

Analysts

Philippe Houchois – UBS

Alberto Villa – Intermonte

Jochen Gehrke – Deutsche Bank

Charles Winston – Redburn Partners

Martino De Ambroggi – Equita

Stephen Reitman – Société Générale

Stuart Pearson – Morgan Stanley

Max Warburton – Bernstein

Stefan Burgstaller – Goldman Sachs

Fiat S.p.A. (OTCPK:FIATY) Q2 2011 Earnings Conference Call July 26, 2011 12:00 PM ET

Operator

Good afternoon, ladies and gentlemen and welcome to today’s Fiat SpA 2011 Second Quarter Results and First Half Year Conference Call. For your information, today’s conference is being recorded. At this time, I would like to turn the call to Marco Auriemma, Head of Fiat SpA Investor Relations. Mr. Auriemma, please go ahead, sir.

Marco Auriemma

Thank you, Rita. Good afternoon to you all or a more likely good evening to most of you and welcome to Fiat 2011 second quarter results webcast and conference call. Our Chief Executive, Sergio Marchionne; and the Treasurer; Antonio Picca Piccon is in today’s call as usual. Also with us is Richard Palmer, the Chief Financial Officer of Chrysler.

They will use the material – you should’ve downloaded from our website fiatspa.com. And after these introductory remarks, we’ll be available to answer the questions you may have. Before moving ahead, let me just remind you that any forward-looking statements we might be making during today’s call are subject to the risks and uncertainties mentioned in the Safe Harbor statement language containing the presentation material. So now let’s turn the call over to Sergio Marchionne.

Sergio Marchionne

Thank you very much and good afternoon. I think that overall the quarter has been a significant quarter for Fiat for a couple of weeks and that’s one I think we’ve been able to improve operating performance of the underlying Fiat business, but more importantly it’s the first time that we are seeing the impact of prosper in the consolidated accounts for Fiat.

We had a lot of discussions internally as to whether we should be segregating the Fiat numbers from the consolidated numbers because of the fact that the – I guess the intention is to try and provide traceability of the result going back to the past. The reality is that right now, Fiat that’s sitting on a 53.5% shareholding of transfer. Hopefully, we get to 58.5 by the end of this year.

In the next few days, we will be announcing a new leadership structure. We’ll manage these businesses on a combined basis across the global network that Fiat Chrysler now is representing. So, it is nearly impossible I think to start looking at Fiat in terms of its past. We need to start looking at this in terms of what the consolidated entity be is doing especially when you think that in 2011, if I were to go back and include sort of the annualized results of Chrysler, Chrysler on its own on a trading profit basis, were making excess on what Fiat has been able to do on a standalone basis.

So, there’s been a significant shift in the configuration of Fiat SpA which – we now had a chance to look at some of the comments that have come across after we’ve – really stunning. I think to be perfectly honest, I think you’re underestimating the impact of what happened there. I realized that we only have one month with the result of Chrysler.

On its own earnings call, it’s confirmed guidance for the year. It’s going to be making about $2 billion worth of operating that number is in excess of the previously issued guidance by Fiat. And so the statement that we have made about the fact that we’re upgrading guidance goes beyond that technical issue as to whether we’ll consolidating data between the two organizations. I mean it’s a reflection of the combined earning capability of this group which is going to cost trading profit this year with seven months’ worth of price were in numbers of EUR2.1 billion as a minimum.

For those of you who’ve been following Fiat SpA historically, you might remember that the last time that we were able to post a number over EUR3 billion on a trading profit business was in 2008 and it was at the peak of the economic cycle before all hell broke loose in the second half for 2008.

That number, for those of you who chart all the number was the highest trading profit of Fiat in 109 years’ worth of history. Yesterday we’ve issued guidance for Fiat Industrial and we’ve targeted a minimum of EUR1.5 billion. It doesn’t take a lot this time to still add two numbers together and realized that a combined entity as post demerger. Produced now more in trading profit than we produced at the peak of the cycle back in 2008. But more importantly, we’ve ended up posting this guidance and these numbers with debt levels certainly at the end of June which are below what they were at the end of 2008.

And we haven’t spent an ounce of equity to try and get this organization to get what it is. It’s all been done under internally financed, acquisitions of the interest and out of internally financed development programs which are above the sales to where it is today. Some people may have run the numbers in terms of sort of adding the two organizations together and trying to find out what the impact of the consolidation may have been and you may have forecast for whatever reason, a number that resembles the one that we put together.

The thing that it ignores is the fact that the industrial reality there underlies the consolidation as real. And that this machine manner is operating in absolute unison in tandem with Chrysler. So, I think it may take a while. It may take a couple of quarters before I think this motion sets in when people start understanding the impact that this integration will ultimately deliver.

There’s a chart on Page 2, which I’m going to I mean I’ve already told you we’re sitting at 53.5. I’d see why we’ve always would not be at 58.5 by the end of this year. There are a number of call option rights that were granted to Fiat back in 2009 under the VEBA interest and follow it to acquire 40% over a period of time until 2016.

We laid these out not because of the fact that they’re an indication of intent on our part as to what we intend to do vis-à-vis VEBA. Our objective has always been to allow VEBA a proper exit to monetize the position and effectively fund the trust. We will do this in accordance with the agreement that we reach with VEBA which says that they cannot be accessed to the outside market until 2013. And so, this is on an immediate issue for us to try and deal with. So overall, I think that there are some certain things that have been granted to VEBA going forward which, in time, will guarantee at an exit of the price.

That’s all we really need to know. It’s a pressing issue for Fiat going forward today. I think that we are the only – together with them, we are the only remaining shareholders of Chrysler and I think that we will look of ways in which we can exit them from the position which is really they’re often rejected in the appropriate timeframe.

If you look at slide number 3 which deals with the consolidated results, 13 billion in revenues over 0.5 billion in trading profit for the quarter with our margins now on a combined basis of 4. As a result of this exercise with the call options, on the 16% of Chrysler the accountant requires that we step up as part of the consolidation exercise that we recognize the inherent gain that we’ve had. That’s given rise to roughly 2 billion unusual income number, which has been netted by a number one-offs which Antonio will take you through later on the presentation.

The net profit is going to be about 1.2 billion. The other important thing is on a net industrial debt basis we’re about 3.4 billion. We are below 1 billion for Fiat on a stand-alone basis. The rest of it is sitting within Chrysler, and the 979 million includes the disbursement for the (inaudible), I’m sorry I’m looking at – it includes – I’m looking at the note here, but it’s improving to 300 million before 881 million – 1.268 million cash. It includes the payment for the incremental call option.

Unidentified Company Representative

Yes, it’s included.

Unidentified Company Representative

A very bizarre way of expressing in English but it does include the disbursement.

On the liquidity side, we have EUR19.2 billion worth of cash in our balance sheet, and this does not include the recent issue which was closed in July 8 of two bond issuances totaling EUR1.5 billion. And so we have more than adequate liquidity to deal with all the capital expenditure profiles and whatever else the group might need. I think we have been consistent in the message both the Chrysler and within Fiat, what we consider to be adequate cash requirements for a business this size is anywhere between 15% and 20% of turnover.

That number would yield just based on raw calculations in excess of roughly EUR10 billion from the cash position that we have today. And so, over time, we will work that cash reserve down to a point where we feel adequate. I think we want to maintain certainly going forward adequate cash resources, especially as we move through this European issue, which I’ll spend some more time on as we go through the presentation.

Slide number 4, which is a summary of revenues and trading profit. Obviously, the bulk of the profit has come from the car side. This includes EUR150 million out of Chrysler but the Components business have posted a significant rebound from 2010. The Luxury & Performance brand have done well as we will discuss in a few moments. Well, more importantly, the underlying economic activity of the Component business has improved and we’re seeing the impact on the operating profit line of these businesses.

Slide number 5, which deals with raw material costs. We’re saying the headwinds on raw material prices, we’ve been able to contain and improve. Our purchasing position saved about 48 million in the first half of this year. We expect that number to hover around EUR80 million for the full year.

The Japan situation is subsiding. I think that we’ve made reference that we’re going to have a potential loss of anywhere between 10,000 to 15,000 units that will impact Q3 production. But I think we’re working back into a level of normality in Q4 and we continue to make progress on the WCM issue in terms of a world-class manufacturing initiatives and certainly, we’re totally in line in terms of the expected savings that we’ve set for the program.

Now, I’ll pass it on to Antonio who can deal with the next few slides and I’ll come back and deal with the business.

Antonio Picca Piccon

Sure. Thank you. In the next couple of slides are driving you to the P&L. First of all for the second quarter and then for the first half of this year on a pro forma basis. So, slide number 6 is basically showing you what happened during Q2 taking into account the P&L of Chrysler for one month only.

Below the trading profit line which has been amended before, we see accounted unusual items for a bit more than 1 billion on the total consolidated Fiat with Chrysler which have made also total charges of 200 – it’s been more than EUR200 million on Chrysler and basically resulting from the one-off charges on the evaluation of the inventories which is coming out from the purchase accounting upon consolidation.

While if you look at Fiat for the second quarter 2011, you’ll see utilizing of 1.3 almost which is made of gain on sales which I will comment to later on of EUR2 billion net of some unusual charges and, again, we will comment later on. I think the only remaining percent to comment here is financial charges which are basically better than last year. If you look at Fiat on a standalone basis and mainly is a consequence of depository behavior of some of the equity swaps in our books compared to last year. And the rest, I mean – meaning the, in terms of (inaudible) which was 99 in last year, we’ve netted the gains, the lower level of investment.

Slide number seven shows you on a pro forma basis the result of the first half of this year. I will not go through the unusual items again. I think all these comments I made before as two financial charges apply also to this construction of the first half. And what it’s probably more important to comment is it’s better than our pro forma basis the consolidated trading profit to be EUR1.6 billion made of slightly less than 1 billion on Chrysler and about EUR600 million on Fiat on a standalone basis.

Slide number eight explains what happened upon consolidation of Chrysler. Basically, taking into account the acquisition of the 16% to an exercise of the incremental equity call option and taking into account the potential voting rights arising from the possibility to acquire another 5% of Chrysler going on – going forward.

We have been deemed to have acquired control of Chrysler that’s going to IAS 27. From accounting standpoint, what actually to be done was first of all, definition of the fair value of the equity of Chrysler, which we are forced to consider based on the price paid upon exercise of this legal option and which resulted into a total value for the total equity of Chrysler of EUR8.3 billion, based on billion dollar.

Based on this and due to the accounting treatment upon consolidation, we recognize EUR2 billion and unusually income resulting from the re-measurement of the 30% ownership as we already had, and also, the 5% ownership interest upon achievement to the 3rd performance event.

On the same basis, the non-controlling interest of 54% as of today resulted into an evaluation of EUR3.1 billion, based on the same survey, you – of the total Chrysler’s equity. And finally, an evaluation survey, evaluation of assets and liabilities of Chrysler resulted in the recognition of goodwill of EUR9.2 billion. As a result of all of the above, Fiat’s consolidated equity increased by a total of EUR5.1 billion of which EUR2 billion related to income EUR3.1 billion to the non-controlling interest reevaluation.

Slide number nine, those are the breakdown of the unusual items. We already commented the one – the usual gains which is resulting to the re-measurement of the 30% ownership interest in Chrysler. We already commented when we went through the P&L, the unusual charge of about EUR200 million due to the impact of the immediate reevaluation of the inventories and then the declared charge to the P&L in consideration of their equity inventory turnover immediately in the month of June. The resulting total income net items are a bit more than EUR1 billion made of non-cash items or slightly more than EUR500 million and cash items related to less than EUR200 million.

Slide number 10 is about the cash flow of the company. Here, once again, we made an attempt to show what happened at the consolidated level and separately without taking into account the month of June for the for private standalone. I would start commenting Q2 for Fiat in a standalone basis.

Basically, the result of the management of this quarter was positive, basically mainly based on the behavior of the working capital and which net of the impact of CapEx generated to almost EUR400 million, then taking into account to disbursement for the 16% equity stake in Chrysler, the overall impact has become negative result in increase of lower net debt from slightly less than 0.5 billion end of March to less than 1 billion end of June.

As far as targeting is concerned and probably the column you’ll see the impact of consolidation which result in additional debt of EUR2.9 billion as of the beginning of the period, meaning on this May. And then we have a positive cash flow of about 0.5 billion and during the course of the month with regarding 2.4 net industrial debt at the end of June.

Unidentified Company Representative

If you can move on to slide number 12, there’s a lot of information and we’ll not be able to move the items on this charts line-by-line. I’m just going to give you some general comment, and then we can deal with details as you like on the Q&A. But it is absolutely clear that the European market is not in good shape. I think that we have seen levels of European side, as it says here that I’ve not been seeing since 1996.

This is, it’s a kind of situation of, particularly acute I think that the forecast for the year and I said this publicly on the second quarter call – on the first quarter call that we expect numbers around the 1.8 million mark plus or minus at 50,000, I think that that number is not going to materially change for the remainder of the year.

I think it reflects a weakness in the trading conditions on the car side which are pretty acute. And I know a couple of you have been interested in pricing conditions in the market. Clearly, I can tell you that the pricing conditions are not healthy. It is one of the reasons why I think we have been incredibly disciplined in terms of production to make sure that we have not engaged or are considered to be reckless.

Commercial practices but the trading conditions are not good, and we don’t expect to recover in any substantial way. Swinging the segments in which we’re active over the remainder of 2011. And the bright spot of all this is our activity in more commercial vehicles. I think we continue to perform incredibly strong in the sector. We have another quarter of recovery in Europe, which has been the fifth consecutive quarter of year-over-year growth. Fiat, like commercial vehicles, continues to perform incredibly well. And we expect the performance to continue unabated for the remainder of this year.

Brazil, the industry is strong. We spent the last three or four days here in Brazil reviewing operations and meeting with the respective boards of Fiat and Fiat Industrial. I think that second quarter demand is quite strong, as you can see from the chart. Volumes go up, nearly double digit in the first half of the year. I think we’re expecting that market growth to slow down in the second half of this year.

And our forecast for 2012, which is a question that’s been asked obviously because it is the single largest profit contributor to FGAs trading profit is that we still expect the market in 2012 to be up over 2011 in the range of 3% to 5%. So both light commercial vehicles continue to be bright spot together with Brazil, and that is expected to continue well into next year.

Slide number 13 Chrysler market share and where we are. And then there’s the typical propaganda on the slide. I’m making a comment on the marking on the side here with the fact that we have to highlight our strength in the Netherlands. I’m not sure that’s going to change the profit forecasted with all due respect to the Dutch.

But it tells you how difficult it is to find sort of a bright region in Europe that would encourage anybody to make great forecast for the remainder of the year. I think that we continue to make progress, as you have seen a couple of moments, we’re undertaking a major structural changes in the FGA side including the restructuring of design network which I think is slightly long overdue and it’s being executed as we speak now.

But as we cleaned up the Fiat portfolio with a number of new post coming off, the offering last year. I think that that we have maintained decent share, although I think margins, certainly in the European market is softer as a result.

Slide 14 is the positive side of Europe. It is the light commercial vehicles business, as you can see we’re 45.5% market share. In Italy, which is probably not merely – maybe historically high, and we continue to make progress in Europe with 14.4, it is the best European share that we’ve had.

And we continue to improve the product offering of the Ducato and the rest of the product offerings. I think the success of this vehicle and the ability for this thing to be commercially-viable expands beyond the European confines. We’ve had – even in Russia we’ve had good activity. This is part of the technology transfer with this vehicle probably being industrialized in Mexico for North and Latin American distribution.

Slide number 15 which deals with Latin America. It just says on here overall industry was about 15.4% to 860,000 vehicles for the quarter. We do see continued strength across both the passenger unlike commercial vehicle side. Market share continues to be strong, we’re at 22.6 and retaining market leadership in the growing market and these are all good signs.

And again over 200,000 shipments in the quarter which was nearly 7% up on the prior year. And we continue to improve on the product portfolio. I think that we are reviewing, had review for the last couple of days with prospective investment in Pernambuco. As you can see to the next slide, which is the expansion of our production capacity in Brazil, it is considered to be absolutely essential.

I mean so those of you and I think that we’re going to have to arrange for you guys to come down here and take a look at this facility because it is a unique facility in the world. It is the biggest car plant that I know of that makes 3,000 cars a day and which is almost – and if you look at the complexity of the industrial structure, the support that coming from and I think you would be absolutely amazed. And every time I came down here, I’m left with no option but to continue to complement the effort in here for the work that they’ve done both in terms of managing the industrial complexity associated with the operations here and maintaining market leadership in the country.

Argentina continues to perform well. Our activities in Cordoba and the production side are going well and they do supplement well the production capacity here but as it says on page 16, our prospects for the Brazilian economy going forward continue to quite strong with – I indicated back in April last year when we laid out the plan that we will be seeing volumes in excess of 4.5 million in the Brazilian market by 2014 based on what I’ve seen today, we’ll probably going to be in excess of that number by then and I think that will need to get ready with the right production facilities to try and accompany the growth of the Brazilian and Latin American market we’ll see over the next decade.

And so we’re going to make a substantial capital commitment to this country. I think it more than deserve a base when the operating profit that is generated and more importantly, on the cash generation of these businesses which have been crucial to the performance of Fiat as a group, historically and certainly going forward.

Slide 17 which deals with the Fiat brand. I mean we continue to maintain leadership in the A-segment. We have now introduced the first offering from the Chrysler Fierro line in terms of the Fiat Freemont. This is a vehicle that was developed with Dodge NAFTA Distribution which is now being distributed both in Latin America and Europe as a Fiat. The initial orders for that vehicle in Europe actually are incredibly good. We have seen more than 13,000 orders coming through for the vehicle. And to be honest, the numbers are in excess of what the U.S. requirements for those vehicle are. Canada, excepted.

Canada continues to like this vehicle very much and it continues to perform well in that market. And I think we’re beginning to see Europe catching up and giving additional volume to the production facilities here in Mexico. Deal would be the new B segment introduction by we’ve taken more than 15,000 orders to date. We’ve just recently launch, we intended to sell whole year basis, we figured about 120,000 vehicles a year.

I’m not going to try and sell you the car but it’s undoubtedly a significant improvement over its predecessor being a five-door vehicle, which was one of the biggest handicap over its predecessor.

Slide 19, the Giulietta continues to perform well as you can see this has reflected on the residual value that the car has assigned. This is a reflection of the level of technology and in the refinement of the architecture, which is at the heart of the C and D segment development year in the United States and which the is transfer to Chrysler as part of initial endowment of technology from Fiat to Chrysler.

Slide number 20 which deals with Jeep this is – as part of the relationships between Fiat and Chrysler, Fiat has undertaken the distribution of Jeep products in Europe. We had a very successful launch of the Jeep bran d in Europe I think and the number of product improvement have been brought about some of these viable competitors in European market especially the Grand Cherokee which has been launched in Europe as a diesel as 3 liter diesel is having a large degree of success and as you can see year-over-year performance – improvement in performance is significant.

If we can just deal with slide number 21 in a very brief way. We keep on showing this because we need to somehow to show what is happening at the European market. You can see that there has been in the post incentive regime you’ve seen a significant shift in product mix away from the lower end segments which had been historically incentivized to the mid-size and full-size segment.

And so this is an area we historically Fiat has not been very strong when it is an area which is the single-largest strength with the Chrysler organization we look at the heart of the American market and obviously as we continue to develop these two organizations together. We see the significant benefit will come from the prior development in the capabilities of Chrysler in helping us deal with these market opportunities in Europe.

I made reference on slide 22 already in what we’re doing in terms of Italian network. It is – it was announced in late June. We decided to deal with the long-term viability of the dealer network which in the phase of declining volumes as we’ve seen in 2011 as in stopped and in part, suffered. And so we need to be able to re-size the dealer network to deal with what we consider to be continuing market conditions in Europe and effectively expand this solid base for restarting their activities in a healthy economic fashion.

Slide 23 which deals with capacity utilization. You can tell from the chart that the Italian system is severely underutilized. We had 43% capacity utilization while the rest of Europe is at 82%, we actually, we’re at 37% in this quarter compared to 43%. In the prior year, that’s a declining number which reflects the decline in market activity in market volumes in the European side.

As you can see, what you see on the chart is what I’ve stated publicly and repeated on numerous occasions about what the objective is in terms of the restructuring of the Italian industrial framework. And some of you may have followed what has happened in terms of the negotiations that have gone on between Fiat and the various interested parties to the social discourse here.

But just the last event, which has triggered a lot of speculation about what Fiat may or may not do going forward, is associated with the judgment that was issued by an Italian court in Turin in connection with the agreement that was signed a number of months ago in connection with the plant in Pomigliano d’Arco, which is designed and slated to make the Panda and put it in production by the end of this year.

That investment has already left the bond so we are going to complete it and we’re going to continue to develop that vehicle regardless of what the outcome is ultimately of the clarification that is required to make some sense of the judgment that was issued.

But I just want to make a couple of comments about what Fiat’s view is of the current state of the public Italia program and where we intend to take it forward. Just to remind everybody including ourselves of the fact that as a result of the three labor agreements that was signed in connection with Pomigliano, with Mirafiori and with Grugliasco, the majority of the workers signed and agreed to a set of conditions that will guarantee Fiat the minimum requirements for governance of these plants and the driving of operational efficiency to the point where they could become competitive on a global scale.

To go back to what I’d said earlier about the fact that people are underestimating the impact of the consolidation of Chrysler within Fiat’s accounts. One of the things that’s fundamentally changed from what Fiat was two years ago to what Fiat is today is that its manufacturing footprint to Fiat’s own manufacturing plants and Chrysler’s manufacturing plants has fundamentally changed the optionality involved with utilization of events.

This is something that should not be underestimated. It cannot be underestimated because the Fiat of today on a combined basis is a four million car a year producer. And that’s a different story that we a vital organization or with either Latin America and Europe is being believed to abide and compete in the automotive market.

Fiat is not – it cannot dictate the timing of market conditions. This is an incredibly competitive sector in which we are required to compete as the market demands. It is not our option to choose that timing. Our only option that we have is whether we engage or not engage.

And so, we have come to the conclusion and we have repeated this in numerous occasions that the industrial reality that we need to manage to allow us to be successful cannot function in the face of industrial instability. It cannot be that the decisions that are made by the majority of the workers in which should been ratified by – it led us by all the parties involved and which have been supported by the majority above the union and the workers in this plant. It could not be that the majority – that view is overhauled by a very loud minority.

And so, regardless of the request that have been made directly and indirectly by that minority to reopen discussions of these contracts, the answer that it will not happen. Fiat will not engage in a re-discussion of the terms which have been agreed by the majority. I think it will be unfair to the course that we’ve gone through. It will be unfair to this organization given the optionality that it has in terms of making choices. These are the production allocation issues.

I think what Fiat means is a very clear indication by the system at large and the political side, the unions console that they share the commitment that we’re making to Fabrica Italia or the commitment that we’re making to the industrial network in Italy that says unquestionably, unequivocally that the terms and conditions of these agreements will be respected by all. And then, we will not enter at any point in time in discussions as to what the application of these rules entail. It could not be the case. We are now required to produce in any other part of the world.

The board that was here for the last two or three days has experienced firsthand what it’s like to run an organization that produces 3,000 cars a day in an undisturbed but in a very organized, very procedural, very rigorous fashion and allows the organization of this country to maintain leadership of the market.

This reality like the American reality that were developing like the other realities that Fiat has confronted and developed internationally are the stark contrast to the type of that alleged dialogue that is going on between us and the Italian counterparts. And that could not be the case. The issue is not with Fiat. Fiat has done much more than any rational economic player would be expected to do.

It has made an open commitment to this country to help it turn the corner on industrialization and move it on in terms of the modernization scale. It cannot do more. And so, if the system does not want Fiat to carry the song then fine. But Fiat will have to exercise options wherever it has them, but it will not engage in continuous re-negotiations of issues that have been decided and moved on.

And so, it will be regrettable. I think if the system in the Italian side were to abandon or not utilize this opportunity that is being offered. These things don’t happen every day. The Chrysler opportunity for Fiat was made available in 2009. We were courageous enough at that time to seize that opportunity. I think Italy has the same opportunity to join in the bandwagon. If they don’t want to do it, it’s fine. We’re moving on. Fiat is not threatened by that movement. Fiat is not going to be threatened into a position of submission. It won’t and it will exercise whatever option that is available to move it on.

Mr. Palmer, maybe you can talk to us about pricing.

Richard Palmer

On page 24, we have across the group sales performance for Q2, 486,000 units a 19% increase compared to Q2 2010 and as you can see right hand side, sales by market, all markets contributed with the U.S. and Canada driving 20% growth each. On the other side by brand, you can see that in particular Jeep had very strong growth as did Wrangler and Dodge, as all brands started to benefit from the launch of the 16 products that we made in the first half of the year.

The only brand with a negative number is Chrysler, as we continue to launch the Chrysler 300. But overall obviously is a good performance with all brands driving sales. If you go to page 25, you can see the two principal market, the US and Canada. The US market, in the quarter grew by 7% and Chrysler group sales grew by 20%, with a market share increase to 10.6% of a 120 basis points. And within that increase, very importantly retail sales increased by 36%.

And fleet sales actually was slightly down, as we pushed the launch of the new products in the retail channel improving our mix. Complete mix for the quarter was up 32%, down from 40% in the prior year. And Canada also had a 4% growth as a market. We actually had a 20% growth with market share increasing 200 basis points to 14.9%. Retail market share was up slightly above 200 basis points with Jeep and Dodge driving that growth.

Turning on to slide 26 which is probably the easiest slide in the deck which deals with Ferrari. They had an outstanding quarter again. The volumes are up, profits are up, I have really have nothing else to say about Ferrari. I mean, we could not expect them to do more. Other than perhaps win the F1 Championship which I think they are working very hard at right now. Having said this, as you know, this is a star performer. It has been now for awhile and continues to not to disappoint.

Maserati on slide 27 is also making good progress, notwithstanding the fact that we’re living off still a set of architectures ,which I think are in need of an upgrading. That was the opportunity that was given to Grugliasco plant in terms of playing in the revival of the extension on the Maserati plant. We will see how that develops, but obviously it is not of the action and hopefully by 2000 – the end of 2-12, we’ll be able to see new models that will be coming into the marketplace.

Slide 28, which deal with the components businesses of Marelli. Marelli has had a good quarter. Revenues were up 10% with that growth pretty well across the geographies that Marelli is involved in. trading profit I know nearly doubled to 50 million is still below. Well, I think it needs to be in terms of a structural sort of performing target, but it is on a recovery path and I think that it encourages into the order book keeps on strengthening and it’s a reflection of the strength that the automotive industry which is I think certainly on a global scale of recovery path.

Fiat Powertrain again. Some rebound in top volume not a huge amount but certainly it has a positive impact on trading profit which is now 46 million. And we continue to develop the availability for strategic alliances of Powertrain. We signed a new deal with Suzuki to supply them of 1.6 liter MultiJet diesel engine. And we continue to keep this business at the leading edge of technology. You can see that the Sub 1-liter engine, the 916 engine that was launched recently has been named Engine of the Year. It’s got one of the lowest CO2 emission characteristics of any engine offering in the certain traditional combustion area.

Slide number 30 which deals with the outlook is relatively clear. And I’ve seen some relatively – some remarks that we really given a great guidance. Well, the answer is that we did a great guidance. To begin with, we’re reporting numbers on a consolidated basis. The trading profit number for the combinement is expected to be hopefully in excess of EUR2.1 billion.

The capital expenditure number that we put in here is that the upper limit of the sum barrier with the (inaudible) can spend. I think the number that we spend up to now is less than EUR2 billion for the first six months. And so, there’s a significant ramp up of expenditure that’s required to meet the EUR5.5 billion number. In my expectation off the record is that probably, we’re coming on to that number overall for the combined entity.

In net industrial debt, on the assumption that all debt capital spent is going to be in the EUR5 billion to EUR5.5 billion. I made reference again to the question about the – to the issue of liquidity which is expected to be an excess of EUR18 billion. Debt has got a huge cost plus. I mean, Antonio can give you views on this but I figured that this issue is costing reaching 450 and 500 basis points in terms of carry. And any amount that’s got – if the excess goes to EUR10 billion, then it’s probably costing us between 450 million and 500 million on a pre-tax basis a year.

We need to do this as we work our way to – as we see through clearly the options that are available to the group both in terms of industrial footprint in Europe and in terms of the ultimate resolution of ourselves from a corporate government system usually Chrysler.

I’ve been very clear that Fiat is not a buyer, I believe by interest and that we see the VEBA has been a capital market introduction. Well in fact, we are now going to monetize it. We need to find a way ultimately to get there but the cash resources and the cash reserves that is there in the balance sheet are required to allow us to make those journey for the next 12 to 18 months. So hopefully we’ll be able to restore cash balances and normalized levels at the end of 2012. But in the interim, I think we have enough resources to try and deal with all our commitments.

I have no more comments to make and I think we’ll be more than pleased to take questions. Then I’ll past it on to Marco.

Marco Auriemma

Okay, thank you Mr. Marchionne. Now we are ready to start the Q&A session. Rita, please retrieve the first question.

Question-and-Answer Session

Operator

Thank you sir. Ladies and gentlemen, today’s question and answer session will be conducted electronically. If you would like to ask a question (Operator Instructions) We’ll take our first question now from Philippe Houchois of UBS.

Please go ahead, sir. Your line is open.

Philippe Houchois – UBS

Yes, thank you very much. First is I know it’s no longer a call but question about the mindset of UAW how the early discussion between you and UAW happening at Chrysler? If you don’t mind answering that to me that would be helpful and if I just quickly get the number from you, if you can give us sense of how much of the currency gain still getting out of Brazil stays with the strong real. That’s it for me.

Marco Auriemma

Neglect to (inaudible) this number in the second quarter of the share. In terms of the UAW negotiations I think that the issue is the way too early to call. We started our meetings yesterday. These are – it’s got a traditional tempo which is a multi-week event. It almost looks like a fair, but it’s going on for a while. I think there are number of subcommittees that are working on particular issues that will label agreements.

All indications so far suggested there’s at least a shared intent to keep these organizations highly competitive in the marketplace. I think that we are protected in couple of ways. The first one is that there’s is mandatory arbitration on the contract in the event that talks were to breakdown. And secondly, there’s a commitment that whatever rates are agreed to in terms of a package that will remain comparative for the rest of the American landscape.

So, on across the American landscape not necessarily by focusing a particular plan. So, we have some comfort that suggest that there’s going to be a reason judgment applied on both sides to make sure that we end up with the right economic results.

I’ve always been – I need the stamina I made it public in the past that the ultimate resolution of decision on the UAW wages will ultimately involve a co-sharing of risk with our people.

I think that our organization need to be ready to play more when the organizations perform well, but also sharing the downside being with the workers to a point where effectively it makes the – it makes all of us full responsible for the economic performance of the organization.

And this remains the key objective. I think ultimately, the resolution of this thing that will provide a stability in terms of the renegotiation process. I think that – I grew up in North America and I still remember that this sort of periodical diagram ritual is having people who are no strengths and have – in order to pull that one thing are to force people back to the table. So, I think those based upon – and it certainly from the UAW leadership, I noticed the willingness to accept the challenge that we all facing in terms of humanism, which we compared off.

Philippe Houchois – UBS

All right. Thank you.

Operator

Our next question today will come from Alberto Villa of Intermonte. Please go ahead, your line is open.

Alberto Villa – Intermonte

Yes, good morning or good afternoon.

Marco Auriemma

Just to clear the issue in the ForEx, I have the exact numbers by many years for the quarter.

Alberto Villa – Intermonte

Okay. I wanted to ask a one question on the CapEx side. Are you planning any investment in the CapEx projection for the end of the year in Russia? And can you give us an update of what are your plans there, if there is any change or any update on this issue? Thank you.

Marco Auriemma

There’s no CapEx or forecast for Russia in the 2011 plans. It was still in the midst of negotiations plan. There’s a selecting – the potential partner for us to develop activities in Russia. We continue to be committed to the market. I think we need find the right way to get done. And I think we do have some time before the curtain closes on this. But we’ve got a number of people working on this. I am happy to announce until goes that sort of process is completed.

Alberto Villa – Intermonte

And second question is on the costs inflation side. Can you give us a flavor of what are you expecting throughout the second half of the year in terms of impacts of raw materials costs?

Marco Auriemma

It’s not going to be net positive for the second half. We’re looking at number roughly 40 million, between 35 million and 40 million for the second half of the year. As you see, they are in place.

Alberto Villa – Intermonte

Okay, thank you.

Operator

We will take our next question from Jochen Gehrke of Deutsche Bank. Please go ahead. Your line is open.

Jochen Gehrke – Deutsche Bank

Yes. Good afternoon. Just two quick questions. First of all, in Brazil, Mr. Marchionne, I wonder whether you could just give us some comments on what you think about Brazil currently as a production hub in the light of this strong real.

We’ve seen some competitors of yours noting that in particular imports are driving the market performance of this year. Are we seeing the same inside Fiat? Is there a business case already for imports into Brazil on the mass market? And if so, what should that mean for market profitability knowing that capacity by most of your competitors is going up very significantly?

And secondly, as you alluded to and we all know, you’ve decided to include Chrysler without issuing fresh equity. Now obviously, we’ve been through a quarter of very high volatility of financial markets. Why is that as a rationale that Fiat is not – and I’m not talking huge here but not partially allocating fresh equity for this combination, in particular when looking at your net investments compared to most of your global competitors?

And then finally, just understanding that net debt number that you’ve given, the EUR5 billion to EUR5.5 billion range, is that in comparison to the EUR6.3 billion that you gave in the pro forma document as of your website? And does it include all the adjustments that were made in the calculation of that number? Thank you.

Sergio Marchionne

The answer to your last question is needless to say, yes, it’s absolutely comparable to the EUR6 billion trend. Just about the second issue, is I think a bit clear on this issue, one of the reasons that I think will be – one of the things that will be incredibly unfriendly from a shareholder standpoint is the issuance of share equity.

And I’m not trying to sell you swamp land (inaudible) here but to try and issue Fiat equity in the market like this, with the kind of valuations that we’ve seen, notwithstanding the underlying performance of the business I think would be absolutely – will be thoroughly against type of value discussion that we’ve been carrying on consistently now for the last seven years. I think you’ll be softening valued additions purely to accommodate the need of a particularly percentage to find an exit from an arrangement.

I remind everybody that when VEBA signed on to the deal back in June 2009, most of you, most of the civilized world had not believe the fact that this thing could be resurrected. I think that VEBA came into this transaction knowing fully well that the position that it had inside Chrysler was going to be split between an unsecured deposition in a residual equity holder wearing all the risks associated with an economic performance of the business. I think that if we extended sort of the value on the power of Fiat equity to VEBA, I think we will be destroying value on the Fiat side assuming now the current valuation levels. That was a broad statement.

The other one that I think is more problematic is that, I think that we would be issuing equity in the – knowing fully well that we have unexpressed value throughout the group that does not reflect on the share price. I don’t want to be able to point to the valuations that it could potentially be worth but unfortunately that is embedded today in the valuation of Fiat. It is almost neglect in its totality. The valuation that is associated with probably the most prized industrial/luxury asset that we own within the group. So I – let’s not even go there. I think that we’re just – we’re chasing the wrong end of the rainbow.

As far as your parallel with other industrial automotive companies that have done this, I’m not sure that our track record historically in this industry in terms of shares, once we get this done, has really been beneficial. The last time I remember anything of the size being done, it would be natural to Daimler the acquisition of Chrysler, which I don’t have to remind everybody as to what the economic consequence of this was. We will try not to repeat that event is we can.

And more importantly, I think that there are other examples in the marketplace where these relationships do continue. The relation between and Mustang is a classic example where there’s still a shareholding external to Mustang which functions throughout within the Reno world.

So I – right now, the important thing, I think we kind of stepped further in the Fiat Chrysler alliance whereby we’re putting together a management team that will be responsible for the management – for the poor management of these assets under one sort of leaders and that’s something that even company what to do or not done for whatever reason.

In terms of the impacts on Brazil of import, that plight is always there assuming the strength that we’re at is helpful. I think that it’s clear from the operation that have been made even before the appointment of President Dilma Rousseff, even the time that Lula was president here that the automotive industry has been – continues to be viewed as a strategic positioning of the country. I think in that sense, that certainly the politicians here and the authorities know fully well that the opening up for these market towards the sort of damage at this stage of work.

The positioning of all the divisions I doubted very much that we’re going to see any type of adverse movement in terms of import coming in and disrupting the local supply demand function. Having said this, we’re beginning to see people coming in and we have seen others trying to come in and put together at CKD to try and deal with local requirement and industrial or the import.

I think we need to play the south and I think we need to learn now in the broader context of the global organization and how we can emulate the argument by effectively doing the same thing with Chrysler or Fiat production which is made and which is in areas which are currently not covered by the (inaudible) of Fiat and that we soon will benefit in terms of its branch and other offering, right. It’s too early for us to make that call, but certainly based on discussions that we’ve seen, I am not threatened 2011 or 2012.

As far as your comment that you’ve made about the fact that there’s a structural expansion of capacity in the country. I’d just like to remind you that even with that expansion, this is still relying in that particular case for example or is roughly between 150,000 and 200,000 vehicles in a manufacturing borderline which are coming in to supplement local requirements. So, even the capacity which had been announced in terms of being put on stream is not sufficient to deal with the more expected market growth going forward.

If the forecast were to change, I think issues would follow. But I think that there’s enough flexibility within the industrial framework of Latin America to deal with that issue.

Jochen Gehrke – Deutsche Bank

Okay, thank you.

Operator

We will take our next question now from Charles Winston of Redburn Partners. Please go ahead.

Charles Winston – Redburn Partners

Actually, my question was about the longer term capacity expansion in Brazil. So, it’s been addressed. Thank you very much.

Operator

We will take our next question from Martino De Ambroggi of Equita. Please go ahead, sir.

Martino De Ambroggi – Equita

Yes, thank you. Good afternoon, good evening, good morning, everybody. I have a question on Fiat net debt, Fiat standalone. The implicit cash burn in your guidance in the second half of the year between EUR500, EUR800 million. I understand it’s mainly due to CapEx which are delayed or concentrated in the second half. So first question is, what’s the assumption on net working capital underlying your guidance?

Sergio Marchionne

Yes. First of all in terms of cash absorption, you’re right. It pretty much depends on CapEx trend which is normally exponential and it portends to grow significantly in the second half of this year. So based on the guidance we are given as the total level of the CapEx year-on-year, have a yearly result.

In terms of working capital, we’ve been through them and we also take into account that the important fact the disbursement of the $700 million for USD call option, equity recapture agreement and Canadian stake, which occurred last week.

Martino De Ambroggi – Equita

Yes, okay. So net working capital will absorb cash in your assumption in the second half?

Sergio Marchionne

No, it’s majority positive.

Martino De Ambroggi – Equita

Okay. And still on CapEx. I heard what you told about the 5.5 billion is the maximum possible. My personal feeling is that you will spend less than 5 billion. Could it be a reasonable estimate for the second – for the full year of the combined entity?

Sergio Marchionne

The guidance we have given is basically based on historical trends we have seen, taking into account how much we would spend so far and we believe that the margins have been given if not inconsistent with the trends we have seen.

Martino De Ambroggi – Equita

Okay.

Sergio Marchionne

Yes. Having said that, I think that there’s a level of optimism about the ability to issue checks here. We can now understand where which – it certainly may not be totally warranted by historical practice. I think these are truly conservative numbers. I mentioned this in my opening remarks. I think we’re seeing the upper limit of the sum barrier, right? We normally spend more than that come hell or high water, but I think that the real number is really below.

Martino De Ambroggi – Equita

Okay. And the very last question on the price mix most likely positive for Fiat auto in the second quarter. What’s your expectation on that, if you have something – anything to elaborate on the second half of the year?

Sergio Marchionne

I’m not sure I – could you speak a little bit louder?

Martino De Ambroggi – Equita

Pardon me, sir.

Sergio Marchionne

You’re right. You need to yell louder.

Martino De Ambroggi – Equita

Yes. The expectation for the price mix, sir, Fiat auto spent alone in the second half following rising positive performance in the second quarter.

Sergio Marchionne

Yes. Look, I mean I’m not even seeing a much different performance. If you look at the breakdown of the profit decomposition in the walk that we have looking (inaudible) 36. I don’t even see a deterioration in terms of the numbers. It might change slightly but I don’t even see a major deterioration in the composition of the trading profit walk. I think we keep on improving the mix, but it’s simply because of the random and some old products and the fact that we’re dealing with in terms of what’s left with the newer product offering than in the past.

Operator

Our next question today comes from Stephen Reitman of Société Générale. Please go ahead, sir.

Stephen Reitman – Société Générale

Yes, good afternoon. My question is regarding slide number 25, which is on the Chrysler group. You have very kindly given the fleet mix for Chrysler for the second quarter of 32% down from 40%. Mr. Marchionne, you often commented that fleet is not bad business. But it was quite apparent at least in the 2010 results that within that fleet mix was a very high rental element. I think it was about 29% of your sales – of your total sales last year actually went to the rental fees according to your 10-K. Could you therefore give us some connect granularity on this 32%? How much of the needle are you still putting into – how much are you still putting into rental fees? Thank you.

Sergio Marchionne

I’ll pass it on to Richard right now, but I will come back to you on the question whether it is a desirable part of the business or not. The question of providing granularity, we can.

Marco Auriemma

With the numbers of about three-quarters of that number is still to rent a car fleets. We now have new product line up but we obviously need to get into commercial customers and convert them to our vehicles. And that is not an immediate process, but obviously with the renewed fleet, we are focusing on that.

Sergio Marchionne

And by the way, just to go back to your comment. The impact of those choices is all reflected in the trading profit number, it’s not sort to fool ourselves. And so the question, the question and what was said and I continue to repeat the fact that these are not undesirable sales for a couple of weeks. One, because they had a solid year in our dark days and the Chrysler times. They’ve provided good support in terms of the volumes required to run the machine.

We have been fully cognizant at that fact and we continued to purify the fleet number by, not by necessarily restricting – by restricting capacity for those customers who’ve been close to us historically, whereby increasing that portion of the business which efforts better economic returns.

We have said historically that we don’t think that the absolute number is going to change overall. But as we grow volume across the top line that that numbers going to become less and less significant. I understand your concern in our share. But I think we need – as we work through the product rejuvenation, it will give us a lot more optionality than we’ve had so far.

Stephen Reitman – Société Générale

Thank you.

Operator

Our next question today comes from Stuart Pearson of Morgan Stanley. Please go ahead.

Stuart Pearson – Morgan Stanley

Hey, good afternoon. I have three questions. First, just coming back to your cash flows in the old Fiat business for a second and returning to slide 10 in which you stripped out the cost of the incremental crisis, which obviously is reconsolidated, but for the sake of just scooping that out, you almost being debt free at the end of Q2, (inaudible) which I don’t think any of us would have forecast at the start of the year. I understand your CapEx needs to ramp up and working capital has been a large part of that and as always, I come back to the working capital side, I’m just trying to understand how it’s been so positive in H1 and your earlier comment that it should remain positive in H2?

Looking at your production, it does seem have run above your sales to the last eight quarters in a row. So I wanted to just understand what’s going on for the production? How that’s impacting working capital whether you’re comfortable with the level of inventory that was all due to that relatively behind production forecast. That’s my first question my question.

The second is just on the improvement in the SG&A margin in Q2 versus Q1. Just if we think about the different elements of SG&A, I would have thought that Europe would be flat at best in Q2 versus Q1. So first you just help me understand what’s improving in the quarter, whether it’s alpha, where is Brazil, even though we have – obviously, margin feels there or whether there was some contribution from early crisis energies in that.

And in the last question if I may just on Opal, obviously a business that Fiat has look down in the past, I suspect probably not one if you look at the game but why don’t get to share your thoughts on how what impact they could be on the European market side of Volkswagen and Hyundai or a Chinese maker to acquire the asset from GM?

Sergio Marchionne

Let me deal with the first issue, right? I mean the variety – the collective choice is in terms of potential to acquire it is so wide and so diverse and struggling here trying to give you an answer that make sense.

If you want to be a European if – if you ask what to be for sale which I understand has neither been – has not been confirmed by General Motors. But if the acquirer were to be European, I think you will get a complete different response if it’s going to be an Asian player because I think that the Asian player will probably have less interest initially and maintaining stability across the rest of its European businesses and so I think with all the possible choices an Asian acquire may not be the best solution for the European market.

But that’s just based on the discussion over a beer in a bar without having additional details, it would be very, very difficult for me to forecast the impact on this. I think anybody who is running this business will ultimately need to make money. So, the question is how do we get there and how long will the process of adjustment by the acquirer – how much time will they need to adjust to the European economic environment?

In terms of the second issue, I think that margin improvement is viewed fundamentally to the introduction of (inaudible) on the continued strength of the Giuliettas as it makes progress in the market place. In the continuing strength for the Brazilian side, which I think will show hopefully by the end of the year an improved operating performance.

In terms of your first question, I’m not sure that I agree that we’ve overproducing to demand that the supply for – I’m not sure you’re agreeing with the comment over the fact that we’ve done this great quarter, I think that there is a chart in the pack that shows month supply they employ in the system and you can see that we stayed well below the two months number.

It’s not in the pack, I’m talking but I can tell you that in the pack that I have, it’s showing that we’re not lengthening the month supply in the system, we’re well below the standard the cost reduces in the U.S. market production. I don’t think that we’re building or stocking the system up with undesirable inventory. So I, that’s why the industrial utilization numbers that you saw in one of the charts in the pack indicated such a significant decline in the utilization of the Italian assets, which are now below 40.

It was really designed to make sure that we will match demand and supply and we will not clog up the arteries.

Stuart Pearson – Morgan Stanley

Okay, so seasonality aside, the production rate that we saw in Q2 is something that could continue in the second half of the year?

Sergio Marchionne

Yes.

Stuart Pearson – Morgan Stanley

Okay, thank you.

Operator

Our next question today comes from Max Warburton of Bernstein. Please go ahead.

Max Warburton – Bernstein

Yes. Hi, good afternoon. Just one question from my side, can we come back to this discussion about increasing the Chrysler stake buying the VEBA stake? Mr. Marchionne, you said something just now on the call about not being a buyer of that stake and you also said something, I think, last month saying you won’t risk Fiat’s credit rating to do a deal. Could you just flesh out a little bit what the rating agencies are saying to you because just doing the math on it, I would’ve thought consolidating EBITDA properly of Chrysler would, in some way, actually make the credit impact quite neutral?

And secondly, I mean I guess the way Fiat finances itself, I’m wondering does your official credit rating really matter. So could you just give us more detail of your thoughts on this subject? Thanks.

Sergio Marchionne

Max, I better qualify the second question because you made us sound almost nefarious the way in which Fiat finances itself. It’s as if we’re getting money from the underworld. Given the way in which we publicly raise capital in the capital markets and the fact that our funding exercise probably doesn’t reflect the skepticism that the rating agencies have expressed that they’re opening or otherwise vis-à-vis Fiat’s interest in Chrysler, I think we’ll agree with you that we do have access to capital that we can fund this acquisition if we wanted to.

I think that – as a matter of fact, to be perfectly honest, there’s enough cash resources on the balance sheet that if we want to action that item on terms that we thought were value-accretive to Chrysler, we could. I think it would be non-sensible for us to open a discussion about acquisitions and interest in VEBA. Given their expectations, well we think the business is worth. I mean, I’m not trying to negotiate price with you on the phone, but just to make sure that we understand the parameters.

We acquired an interest in Chrysler through the U.S. state and Canadian side which were not present. We’re not based on creating EBITDA numbers. We’re based on auto market references for that, for the value of that equity. If we apply the criteria to the valuation of 41% stake in Chrysler, you’re talking about the value was quite in excess for $2 billion. And I know it is that initially when the deal was put together, the expectation is that VEBA has placed on the economic stake as an excess of that number because of the notional conversion of that debt number out of the old Chrysler into an equity position.

So as long as we live in a world where there’s a dichotomy of use, one that says there’s a market reference that says that the value is sliding in excess of 2 billion. If somebody else thinks they are sitting on top of it worth more, so how you doubt for, that there’s going to be a convergence of use on value. And that’s why I’ve always been insistent on the fact that the best possible exit mechanism which effectively removes all balances that the value of the equity stake is to the capital market side.

If that event were to happen, then I think that there are number of things that are available to Fiat including what it might do with itself going forward including the positioning of Fiat in that event. We have relatively – with the scheme of things, when you’ve given the speed of which we operate than the last 18 monsters incredibly along runway.

We don’t have to hit vertical until January 1, 2013 when VEBA is in the position to require registration and possibly a capital markets move in apart to Chrysler. And so, we’re going to use this time between now and then to explore all possible ways in which we can get to what you consider to be the right answer which is that I’ll provide a combined structurally integrated also from the capital market standpoint position, in fact, looks at these two entities as being one.

The way which we do this, the timing of that move, what the implications are, you’ve got a variety of options. All of which are under consideration. None of which are actionable or action of today.

It’s not for me to make the decision on behalf of VEBA. VEBA needs to do whatever it needs to do. And I think it needs by the terms of the contract. Yet as negotiated those terms when it came in to this deal back in 2009, it’s not only bargain them off. But there’s a piece of that equity which is roughly 60% plus of the VEBA position which is subject to a call right that Fiat intends to hold.

And regardless over the desire to try and monetize it to the outside world, that equity must be available on all times for Fiat to be called. And I’m not negotiating with you Max I’m just studying the rules of the war. So at the end of the day, we will be do everything that’s required to try and put money in their pocket and do it in an intelligent way but it’s one that needs to reflect underlying value and not assume value calculation.

As far as your comment about the fact that our stated publicly yesterday, the answer is absolutely true I won’t reiterate it. I will not do anything that will undermine Fiat trading. And I also agree that I think the rating agencies’ views of the combined EBITDA of this organization is actually quite positive to the rating and not negative. While we need to continue to work with the current parties and convince them of that fact, then we’re not there yet.

Max Warburton – Bernstein

Okay. Thanks. I’m mean I’m sorry to ask a lot question but it helps and I appreciate the candid answer. A follow up, I’ve got your second quarter press release in my hand. I don’t know if it’s right in front of you. The actual sort of long-worded version. And there’s a statement on the front there in italics explaining that even with the accounting consolidation that Fiat and Chrysler will continue to manage financial matters separately. Can I just ask out of interest just to get the subtleties to this right? Who decided to put that on the fronts of the release and who is it aimed at?

Sergio Marchionne

Well, I...

Max Warburton – Bernstein

It’s the italics on the bottom of the first page.

Sergio Marchionne

By the way, let’s agree that whoever put it on the press release has got my name on it. But the reason why it’s there is because when we raised financing in the United States, so we did the bonding but not offering, it was absolutely clear that one of the requirements that we have to provide to the funders of Chrysler was a guarantee that it will be no slippage and no leakage of financial resources of Chrysler back into Fiat that effectively undermined the capability of Chrysler to repay its debts. And so the – as long as those positions, those acquisitions within Chrysler, the financial integrity of Chrysler as an organization which is effectively firewalled from the financial influence of Fiat is undisputed. It needs to be firewalled.

Now, obviously they’re repayable in time. So, at the end of the day, if I can collect enough cash, either to reprocess bonds and pay them off, the requirement was all right. But these are all options that are available to Fiat at the right possible time. But I think it’s important that we need to maintain the financial integrity of Chrysler on a standalone business. We can’t screw with it. Now, all cash that has generated inside Chrysler. It’s ultimately for the benefit of the shareholders regardless – as long it’s enough to pay back its debt holders. Anything which is cash generated within Chrysler is for the benefit of Chrysler shareholders and we know now fully well that VEBA is capped in terms of its potential interest in the animal.

Max Warburton – Bernstein

Okay. And then final follow on because this is important you just raised an important point I think, if we still have the standoff and the stalemate about the price of the extra-stake; at what point is Chrysler likely to be paying dividends to all shareholders, including Fiat?

Sergio Marchionne

Within the terms allowed by the debt weighting. And there are some severe restrictions that dividend paying capability until the debt is effectively good at. I’m looking at distributing rep. He’s going by memory. He’s closing his eyes. I think -we can provide with the information but I can tell you right now that they are severe.

Max Warburton – Bernstein

Okay. I’ll leave it at that. Thanks very much.

Sergio Marchionne

But it doesn’t, I mean nothing prevents me from accumulating cash what I’m prevented from doing is distributing it.

Max Warburton – Bernstein

Okay. Very clear, thank you.

Operator

Our last question today comes from Stefan Burgstaller of Goldman Sachs. Please go ahead.

Stefan Burgstaller – Goldman Sachs

Hello, good afternoon. Given the talk about optionality, can you just discuss a bit the timing of the exercising of all the options in the last few months to take the stake to 53% and second, given that the dichotomy as Bloomberg tends to report, the flavor on the Chrysler value, why did you choose to pay 75 million for the equity recapture agreement? How could this become an important in the way this deal is playing out in the future? And thirdly, given the shares already at EUR7, you hinted on Ferrari and we thought you’d be leaving the Ferrari issue. What – can you just remind us what are the structural value creation options you still consider in order to complete the value transfer you started since you’ve joined – signed on as a CEO of Fiat way back in the last decade.

And then finally, in the type presentation, Building Blocks In Place For A Global Car Company, so what’s the blueprint? Maybe you can just, in a very briefly compare and contrast, who you inspire to be going forward. Thanks.

Sergio Marchionne

I’m sorry, what was the last question?

Stefan Burgstaller – Goldman Sachs

Just basically saying your – in the presentation, you’re highlighting – you’ve got the building blocks with the title, Building Blocks In Place For A Global Car Company. And I’m just trying to see where is your thinking going in terms of a blueprint for this global car company if you look around and if you want to just use your opportunities to compare and contrast where you see your strength and what other – what is the potential market is based on?

Sergio Marchionne

The last question, I’m trying to get to the end as I try and answer your questions. But I think we’ve been public on the fact there were assets within Fiat group, and I’ve always thought about the unexpressed value of Ferrari, which I stopped because unique asset – images and assets is available. And it’s not again, I repeat this before we start getting the (inaudible) repeating on this. I mean, I don’t have a project and yes, I don’t want to talk to any bankers that have any ideas about this, including the other stuff, but the fact that we can monetize this stupid thing and we all do – and move forward and retire.

We understand the intrinsic value of Ferrari. We understand it, but it probably better than anybody. And we understand the opportunities that makes – that is available to Fiat.

Given what Fiat has today, both this liquidity and in terms of the prospects, in terms of cash generation going forward. The normal (inaudible) today to try and let’s take that off the table but that is one I’ve also been public on the issue about Marelli. Marelli doesn’t have to be 100% on within our world. We could monetize part of that position and create cash so there are other expressions of value.

The system appears to be a value in a dollar for a dollar. And it doesn’t affect the value of this cash flow stream for our cashflow stream. It may be worthwhile to try and get them to try and bestow evaluations. So there are other things that are potentially available within the group that could get us to at least crystallization or some again expressed value of Fiat that will go a long way in closing the gap.

In terms of your last question, the model is a very simple one. I mean, I look at these two car companies as being contiguous both in terms of and geographic knowledge. And what we needed to try and create a global car company, one that is capable of operating in a variety of segments, in a variety of geography are all present within Chrysler and Fiat world. It’s that simple and I would add nothing to that reality and I would take nothing away from it. They are all necessary ingredients for what I consider to be a viable global car company.

Now if you ask me who is the – where is the role model? There a lot of successful company, including some companies across the Alps that have done this in a very successful way. They even have reached the territory it doesn’t belong to and but fundamentally all the makings of what potentially a Chrysler-Fiat could be in a fully developed basis is available on the market place where other did not perform well in that segment. So, I’m not sure that I’ve answered your question but I don’t know – this blue print that you’re looking for is not that we’ve continuously reiterated has been the ultimate objectives of the strategic realignment of these two groups.

Stefan Burgstaller – Goldman Sachs

And on this equity recapture agreement, the fact that you’ve paid 75 million for the rights?

Sergio Marchionne

Yes, I’ll tell you because you want to know, but I’m not sure that I can help you anymore with the steps especially outlined in the first page of the presentation. What in particular did you want me to answer vis-à-vis that sequence of events?

Stefan Burgstaller – Goldman Sachs

No, as I understand that this equity recapture agreement there’s a value specific for VEBA, and you have the right to buy the stake of VEBA at this pre-specified value. Which seems to be $4.25 billion, plus interest from the 1st of January 2010. Now given that there is this – that caught the main valuation issues highlighted earlier. I was just curious why you chose to spend 75 million to get the right to exercise this option?

Sergio Marchionne

Well, there are fundamentally two reasons. One, you need to understand the approaches in the context of the 5-year industrial plan that Chrysler has laid out. It respectively want to achieve the 2014 numbers, they are available to Chrysler. Then even if I were to accrue at 9% a year on an annual basis, even using current valuations, I would get in a relatively short period of time – short period of time is such a subjective call, I may end up running into the threshold, and certainly if we exceed expectations we can get there fast. That’s one issue

The access to the capital markets is not available until 2013, so there’s at least 18 months who have cooperating performance that are going to go and support evaluation story. And so it was relatively cheap for us to make sure that we would – that anybody with accretion, our problems beyond notional amount in the event that we were took to be successful would be accretive to anybody else. It was in consequential money in this theme of things.

For the second thing we did to, it was eliminated in other party of the table. Do you, as long as you have the equity and recapture. They were being interested party in anything that price where we do going forward. And I think that the fact that we booked out and that it belongs to Fiat has clarified the shareholding position and it’s maximized the potential value of the price are going forward. It’s that simple. When you spend a half a billion dollars, we spent unlimited amount of money, we spent 75 million, and there was 61 to the U.S. be intent and 15 million belongs to the Canadian.

To effectively value a potential right, our value of accretion of which one can express by option pricing. And if you would for option price back that equity recapture, you would find that the amount of money that we paid it was quite leasing overdue than the expectation.

Stefan Burgstaller – Goldman Sachs

Okay, thank you very much.

Operator

That will conclude the question-and-answer session. I would now like to turn the call back over to Marco Auriemma for any additional or closing remarks.

Marco Auriemma

Thank you, Rita. We would like to thank everyone for attending the call with us. We look forward to following up any questions. Enjoy the rest of the day. Bye.

Operator

That would conclude today’s conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.

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