Ratings agency Fitch on October 18 said it was downgrading Italian auto giant Fiat's credit rating by one notch to BB from BB+, saying there were potential "risks" in its alliance with Chrysler. The US agency also said it was turning its outlook on the company to negative - an indication of a possible further downgrade in the medium term.
Emmanuel Bulle, senior director at Fitch's European corporates group, in a statement linked the rating action to Fiat's merger with the US auto group.
"The current ratings are based on Fiat's standalone credit profile but incorporate heightened short-term risks for Fiat from its combination with Chrysler in an increasingly challenging environment for the group," he said.
"Chrysler has a weaker credit profile than Fiat and sustained benefits to Fiat from this deal should only accrue in the medium to long term," he said, referring to Fiat's gains from the deal in terms of economies of scale.
Fitch said there was also a risk in Fiat's dependency on the Italian and Brazilian markets and its scant presence in high-growth economies like China, India and Russia.
Moody's, another ratings agency, downgraded Fiat by one notch on September 21 to Ba2. Fiat took over management of Chrysler in June 2009 after the US company emerged from bankruptcy proceedings and gradually increased its stake in Chrysler's capital to the current level of 53.5 percent. The stake is due to increase to 58.5 percent by the end of 2011.