Chrysler 2000 Annual Report Download - page 8

Overview
Report on Operations – Overview
Dear Stockholders:
The year 2000 marked a period of transition for Fiat, as the
trend toward improvement that began at the end of 1999
gathered momentum and the Group executed strategic
and tactical transactions that will help accelerate the return
to a higher level of profitability in the second half of 2001.
Last year, the Group’s interest in net income almost doubled.
This is the net result of the following three developments:
the extraordinary gains generated by divestitures that were
made to streamline the portfolio of businesses and by the sale
to General Motors of a 20% interest in Fiat Auto, with the
simultaneous purchase by Fiat of approximately 6% of GM’s
capital stock; the higher financial expenses caused by a
budgeted rise in indebtedness, which was required to fund
the latest acquisitions; and changes in the interest held by
minority stockholders in certain Sectors (Fiat Auto, CNH
Global, Magneti Marelli and Toro).
Operating income was up 8.5% despite an increase in
research and development outlays, which rose almost
23% compared with 1999, and higher advertising expenses
incurred to strengthen the image of Group brands (+20%
over 1999).
Taken together, the results for 2000 do not reflect the
Company’s true growth potential. More specifically, the return
on net invested capital measured in terms of value creation
was about 6%, short of the 10% figure that had been set
as the minimum target at the Group level.
In particular, the operating performance of Fiat Auto, which
did improve over 1999, and of CNH, which was faced with
a difficult market environment at the peak of its effort to
integrate the operations of Case and New Holland, failed to
meet expectations. On the other hand, Iveco, which invested
heavily in product innovation and benefited from the successful
introduction of the new Daily and the new line of engines for
heavy-load commercial vehicles, reported a further
improvement in profitability. The other Group Sectors and
companies also reported generally better results.
An especially gratifying development was the success
achieved by Ferrari on the racetrack. The team of the prancing
horse won the Constructors’ Championship for the second
year in a row and regained the Formula One World
Championship.
As the Group enters the 2001 fiscal year, its cash flow is
still inadequate, competitive pressures are still limiting the
profitability of Fiat Auto — particularly in the intermediate
segment, where its products are reaching the end of the
product cycle — and CNH’s ability to generate earnings
is being challenged by the difficult task of integrating and
restructuring its operations. Moreover, the world economy is
a source of renewed concern due to a slowdown in the United
States, continuing difficulties in Japan, lack of momentum in
Europe, a slump in stock market prices and weaknesses in
the international monetary system as it confronts crises in
Argentina and Turkey and their potential repercussions in
other emerging countries.
The Group is responding to the challenges that exist within
its organization and to the deterioration of the business
climate by pursuing with renewed vigor the goal of realizing
its true growth potential over the shortest possible time
horizon. To achieve this objective, it is continuing to push
forward with a process of transformation that began a few
years ago and will ultimately result in a new Fiat. Barring
further deterioration of the global economy, these efforts
should begin to bear fruit as early as in the second half of
2001 and produce steadily rising benefits in subsequent years.
There are several reasons for our confidence in the success
of our programs.
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