Fiat Auto: Chrysler -The IPO That Will Never Happen · Fiat currently owns 58.5% of Chrysler –the company has also informed VEBA of its intention to acquire incremental tranches

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Max Warburton (Senior Analyst) • [email protected] • +65-6230-4651

Abbas Ali Quettawala, ACA • [email protected] • +44-207-170-0535

Robin Zhu • [email protected] • +852-2918-5733

Bo Wen • [email protected] • +852-2918-5718

See Disclosure Appendix of this report for important disclosures and analyst certifications.

Fiat Auto: Chrysler - The IPO That Will Never Happen

Ticker Rating CUR

7 Oct 2013ClosingPrice

TargetPrice

TTMRel.Perf.

EPS P/E

2012A 2013E 2014E 2012A 2013E 2014E Yield

F.IM M EUR 6.29 6.00 24.9% 0.29 0.28 0.54 22.0 22.5 11.6 NA

MSDLE15 1285.25 93.36 92.24 103.76 13.8 13.9 12.4 3.4%

O – Outperform, M – Market-Perform, U – Underperform, N – Not Rated

Highlights

The dispute between Fiat and the VEBA (the labour union trust) over price for the remainder of Chrysler rattles on. The stakes keep rising and now the VEBA has instructed Chrysler to begin the IPO process. But the VEBA is only offering 16% of Chrysler in the IPO, the CEO doesn't really want the float to happen (although he apparently will lead the roadshow) and Fiat is threatening to reduce its technical and management support for Chrysler if the IPO goes ahead. The situation is in danger of becoming farcical –but the VEBA seems to think that by starting the IPO process it will achieve a better price and Marchionne himself says he believes the IPO "may narrow the bid-offer spread".

In this note we revisit the pricing disagreement, the objectives of each side and the new detail provided by the S-1 Registration Statement. We also report on Marchionne's comments on the situation, made at our recent Bernstein SDC Conference in London. We assume the IPO never actually prices and completes. Instead we assume Fiat will head it off by buying the rest of Chrysler – but not before plenty of fees are paid to lawyers, bankers and paper companies (the IPO document is over 400 pages).

Fiat's purchase of Chrysler will require further negotiation, but ultimately we expect it to complete. We rate Fiat Market-perform as we believe the current share price already discounts the full purchase of Chrysler and we remain worried about pressures on the core Fiat business (particularly Brazil).

∑ The IPO that no-one wants. The VEBA has started the formal IPO process to sell a 16.6% stake in Chrysler. It's the IPO that no-one really wants. Fiat doesn't want it (it wants to buy 100% of Chrysler). The VEBA probably doesn't want it (it would easier to sell the stake direct to Fiat). Investors don't want it (who wants a 16.6% free float in America's third automaker?). But the S-1 Registration document has now been published, the process is underway and a roadshow may soon be scheduled.

∑ Why is the VEBA pushing for an IPO? The VEBA and Fiat can't reach agreement on price via other mechanisms, so the VEBA has launched the IPO in the hope of getting a higher price than that offered by Fiat. Fiat has allowed the IPO process to commence in the hope of getting an indicative price that is lower than the one demanded by VEBA and/or set by the 'Equity Recapture Agreement'. Strangely the VEBA has set out to IPO a 16.6% stake, rather than its full 24.9% holding. A 24.9% stake would have limited appeal to investors. A 16.6% minority stake is surely even less appealing. There may be method in the madness but it's hard for us to see it.

∑ The roadshow promises to be bizarre. Marchionne, in his capacity as Fiat's CEO, wants to buy the rest of Chrysler. Yet Marchionne, in his capacity as Chrysler CEO, must soon go on the road to market the IPO and make it seem attractive to investors. Quite how this will work is unclear, but Marchionne spoke

[email protected] Danilo Masoni 10/08/13 12:47:03 PM Reuters - Internal Employee ID's - 96

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at our recent Bernstein conference and his very positive comments on Chrysler (talking of a 7-8% margin by 2015) suggest he will approach the roadshow in a constructive manner.

∑ This boat won't float. While Marchionne will lead the roadshow and give a confident view on the value of Chrysler, the process surely won't run to its conclusion. Investors will probably be asked to indicate what they're willing to pay for Chrysler shares and this will provide an additional data point for negotiations with the VEBA. But the investment banks and lawyers involved in the process are unlikely to see the IPO completed. If any young bankers or lawyers working on the deal are reading this, here's some advice: quit staying up all night to run spreadsheets and proof documents. Down tools now and go home. This deal is unlikely ever to happen.

∑ The price is right. The dispute over price is rather simple. So far, Fiat has offered a price for one of the 3.3% increments that equates to USD3.2bn for the remaining 41.5% of Chrysler that it does not own. The VEBA wants USD4.3bn (but this may be rising with market multiples). Fiat has the right to buy the rest of Chrysler at any moment for a price that currently stands at USD5.25bn. Where will the IPO value come out? Somewhere between these parameters, we assume. At a GM multiple we'd argue Chrysler would be valued at c.USD4bn. A Ford multiple looks unrealistically rich, in our view.

∑ Fiat's approach to the IPO and the deal. Marchionne spoke at our recent Bernstein conference and made some positive comments on Chrysler's prospects. But he argued that while he believed Chrysler had an attractive future, he did not believe investing via this partial IPO would be the most attractive route for investors (implying investing via Fiat, or a future Fiat-Chrysler listing, would be more attractive). He said he had not had informal discussions with the VEBA trustees but rather was pursuing the matter through formal channels. He said he didn't think he could have struck a materially better deal back in 2009 – the purchase of Chrysler was always going to be complex. He pointed out that the VEBA had the right to try to monetize its Chrysler stake a number of times (we take this to mean that if the IPO is called off, the VEBA could sit tight and wait to try again). The S-1 registration document spells out a number of threats and risks to the co-operation with Chrysler (from the Fiat side) if the IPO goes ahead. The situation is fascinating but ultimately we believe it is in both sides' interests to do a deal.

∑ Fiat's core business still a risk. Fiat's stock price is likely to continue to be dominated by debate about the timing and price of a deal with Chrysler. However, the core performance of the Fiat Auto business will also remain critical. With no signs of an improvement in Europe and with Brazil still slowing, we remain concerned that Fiat may struggle to meet market expectations for H2 2013.

Investment Conclusion

We rate Fiat Market-perform (PT €6). There's a lot still to like about Fiat-Chrysler. A deal with Chrysler should come. Liquidity should improve. The Maserati turn-around should work. Ferrari should thrive. Brazilian operations should remain valuable (even if we expect the direction of margins to be downward). Europe may one day improve. But with this level of debt, the valuation discounts these positives in our view. Fiat remains one of the most interesting stories in the global sector. Management's actions since 2004 have created great value for shareholders. Fiat's achievements are towering, given the starting point. But in a sector of cheaper, easier auto stocks, it's now looking fully valued.


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Details

1. VEBA owns 24.9% but seeking to IPO only 16.6%

VEBA owns 24.9% but seeking to IPO only 16.6%

Chrysler filed a registration statement (Form S-1) in relation to a proposed IPO with the SEC on September 24th 2013. The registration statement contains very little detail:

- (1) The number of shares/stake in Chrysler to be sold has not yet been determined (although Fiat has confirmed that VEBA have sought to IPO 16.6%)

- (2) Price range for the offering has not yet been set

Fiat currently owns 58.5% of Chrysler while VEBA owns the remainder (see Exhibit 1 and Exhibit 2). Fiat has two options to raise its stake in Chrysler that we detail below. One of the options allows Fiat to acquire a maximum of 16.6% of Chrysler (40% of VEBA's 41.5% stake) in tranches of 3.32% through a predetermined pricing mechanism that is currently under arbitration. Therefore, the maximum stake that VEBA can IPO is 24.9% (i.e. their current stake of 41.5% less the 16.6% tied up under the Equity Call Option Agreement with Fiat). According to Fiat, VEBA have sought to IPO 16.6% of their stake in Chrysler.

Exhibit 1VEBA have sought to IPO 16.6% of Chrysler

Source: Corporate reports and Bernstein analysis.

Current Fiat Ownership , 58.5%

Equity Call Option -Tranche 1 Exercised July 2012 (Under Arbitration) ,

3.3%

Equity Call Option -Tranche 2 Exercised Jan 2013 (Under Arbitration),

3.3%

Equity Call Option -Tranche 3 Exercised July 2013 (Under Arbitration),

3.3%

VEBA IPO Registration, 16.6%

Equity Call Option - Stake Not Yet Exercised, 6.6%

VEBA, 8.3%

Chrysler Ownership Split (Present)


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Exhibit 2Fiat currently owns 58.5% of Chrysler – the company has also informed VEBA of its intention to acquire incremental tranches of 3.3% each


Fiat officially has two options to raise its stake in Chrysler:

- Option 1 or the Equity Call Option Agreement: Fiat has the option to purchase 40% of VEBA's original interest in Chrysler (“Covered Interest”). This option is exercisable July 1, 2012 until June 30, 2016 but not in excess of 20% of Covered Interest (i.e. 3.32% – or 20% of 40% of VEBA's c.40% original stake) in any 6 month period. Before an IPO, the exercise price is based on a market multiple not to exceed Fiat's multiple applied to Chrysler's reported LTM EBITDA less net industrial debt and following an IPO based on trading price of common stock. Fiat's most recent valuation for 3.32% under this mechanism in July 2013 was USD255mn.

- Option 2 or the Equity Recapture Agreement: Permits holder to purchase VEBA's membership interests at the specified threshold (equal to $4.25 billion plus 9 percent per annum compounded annually from January 1, 2010) less proceeds previously received by VEBA. Therefore, this option puts a ceiling on the price Fiat needs to pay for the rest of Chrysler – worth c.US$6bn by y/e FY:13.This ceiling price is offset by VEBA's share of Chrysler's "dividend/builder basket" – c.USD750mn as at the end of Q4:13E (more detail later in the note). Therefore, the current ceiling price for Fiat to buy all of VEBA's stake in Chrysler amounts to c.USD5.25bn.

25%30%

52% 53.5%58.5% 58.5% 58.5% 58.5% 58.5% 58.5%

3.3% 6.6% 9.9%16.6%

41.5%

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Jan-11 Apr-11 May-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 H1:16 ERA*

Evolution Of Fiat's Chrysler Ownership Stake (2009-Present)

Fiat ownership stake Under arbitration - options exercised by Fiat

ERP = Equity Recapture Agreement (Fiat can buy ALL of VEBA's stake for USD4.25bn + 9% interest p.a. compounding from Jan:2010)

Fiat can buy up to 16.6% in tranches of ~3.3% each - exercisable every 6 months between H2:12 till H1:16


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2. How much is Fiat prepared to pay?

Fiat offered USD255mn in July 2013 for a 3.32% stake in Chrysler (based on Option 1)

The disagreement between Fiat and VEBA over an appropriate price for Chrysler goes back to July 2012 when Fiat offered to pay USD140mn for 3.32% of Chrysler based on the pricing mechanism agreed under the Equity Call Option Agreement. VEBA's valuation was closer to USD340mn. Fiat announced on September 26th 2012 that it was going to court (Delaware Chancery Court) in order to resolve the issue of determining the relevant price to be paid. Fiat has since served notice that it wants to buy two separate tranches of 3.32% respectively (Tranche 2 exercised in January 2013, Tranche 3 exercised in July 2013) based on the same pricing formula (see Exhibit 3).

Exhibit 3Fiat offered USD255mn for the exercise of its latest 3.32% Chrysler tranche


What's the latest from the Delaware Chancery Court?

A preliminary judgement published on July 30th 2013 is actually partially in favour of Fiat

Given the exercise of Tranche 3 in July 2013, the Delaware Chancery Court (Judge Donald Parsons Jr) is effectively ruling on the price for ~10% of Chrysler. Perhaps, more importantly, the court's ruling is likely to have an impact on the valuation of the whole lot.

The dispute between Fiat and VEBA took an odd turn on April 25th when Judge Donald Parsons Jr (the presiding judge at the Delaware Chancery Court ruling upon the value of 3.3% of Chrysler) made comments in public stating that…"I'm kind of leaning" in the direction of VEBA. Judge Donald has apparently sought out an accountant in order to better understand the accounting valuation framework after having told Fiat's lawyer (Steven L. Holley from Sullivan & Cromwell LLP) that observers "ought to be able to follow what you did…if they can't, I can't".

The most recent "memorandum opinion" from the Delaware Chancery Court published on July 30th 2013 actually partially rules in favour of Fiat on two major points of contention. The judge has sided with Fiat on issues that account for USD90.4mn of the USD200mn price divergence for Tranche 1 (i.e. Fiat's offer price of USD140mn and VEBA's valuation of USD340mn). We show the relevant sections from the Court documents below:

Exercise Date Stake (%) Net Amount Offered By Fiat* Implied price for 41.5% (USDmn)

Tranche 1 July 3, 2012 3.32% USD140mn USD1,750mnTranche 2 Jan 3, 2013 3.32% USD198mn USD2,475mnTranche 3 July 8, 2013 3.32% USD254.7mn USD3,184mnTranche 4 ? (earliest exercise Jan 2014) 3.32% ? (likely higher due to Chrysler's improved financials) ?Tranche 5 ? (earliest exercise Jul 2014) 3.32% ? (likely higher due to Chrysler's improved financials) ?Total 16.6%

*Net amount offered by Fiat is after the application of a 10%-20% discount to the price determined by the application of the relevant formula

Fiat-Chrysler Equity Call Option Agreement: Summary Of Options


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"...Two of the largest drivers of the difference in the parties’ respective price calculations are whether: (1) notes worth billions of dollars issued to two health care trusts are debt of Fiat and new Chrysler; and (2) whether net income attributable to noncontrolling interests in new Chrysler should be included in Fiat’s EBITDA. According to the plaintiff health care trust, those two disputed items account for $78.2 million and $12.2 million of the difference in price, respectively...

"... Having considered the parties’ briefing and heard oral argument on the cross motions for judgment on the pleadings, I find that Fiat’s interpretation of the notes as debt and its handling of income attributable to noncontrolling interests reflect the only reasonable interpretations of the contract in issue. Therefore, I grant judgment on the pleadings in favor of Fiat on those issues. As to the remaining questions, discovery isneeded to determine, for example, the correct way to calculate or interpret the other items in dispute."

Equity Recapture Agreement sets a ceiling of USD5.25bn for the rest of Chrysler

The Equity Recapture Agreement sets a ceiling of USD5.25bn for the rest of Chrysler, based on our calculations. This is based on a maximum value of USD4.25bn with 9% interest compounding per annum from January 2010. While this gets us to an amount of c.USD6bn as at the end of Q4:13 – this sum gets offset by VEBA's share of Chrysler's "dividend/builder basket" accumulated since January 2012. This dividend basket consists of 50% of Chrysler's net income since January 2012 (net income in FY:12 = USD1.7bn & FY:13E guidance mid-point = USD1.95bn). The total dividend basket, therefore, amounts to USD1.8bn (50% of USD3.65bn) – with VEBA's share being c.USD750mn. The renegotiation of the Chrysler's Term Loan B (see Exhibit 4) has enabled Fiat to unlock a dividend stream from Chrysler equivalent to 50% of Chrysler's net income. This helps Fiat in two ways:

- (1) Fiat can pay itself c.USD1,050mn in cash from the accumulated "dividend/builder basket" (as at the end of FY:13)

- (2) Fiat can use VEBA's 41.5% share (c.USD750mn as at FY:13) to offset the purchase price for Chrysler under the Equity Recapture Agreement


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Exhibit 4The renegotiation of Term Loan B has enabled Fiat to unlock a dividend stream from Chrysler equivalent to 50% of Chrysler's net income

Source: Chrysler Q2:13 Presentation

"They should buy a lottery ticket" – Marchionne

What price would Marchionne be willing to pay? The USD5.25bn seems to be higher than Fiat's CEO considers reasonable. In a recent interview, Marchionne was quoted as saying "...they should buy a lottery ticket" in response to a reporter's question on whether he felt a c.USD5bn amount was reasonable. Fiat's offer price as implied by Tranche 3 of the Equity Call Option Agreement suggests that USD3.2bn may be as far Fiat is willing to go. VEBA are holding out for more – hence, the IPO filing.


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3. What Is The VEBA Seeking?

(1) An IPO entails a different application of the Equity Call Option Agreement

We highlighted in Section 1 of this report that under the Equity Call Option Agreement, Fiat uses a predetermined pricing mechanism to value Chrysler. Before an IPO, the exercise price is based on a market multiple not to exceed Fiat's multiple applied to Chrysler's reported LTM EBITDA less net industrial debt and following an IPO based on trading price of common stock.

Chrysler's valuation under the Equity Call Option Agreement is, therefore, capped by Fiat's multiple. Irrespective of the disagreements in the interpretation of the pricing formula, an IPO means that Chrysler's value is no longer dragged down by Fiat. A quick analysis of multiples across the global car industry shows that the market may well be prepared to pay a higher multiple for Chrysler in an IPO – although given the small stake being offered a sizeable discount may be inevitable (see Exhibit 5).

Exhibit 5Will the market be prepared to pay a higher multiple for Chrysler in an IPO?

Source: Capital IQ and Bernstein estimates and analysis.

(2) Market valuation for GM/Ford has picked up

Another reason why VEBA appear keen to pursue an IPO is the rising market value of Ford and GM. Ford and GM are likely proxies for VEBA's expectations of Chrysler's value and investor sentiment has turned increasingly positive since Q4:12 (see Exhibit 6 and Exhibit 7). Ford and GM have perhaps also been helped by a better outlook for European mass-market carmakers as well as continued growth in China.

Company 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014BMW 39% 40% 53% 51% 2.5 2.8 3.8 4.1 7.9 8.2 10.2 10.8Daimler 37% 34% 50% 47% 3.9 3.9 8.6 4.9 8.3 7.0 10.4 11.1Fiat 39% 26% 32% 31% 3.0 2.7 3.4 3.1 5.4 14.3 21.9 11.5PSA 14% 11% 14% 13% 3.1 -1.9 5.6 3.4 7.9 n.m. n.m. n.m.Renault -10% -13% 5% 5% -1.3 -1.8 0.9 0.6 4.6 5.5 25.3 7.4Volkswagen (Pref) 31% 38% 45% 44% 2.9 3.8 4.5 4.3 3.7 3.0 8.1 7.5

Great Wall 67% 86% 233% 197% 4.3 4.9 11.4 10.1 7.9 7.6 12.3 11.1Geely 91% 67% 73% 71% 6.1 4.5 5.1 4.7 10.9 8.8 10.0 8.2Brilliance 125% 95% 111% 86% 13.6 8.1 8.3 6.8 17.8 14.6 14.0 11.5Dongfeng 47% 60% 41% 36% 3.7 5.1 3.5 3.1 9.0 10.7 8.1 7.4GAC n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 12.4 37.2 22.0 15.3

Company 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014Ford 39% 43% 54% 52% 4.2 4.3 6.6 6.1 2.5 7.7 11.3 9.9GM 28% 25% 30% 30% 3.2 4.5 3.5 2.9 5.7 7.6 10.8 8.0Toyota 43% 82% 71% 71% 5.7 8.7 5.4 5.1 34.0 21.4 10.7 10.1Nissan 29% 25% 33% 31% 2.5 2.2 2.6 2.4 9.3 11.8 8.7 7.7Honda 50% 57% 48% 48% 6.8 6.0 4.4 4.0 24.4 16.6 10.8 9.4Mazda 45% 82% 70% 70% 30.6 15.7 7.9 7.0 -3.2 38.6 11.7 8.7Suzuki 29% 40% 37% 37% 3.3 4.2 3.6 3.4 18.3 16.7 12.2 11.4Hyundai 39% 46% 43% 43% 3.1 3.4 3.4 3.1 7.5 6.9 7.1 6.4

Industrial EV/Sales

Industrial EV/Sales

Industrial EV/Sales Industrial EV/EBITDA

Industrial EV/EBITDA

Industrial EV/EBITDA

Price/Earnings

Price/Earnings

Price/Earnings


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Exhibit 6Investor sentiment has turned increasingly positive…

Exhibit 7…GM & Ford are likely proxies for VEBA's expectations of Chrysler's value

Source: Bloomberg LP and Bernstein analysis. Source: Bloomberg LP and Bernstein analysis.

(3) Chrysler's substantial pension & OPEB deficit is highly sensitive to discount rates

The VEBA's thinking about the valuation of Chrysler and the timing of an IPO may also be affected by assumptions about interest rates. Chrysler's pension and OPEB deficit (c.USD10.6bn at the end of Q2:13down from USD12.1bn at the end of Q4:12) is highly sensitive to changes in discount rates, with a 100bps change in discount rates having a USD4bn impact on the pension/OPEB liability. The theory is that rising discount rates will cut down the size of Chrysler's pension/OPEB liability and, therefore, push up the value of VEBA's own equity component (41.5%). We show in Exhibit 8 a snapshot of Chrysler's pension/OPEB liability as well as the reported sensitivity (from Chrysler's 10-K) to changes in discount rates.

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Ford: P/E NTM (Jan:11-Present)

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GM: P/E NTM (Jan:11-Present)


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Exhibit 8Chrysler's pension & OPEB liability is highly sensitive to changes in discount rates


(4) What would Chrysler be worth in an IPO?

What would Chrysler be worth in an IPO? The current multiples of Ford and GM are rather disparate, with Ford on 6.6x EBITDA and GM on 3.5x. Should Chrysler trade on a blended multiple? On a GM multiple (since Ford has proven itself to be a much more profitable business than Chrysler)? On a discount to GM? An IPO process will require investors to answer this question and provide an indicative value for Chrysler. We show a valuation based on an average of Ford's and GM's multiples in Exhibit 9 but we are dubious that this is valid – a valuation nearer GM's multiple looks more relevant and would derive a value closer to USD4bn.

We show in Exhibit 10 a sensitivity of Chrysler's value to different EV/EBITDA multiples as well as pension/OPEB assumptions. It is clear that rising multiples and a shrinking pension/OPEB deficit drive up Chrysler's value substantially. While a shrinking pension deficit at Chrysler ultimately benefits Fiat by bringing down the debt levels of the consolidated entity, the question here is how much cash Fiat has to fork out upfront to get VEBA to sell. As we point out later in this note, Fiat's access to Chrysler's gross cash pile is restricted through covenants attached to Chrysler's secured senior loan notes, therefore, the price paid forVEBA's stake impacts Fiat's own funding/cash requirements.

Dec-11 Dec-12 H1:13Pension and OPEB liability (balance sheet value) - USDmn 9,383 12,052 10,561Change 2,669 -1,491

10bps increase in discount rateImpact On 2013 Pension Expense (USDmn) -25Impact On 2013 Projected Benefit Obligation (USDmn) -396

10bps increase in discount rateImpact On 2013 OPEB expense (USDmn) -2Impact On 2013 OPEB Obligation (USDmn) -37

Worldwide Weighted Average AssumptionsBenefit Obligations at Dec 31:Discount Rate - Ongoing Benefits 4.84% 3.98% n/a

Periodic CostsDiscount Rate - Ongoing Benefits 5.33% 4.84% n/aExpected Return on Plan Assets 7.41% 7.41% n/a

Chrysler: Pension & OPEB Sensitivity (H1:13)


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Exhibit 9Applying GM/Ford multiples, values VEBA's 41.5% stake at USD7.3bn (higher than the ceiling price agreed as per the Equity Recapture Agreement)

Source: Bloomberg LP, Capital IQ and Bernstein estimates and analysis.

Exhibit 10Chrysler sensitivity analysis – using EV/EBITDA as the single valuation reference multiple

Source: Bloomberg LP, Capital IQ and Bernstein estimates and analysis.

$mn $mn (except where stated otherwise)Equity Call Option Agreement Peer Multiples Valuation Of Remaining 41.5%Cost Of 3.32% (Jul:13) 255 GM Chrysler - Guidance100% Equity 7,672 EV/Sales (2013) 30% Sales (2013) 73,500Net Debt (Q2:13) 656 EV/EBITDA (2013) 3.5x EBITDA (2013) 6,490Pension & OPEB (Q2:13) 10,561 P/E (2013) 10.8x EBIT (2013) 3,550EV 18,889Rev 2013 - Guidance (mid-point) 73,500 Ford Peer-based valuationEBIT 2013 - Guidance 3,550 EV/Sales (2013) 54% EV - Sales (2013) 31,167EBITDA 2013 - Guidance 6,490 EV/EBITDA (2013) 6.6x EV - EBITDA (2013) 32,855

P/E (2013) 11.3x Average EV 32,011Implied MultiplesImplied EV/Sales 26% Average Chrysler Discount To Peers -10%

Implied EV/EBIT 5.3x EV/Sales (2013) 42% Net Debt (Q2:13) 656Implied EV/EBITDA 2.9x EV/EBITDA (2013) 5.1x Pension & OPEB (Q2:13) 10,561

P/E (2013) 11.1x Equity value (100%) 17,593Net Income Guidance - 2013 1,950 Equity value (41.5%) - USDmn 7,301P/E 11.1xEquiy Value 21,603 FX Rate (US$:EUR) 1.35

Equity value - €mn (41.5%) 5,408

Chrysler Analysis: Implied Valuation

8 3.1x 3.3x 3.6x 3.8x 4.1x 4.3x 4.6x 4.8x 5.1x 5.3x 5.6x 5.8x 6.1x 6.3x 6.6x 6.8x 7.1x16,961 0.11 0.72 1.32 1.93 2.54 3.14 3.75 4.35 4.96 5.57 6.17 6.78 7.38 7.99 8.60 9.20 9.8116,561 0.28 0.88 1.49 2.10 2.70 3.31 3.91 4.52 5.13 5.73 6.34 6.94 7.55 8.16 8.76 9.37 9.9716,161 0.44 1.05 1.66 2.26 2.87 3.47 4.08 4.69 5.29 5.90 6.50 7.11 7.72 8.32 8.93 9.53 10.1415,761 0.61 1.22 1.82 2.43 3.03 3.64 4.25 4.85 5.46 6.06 6.67 7.28 7.88 8.49 9.09 9.70 10.3115,361 0.78 1.38 1.99 2.59 3.20 3.81 4.41 5.02 5.62 6.23 6.84 7.44 8.05 8.65 9.26 9.87 10.4714,961 0.94 1.55 2.15 2.76 3.37 3.97 4.58 5.18 5.79 6.40 7.00 7.61 8.21 8.82 9.43 10.03 10.6414,561 1.11 1.71 2.32 2.93 3.53 4.14 4.74 5.35 5.96 6.56 7.17 7.77 8.38 8.99 9.59 10.20 10.8014,161 1.27 1.88 2.49 3.09 3.70 4.30 4.91 5.52 6.12 6.73 7.33 7.94 8.55 9.15 9.76 10.36 10.9713,761 1.44 2.05 2.65 3.26 3.86 4.47 5.08 5.68 6.29 6.89 7.50 8.11 8.71 9.32 9.92 10.53 11.1413,361 1.61 2.21 2.82 3.42 4.03 4.64 5.24 5.85 6.45 7.06 7.67 8.27 8.88 9.48 10.09 10.70 11.3012,961 1.77 2.38 2.98 3.59 4.20 4.80 5.41 6.01 6.62 7.23 7.83 8.44 9.04 9.65 10.26 10.86 11.4712,561 1.94 2.54 3.15 3.76 4.36 4.97 5.57 6.18 6.79 7.39 8.00 8.60 9.21 9.82 10.42 11.03 11.6312,161 2.10 2.71 3.32 3.92 4.53 5.13 5.74 6.35 6.95 7.56 8.16 8.77 9.38 9.98 10.59 11.19 11.8011,761 2.27 2.88 3.48 4.09 4.69 5.30 5.91 6.51 7.12 7.72 8.33 8.94 9.54 10.15 10.75 11.36 11.9711,361 2.44 3.04 3.65 4.25 4.86 5.47 6.07 6.68 7.28 7.89 8.50 9.10 9.71 10.31 10.92 11.53 12.1310,961 2.60 3.21 3.81 4.42 5.03 5.63 6.24 6.84 7.45 8.06 8.66 9.27 9.87 10.48 11.09 11.69 12.3010,561 2.77 3.37 3.98 4.59 5.19 5.80 6.40 7.01 7.62 8.22 8.83 9.43 10.04 10.65 11.25 11.86 12.4610,161 2.93 3.54 4.15 4.75 5.36 5.96 6.57 7.18 7.78 8.39 8.99 9.60 10.21 10.81 11.42 12.02 12.63

9,761 3.10 3.71 4.31 4.92 5.52 6.13 6.74 7.34 7.95 8.55 9.16 9.77 10.37 10.98 11.58 12.19 12.809,361 3.27 3.87 4.48 5.08 5.69 6.30 6.90 7.51 8.11 8.72 9.33 9.93 10.54 11.14 11.75 12.36 12.968,961 3.43 4.04 4.64 5.25 5.86 6.46 7.07 7.67 8.28 8.89 9.49 10.10 10.70 11.31 11.92 12.52 13.138,561 3.60 4.20 4.81 5.42 6.02 6.63 7.23 7.84 8.45 9.05 9.66 10.26 10.87 11.48 12.08 12.69 13.298,161 3.76 4.37 4.98 5.58 6.19 6.79 7.40 8.01 8.61 9.22 9.82 10.43 11.04 11.64 12.25 12.85 13.467,761 3.93 4.54 5.14 5.75 6.35 6.96 7.57 8.17 8.78 9.38 9.99 10.60 11.20 11.81 12.41 13.02 13.637,361 4.10 4.70 5.31 5.91 6.52 7.13 7.73 8.34 8.94 9.55 10.16 10.76 11.37 11.97 12.58 13.19 13.796,961 4.26 4.87 5.47 6.08 6.69 7.29 7.90 8.50 9.11 9.72 10.32 10.93 11.53 12.14 12.75 13.35 13.966,561 4.43 5.03 5.64 6.25 6.85 7.46 8.06 8.67 9.28 9.88 10.49 11.09 11.70 12.31 12.91 13.52 14.126,161 4.59 5.20 5.81 6.41 7.02 7.62 8.23 8.84 9.44 10.05 10.65 11.26 11.87 12.47 13.08 13.68 14.295,761 4.76 5.37 5.97 6.58 7.18 7.79 8.40 9.00 9.61 10.21 10.82 11.43 12.03 12.64 13.24 13.85 14.465,361 4.93 5.53 6.14 6.74 7.35 7.96 8.56 9.17 9.77 10.38 10.99 11.59 12.20 12.80 13.41 14.02 14.624,961 5.09 5.70 6.30 6.91 7.52 8.12 8.73 9.33 9.94 10.55 11.15 11.76 12.36 12.97 13.58 14.18 14.794,561 5.26 5.86 6.47 7.08 7.68 8.29 8.89 9.50 10.11 10.71 11.32 11.92 12.53 13.14 13.74 14.35 14.95

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Chrysler 41.5% Stake Value (USDbn)EV/EBITDA


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(5) The Equity Call Option Agreement would still apply to the 3 tranches already exercised

Even if an IPO were to go ahead, we highlight that the 3 tranches (~10% of Chrysler) exercised by Fiat under the Equity Call Option Agreement would still be priced based on a TTM EBITDA multiple capped at Fiat's own multiple. Fiat has two further tranches under this Agreement which would be impacted if an IPO were to go ahead before their exercise date (i.e. the earliest that Fiat can exercise its fourth tranche is January 2014). Given that the Delaware Chancery Court has already partially ruled in favour of Fiat, it appears wise on VEBA's part to move away from the pre-agreed pricing formula that they obviously perceive as undervaluing their stake.

(6) We believe the Equity Recapture Agreement/price ceiling lapses upon an IPO

Another dimension of VEBA's decision to opt for an IPO is perhaps to rid themselves of the price ceiling set out by the Equity Recapture Agreement. The Equity Recapture Agreement (Option 2) sets a ceiling price of USD6bn (or USD5.25bn after deducting VEBA's share of Chrysler's dividend/builder basket) for VEBA's 41.5% and expires "the earlier of (i) December 31, 2018 or (ii) payment of all amounts or transfer of all interests in excess of the specified threshold to the holder". Our understanding is that the Equity Recapture Agreement lapses upon an IPO. Simplistically, Fiat currently holds pre-emption rights over VEBA's 41.5% of Chrysler under the Equity Recapture Agreement, however, upon an IPO these rights lapse. This means that if an IPO of Chrysler's 16.6% does go ahead then Fiat loses its price ceiling over the rest of VEBA's stake in Chrysler i.e. no pro-rata application of the Equity Recapture Agreement over the remainder.

(7) Time appears to be on VEBA's side – does Fiat need this more than VEBA?

Time appears to be on VEBA's side.

- (i) VEBA's current stake in Chrysler yields c.USD450mn p.a. irrespective of an IPO. VEBA's current equity stake of 41.5% stake in Chrysler is illiquid and dividend distributions (i.e. 41.5% of the accumulated c.USD1.8bn dividend/builder basket) are controlled by Fiat. VEBA's only current contribution from Chrysler comes in the form of interest payments on VEBA's Trust Note (carrying value of USD4.3bn as at Q2:13 carrying an effective interest rate of 11.71%). Irrespective of an IPO, VEBA will continue to receive interest payments on its loan note. There is little to suggest any urgency on VEBA's side to monetize its equity stake.

- (ii) Core Fiat's position in LATAM is worsening. Fiat's main earnings/cash flow contributor is LATAM where slowing end markets (lapping incentive-elevated comps in Brazil), weak currencies and rising competition is making life difficult for all OEMS. While Fiat has held onto its guidance to increase absolute profit in LATAM in H2:13 compared to H1:13, the company's prospects in LATAM look challenged at least in the short-term.


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Exhibit 11The Brazilian light vehicle market was down 10% YoY in Q3:13…

Exhibit 12…with Fiat's own sales down 21% YoY over the same period

Source: ANFAVEA and Bernstein analysis. Source: ANFAVEA and Bernstein analysis.

- (iii) Core Fiat's cash burn continues – big capex ramp-up in 2014? Fiat (ex-Chrysler) continues to burn cash. H1:13 has been core Fiat burn >EUR500mn in cash with FY:13 guidance implying a higher cash burn in H2:13 compared to the first half of the year. Furthermore, with core Fiat's strategy to move upscale by retooling its Italian plants (capacity expansion for higher projection Maserati volumes as well as Alfa) capex is expected to jump by c.EUR1bn-1.5bn from a run-rate of EUR8bn-8.5bn in FY:13 to c.EUR9bn-9.5bn in FY:14 at a Group level.

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Brazil Light Vehicle Sales Growth (Mar 2008-Sep 2013)

New Tax Break Introduced: Mar

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Exhibit 13Chrysler has a free cash flow target of c.USD1bn for FY:13…

Exhibit 14…while Fiat Group's net debt guidance for FY:13 implies cash burn of >EUR1bn in core Fiat

Source: Corporate reports and Bernstein analysis. Note: FY:10 figure related to Fiat Group pre-demerger, therefore, includes the cash generation of Fiat's car business as well as what is now Fiat Industrial.


4. IPO Registration Document contains some interesting statements

Chrysler filed a registration statement (Form S-1) in relation to a proposed IPO with the SEC on September 24th 2013. The registration document contains a "Risk Section" (c.30 pages) right in the front which contains a number of thinly-veiled threats from Fiat in addition to standard risks. We summarise belowFiat-specific risks:

(1) Fiat-Chrysler Alliance risk:

The headline risk to the IPO is Fiat potentially slowing further intensification of the alliance with Chrysler. As per Page 24/25 of Form S-1:

"We depend on the Fiat- Chrysler Alliance to provide new vehicle platforms and powertrain technologies, additional scale, global distribution and management resources that are critical to our viability and success."

"Because of our dependence on the Fiat- Chrysler Alliance, any adverse development in the Fiat- Chrysler Alliance could have a material adverse effect on our business prospects, financial condition and results of operations."

"Fiat has informed us that it is evaluating the various potential impacts that a public offering and the consequential introduction of public stockholders may have on its views of the Fiat- Chrysler Alliance, and

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Chrysler: Reported Free Cash Flow (FY:10-H1:13)

FCF Target of c.USD1bn for FY:13

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Fiat (ex-Chrysler): Reported Free Cash Flow (FY:10-H1:13)

Guided cash burn of c.EUR1.3bn for FY:13


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as such, is considering whether or not to continue expanding the Fiat-Chrysler Alliance beyond its existing contractual commitments in accordance with historical practice and as envisioned by the Company's 2010-2014 Business Plan."

"A termination of the Fiat- Chrysler Alliance would likely have a material adverse effect on us. Fiat may terminate the master industrial agreement dated June 10, 2009 and related ancillary agreements at any time on 120 days' prior written notice."

(2) Fiat, in its capacity as majority owner of Chrysler, has the ability to appoint a majority of directors on the Board. As per the S-1;

"Despite processes we have implemented to guard against conflicts of interest...and to review affiliate transactions, Fiat may take actions or cause the Company to take actions that are not in the best interests of the Company or that disproportionately benefit Fiat as compared to us."

(3) Management time allocation

"We do not have a specified allocation of required time and attention for Mr. Marchionne, our Chief Financial Officer or certain other members of management. If any of them allocates more of their time and attention to non- Chrysler matters, our business, financial condition and results of operations may suffer. For so long as Fiat has the right to designate a director, the appointment of our Chief Executive Officer will require the prior approval of Fiat, and the Chief Executive Officer cannot be removed or replaced without Fiat approval."

(4) Fiat's concerns about an IPO harming the integration effort

"...Fiat has expressed its desire to acquire all of our outstanding equity or otherwise create a simplified, unified capital structure through the acquisition of the minority ownership in us held by the VEBA Trust, a portion of which will be sold in this offering. Completion of this offering will prevent or delay Fiat frommeeting this objective, and Fiat has stated that it believes a publicly- traded Chrysler Group will prevent or delay the full realization of the benefits of the Fiat- Chrysler Alliance. Fiat has informed us that it is reconsidering the benefits and costs of further expanding its relationship with us and the terms on which Fiat would continue the sharing of technology, vehicle architectures and platforms, distribution networks, production facilities and engineering and management resources. In light of Fiat's concern that the full realization of the benefits of the Fiat- Chrysler Alliance may be prevented or delayed, Fiat therefore may also exercise its governance rights in a manner that it perceives will enhance the value ofthe Fiat- Chrysler Alliance to Fiat, rather than to Chrysler. This could include decisions on capital preservation or allocation, investments and location of production facilities and other operational decisions. Further, Fiat may at any time, or from time to time, purchase or, following expiration of thelock- up period, sell shares of common stock on the open market (subject only to compliance with applicable securities laws). There can be no guarantee that Fiat will not pursue such a plan to achieve its objectives."

(5) Emission targets – Chrysler includes Fiat's smaller vehicles to lower its fleet average emissions

"A disruption of Fiat's supply of such vehicles, or of technology or powertrains, to us could have an effect on the model year average fuel economy ratings of our fleet, which, in turn, could affect consumer perception of our company and our sales. Similarly, Fiat could seek to be compensated by us in the future for any savings we find in including sales of Fiat vehicles in our CAFE fleet compliance reports."


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(6) Fiat is free to sell its Chrysler stake

"Fiat is free to sell, in whole or in part, its equity ownership in us, which could reduce Fiat's incentive to support our industrial alliance and may subject us to the control of a presently unknown third party."

(7) Chrysler's international expansion plans rely heavily on Fiat

"Meeting our objective of increasing our vehicle sales outside North America is largely dependent upon access to Fiat's network of distribution arrangements, manufacturing capacity and local alliance partners."

(8) Even the sell-side community gets a mention

"If equity research analysts do not publish research or if they publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline."

"Fiat may seek to focus investor relations activities and market communication on the Fiat Group and limit communications regarding Chrysler to those necessary for compliance purposes which may impact our stock price and trading volumes."

(9) Fiat controls all future dividend payouts from Chrysler

"Because we do not currently intend to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you are able to sell your common stock for a price greater than that which you paid for it."

5. Affordability Analysis – Fiat's credit metrics could get stretched

Affordability analysis – can Fiat pay VEBA's asking price? Yes, it can

Some investors we speak with question how Fiat can finance the acquisition of Chrysler. We believe Fiat could simply use part of its gross cash balance to pay for the deal – and can afford to do so. This obviously impacts Fiat's credit rating which we examine in detail below. Core Fiat ended Q2:13 with an incredible gross cash balance of EUR8.9bn. Assuming that EUR5bn is the minimum safety buffer against working capital fluctuations, it leaves Fiat with c.EUR3.9bn (USD5.3bn at current exchange rates) to buy the rest of Chrysler. This may well be enough. As per the Equity Recapture Agreement, the ceiling price for VEBA's 41.5% amounts to c.USD6bn by year-end. This price is offset by USD750mn – VEBA's 41.5% share in Chrysler's dividend/builder basket. Furthermore, Fiat can deploy its own USD1,050mn share of Chrysler's dividend to partially offset the acquisition price. Therefore, the cash cost to core Fiat ends up being USD4.2bn (EUR3.1bn) – within Fiat's affordability limit. The impact on Fiat-Chrysler's credit rating is likely to be the main complicating factor. Core Fiat has some meaningful debt maturities over the coming years – including capital market debt (see Exhibit 17). While Fiat may be able to roll over bank debt, the bond/capital markets are likely to react negatively to a large cash outflow. Since the end of Q2:13, Fiat has engaged in the following debt/capital markets transactions:

(1) 12th July 2013: Issuance of EUR850mn 6.75% notes due October 2019


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(2) 18th July 2013: Successful syndication of 3-year revolving credit facility (increased size of the facility from EUR2bn to EUR2.1bn)

(3) 12th September 2013: An additional EUR400mn re. the 12th July issuance of EUR850mn on the same terms.

Exhibit 15Core Fiat ended Q2:13 with gross cash of EUR8.9bn


7,040 7,0017,420

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Chrysler & Fiat (ex-Chrysler): Gross Cash €mn (Q2:11-Q2:13)

Chrysler Gross Cash Fiat ex-Chrysler Gross Cash


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Exhibit 16Core Fiat's net industrial debt amounted to €5.5bn at the end of H1:13

Note: The net debt number for 2010* relates to the proportion (EUR500mn out of EUR2.4bn) of net debt of Fiat Group transferred to the Auto business. The figure for 2011 and 2012 is excluding Chrysler net industrial debt.


Exhibit 17Debt maturities over the next few years are meaningful – can Fiat roll bank debt easily?


The potential impact on Fiat's credit rating

One of the main considerations in relation to negotiating with VEBA over the price of Chrysler is the impact on Fiat-Chrysler's credit rating. Fiat-Chrysler's long-term debt is presently rated "BB-" (with a negative outlook) by Fitch and "Ba3" (three notches below investment grade) by Moody's. Debt servicing (including pension/OPEB related costs) accounts for c.45%-50% of Group trading profit (see Exhibit 18and Exhibit 19). While Chrysler has been able to refinance and achieve better interest rates i.e. Term Loan B in June, core Fiat remains challenged. Even if Fiat gets to 100% Chrysler ownership, existing covenants

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Fiat (ex-Chrysler): Net Industrial Debt (2003-H1:13)

Outstanding June 30, 2013 (EURbn) 6m:13 2014 2015 2016 2017 Beyond

5.8 Bank Debt 1.6 1.4 1.4 0.6 0.3 0.410.5 Capital Market 0.1 2.2 1.9 2.3 1.9 1.91.1 Other Debt 0.7 0.0 0.0 0.0 0.3 0.317.1 Total Cash Maturities 2.4 3.7 3.3 2.9 2.6 2.6

8.9 Cash & Marketable Securities2.0 Undrawn Credit Lines10.9 Total Available Liquidity

Fiat ex Chrysler (Debt Maturity Schedule)


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around Chrysler's senior secured notes restrict Fiat's access to Chrysler's gross cash pile (the call premium on Chrysler's senior secured notes is prohibitively high till 2015/16).

Exhibit 18Fiat-Chrysler's interest payments are substantial…

Exhibit 19…accounting for c.45%-50% of Group trading profit

Note: Includes pension/OPEB related charges. Fiat-Chrysler consolidated accounts since May:11.


Note: Includes pension/OPEB related charges. Fiat-Chrysler consolidated accounts since May:11.


Can core Fiat afford a cash outflow of USD6bn? We think it can...

Fiat-Chrysler's current credit rating of Ba3 by Moody's reflects that core Fiat does not have full access of Chrysler's cash. We published a detailed piece in May 2012 (May 21, 2012 - Fiat: Upgrade To Outperform- Sooner

Rather Than Later: Does Buying 100% Of Chrysler Make Sense Even In A Euro Crisis?) where we looked in-depth at the methodology used by Moody's in determining Fiat-Chrysler's credit rating. Rating agencies already use consolidated Fiat-Chrysler financials when calculating their metrics. However, to reflect the fact that Fiat’s standalone liquidity situation is actually a lot worse without Chrysler, they appear to mark down the resultant credit score, to take account of Fiat’s lack of control of cash.

We have worked out detailed credit scores based on Moody's credit rating framework. We assume a total price of USD6bn for 41.5% of Chrysler i.e. ceiling price as per the Equity Recapture Agreement. We highlight that the net cash payable by Fiat would be c.USD4.2bn (i.e. USD6bn less the USD1.8bn of Chrysler's own dividend basket). From a credit rating perspective for the combined Group, the utilisation of cash from Chrysler's balance sheet is credit neutral. We show in Exhibit 20 Fiat-Chrysler's current credit rating (i.e. Ba3 as per Moody's) based on Fiat's current 58.5% ownership stake in Chrysler. In Exhibit 23we show what the Group's credit rating could look like if Fiat owned 100% of Chrysler. The main negative is obviously the higher net debt on the Group's balance sheet (we assume gross debt remains unchanged and that Fiat uses its gross cash pile to finance the transaction). The elimination of minorities makes the Group's profitability metrics look better – offset by higher interest payments. On a net basis, we show that Fiat-Chrysler's credit rating would remain unchanged despite paying full price for Chrysler. Our analysis may be simplistic and rating agencies may take a more stringent view.

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Fiat-Chrysler: Financial Charges (Q1:11-Q2:13)

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Fiat-Chrysler: Financial Charges As % Of Trading Profit (Q1:11-Q2:13)


http://www.bernsteinresearch.com/brweb/view.aspx?eid=wcvA6ChmCFypKPmrTHuBHfuL5MfRF10cIqFTT1pszClm3rzyx2TvZ%2bbemekI8dwT

http://www.bernsteinresearch.com/brweb/view.aspx?eid=wcvA6ChmCFypKPmrTHuBHfuL5MfRF10cIqFTT1pszClm3rzyx2TvZ%2bbemekI8dwT

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Exhibit 20Fiat-Chrysler's current composite score of 12.75 puts its credit rating in the Ba3 category

Source: Moody's Investors Service, Global Automobile Manufacturer Industry and Bernstein analysis.

Exhibit 21Even if Fiat pays full price for Chrysler, its composite score of 12.9 means that its credit rating remains in the Ba3 category

Source: Moody's Investors Service, Global Automobile Manufacturer Industry and Bernstein analysis.

Grid factors Sub-factor weight Aaa Aa A Baa Ba B CaaFactor 1: Market Position and Trend (35%)(a) Trend in Global Unit Share over Three Years 5% x(b) Product Breadth and Strength 30% x

Factor 2: Leverage and Liquidity (20%)(a) Debt/EBITDA 10% 4.2x(b) Debt/Capital 5% 79%(c) (Cash + Mkt Sec)/Total Debt 5% 50%

Factor 3: Profitability and Returns (15%)(a) EBITA Margin 5% 5.5%(b) NPATBUI/Sales 5% 0.4%(c) EBITA/Average Assets 5% 5.6%

Factor 4: Cash Flow and Debt Service(a) RCF/Debt 10% 16%(b) FCF/Debt 10% -3%(c) EBITA/Interest Expense 10% 2.6x

Scaling 1 3 6 9 12 15 18Composite score 12.75Rating Ba3

Fiat-Chrysler: Credit Rating - At 58.5% Chrysler Stake (2013)Indicated Rating

Grid factors Sub-factor weight Aaa Aa A Baa Ba B CaaFactor 1: Market Position and Trend (35%)(a) Trend in Global Unit Share over Three Years 5% x(b) Product Breadth and Strength 30% x

Factor 2: Leverage and Liquidity (20%)(a) Debt/EBITDA 10% 4.2x(b) Debt/Capital 5% 79%(c) (Cash + Mkt Sec)/Total Debt 5% 38%

Factor 3: Profitability and Returns (15%)(a) EBITA Margin 5% 5.5%(b) NPATBUI/Sales 5% 1.3%(c) EBITA/Average Assets 5% 5.6%

Factor 4: Cash Flow and Debt Service(a) RCF/Debt 10% 16%(b) FCF/Debt 10% -3%(c) EBITA/Interest Expense 10% 2.3x

Scaling 1 3 6 9 12 15 18Composite score 12.90Rating Ba3

Fiat-Chrysler: Credit Rating - At 100% Chrysler Stake (2013)Indicated Rating


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Exhibit 22Moody's credit scoring framework

Source: Moody's Investors Service, Global Automobile Manufacturer Industry.


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Appendix

Exhibit 23A history of Fiat Auto's credit rating (2010-YTD:13)


Date Credit Rating Agency DetailsSeptember 18, 2013 BB- (long-term debt) -

rating confirmationFitch Fitch Ratings communicated today that it has confirmed its rating on Fiat S.p.A.’s long-

term debt at “BB-”.

February 25, 2013 BB- (long-term debt) Fitch Fitch Ratings communicated that it has lowered its rating on Fiat S.p.A.’s long-term debt from “BB” to “BB-”.The short-term rating is confirmed at “B”.The outlook is negative.

2012October 10, 2012 Ba3 (long-term debt) Moody's Moody’s Investors Service communicated today that it has lowered from “Ba2” to “Ba3”

the Corporate Family Rating of Fiat S.p.A. and consequently, according to their methodology, from “Ba3” to “B1” the rating of the notes issued by Fiat Finance & Trade Ltd. S.A. and by Fiat Finance North America, Inc..The outlook is negative.

April 27, 2012 BB- (long-term debt), B (short-term rating)

S&P Standard & Poor’s communicated that it has lowered its rating on Fiat S.p.A.’s long-term debt from “BB” to “BB-”.

February 6, 2012 BB (long-term debt), B (short-term rating)

S&P Standard & Poor’s places Fiat’s rating under review for possible downgrade

2011October 18, 2011 BB (long-term debt) Fitch Fitch Ratings communicated today that it has lowered its rating on Fiat S.p.A.’s long-term

debt from “BB+” to “BB”.

September 21, 2011 Ba2 (long-term debt) Moody's Moody’s Investors Service communicated today that it has lowered the Corporate Family Rating of Fiat S.p.A. from “Ba1” to “Ba2”.On the ground of the methodology adopted, Moody’s has also downgraded to “Ba3” the notes issued by Fiat Finance & Trade Ltd. S.A. and by Fiat Finance North America, Inc..The outlook is negative.

April 26, 2011 Ba1 (long-term debt) Moody's Moody’s Investors Service communicated today that it has placed its rating on Fiat S.p.A.’s long term debt (Ba1) under review for possible downgrade.

April 21, 2011 BB+ (long-term debt) Fitch Fitch Ratings communicated today that it has placed its rating on Fiat S.p.A.’s long term debt (BB+) under review for possible downgrade.

February 24, 2011 BB (long-term debt), B (short-term rating)

S&P Standard & Poor’s communicated today that it has lowered its rating on Fiat S.p.A.’s long-term debt from “BB+” to “BB”.

February 9, 2011 Ba1 (long-term debt) Moody's Fiat S.p.A.’s long-term rating is affirmed at “Ba1”. The short-term rating is affirmed at “Not-Prime”. The outlook is negative.

2010November 4, 2010 BB+ (FIAT INDUSTRIAL) S&P Standard & Poor’s Rating Services today assigned its preliminary 'BB+' long-term

corporate credit rating to Fiat Industrial SpA with a negative outlook.

July 21, 2010 Ba1 Moody's Moody's Investor Service placed Fiat's ratings (Ba1/NP) under review for possible downgrade.

April 23, 2010 BB+Ba1BB+

FitchMoody'sS&P

Rating agencies comments and actions following announcement of the Five Year PlanFitch Ratings yesterday affirmed Fiat S.p.A.'s Rating at BB+ with a negative outlook.Moody’s Investor Service today affirmed Fiat S.p.A.'s Rating at Ba1 with a negative outlook; at the same time CNH Global N.V.’s Ba3 Rating with a stable outlook has been affirmed.Standard & Poor’s Ratings Services today placed on CreditWatch with negative implications Fiat S.p.A.’s BB+ long-term rating, while CNH Global N.V.’s "BB+" long-term rating has been placed on CreditWatch with developing implications.

Fiat Auto: Credit Rating History (2010-YTD:2013)


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Exhibit 24Fiat's net debt to EBITDA climbs to 2.6x versus 1.2x if it pays full price for Chrysler's 41.5%


Fiat-Chrysler Debt/EBITDA Analysis €mn Group (as reported)Gross debt (as at 30th June 13) -28,449Cash & Marketable securities 17,969Derivatives Assets/(Liabilities) 389Net Debt (as at 30th June 13) -10,091

o/w Industrial activities -6,711o/w Financial services -3,380

Undrawn committed credit lines 2,994Total available liquidity (as at 30th June 13) 20,963

Gross debt (as at 30th June 13) -28,449o/w Industrial activities -24,952o/w Financial services -3,497

Cash & Marketable securities 17,969o/w Industrial activities 17,783o/w Financial services 186

Derivatives Assets/(Liabilities) 389o/w Industrial activities 389o/w Financial services 0

Net Debt (as at 30th June 13) -10,091o/w Industrial activities -6,711o/w Financial services -3,380

Pension and OPEB (as at 30th June 13) -10,554Gross industrial debt (including pension and OPEB) -35,506EBIT (FY:13) - Bernstein estimate 3,799EBITDA (FY:13) - Bernstein estimate 8,388

Industrial Gross Debt/EBITDA (FY:13) 4.2xIndustrial Net Debt/EBITDA (FY:13) 1.2x

Purchase price of 41.5% of Chrysler 4,444

New Gross debt - industrial activities -35,506New Cash & Marketable securities - industrial act. 13,339New Derivatives Assets/(Liabilities) - industrial act. 389New Net debt - industrial activities -21,778Industrial Gross Debt/EBITDA (FY:11) 4.2xIndustrial Net Debt/EBITDA (FY:11) 2.6x


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Exhibit 25Fiat-Chrysler's cash metrics get hit


Exhibit 26Gross debt/capital remains unchanged


Fiat-Chrysler: Cash and Marketable Securities to Debt€mn Group (as reported)Gross debt (as at 30th June 13) -28,449

o/w Industrial activities -24,952o/w Financial services -3,497

Cash & Marketable securities 17,969o/w Industrial activities 17,783o/w Financial services 186

Derivatives Assets/(Liabilities) 389o/w Industrial activities 389o/w Financial services 0

Net Debt (as at 30th June 13) -10,091o/w Industrial activities -6,711o/w Financial services -3,380

Pension and OPEB (as at 30th June 13) -10,554Gross industrial debt (including pension and OPEB) -35,506

Industrial Cash & CE/Gross Debt (as at 30 June 13) 50%

Cash out for 41.5% of ChryslerNew Cash & Marketable securities - industrial act. 13,339Industrial Cash & CE/Gross Debt (as at 31st Mar 12) 38%

Fiat Auto/Chrysler: Debt to Capital€mn Group (as reported)Gross industrial debt (including pension and OPEB) -35,506

Equity (as at 30 June 13) 9,342

Debt to Capital (as at 30 June 13) 79%


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Exhibit 27Profitability is helped due to elimination of minorities


Fiat Auto/Chrysler Profitability & Returns Analysis€mn Group (as reported)

EBIT (FY:13) - Bernstein Estimate 3,799

Depreciation and amortisation (FY:13) 4,554Revenue (FY:13) - Bernstein estimate 86,626

Depreciation (FY:13) - % of revenue 4.1%Amortisation (FY:13) - % of revenue 1.2%

Amortisation (FY:11) - calendarised - using % of revenue 1,002

EBITA (FY:13) - calculated 4,801EBITA Margin (FY:13) 5.5%EBIT Margin (FY:13) 4.4%

Operating Assets - as reported 86,169EBITA/Average Assets 5.6%

Net profit (FY:13) - Bernstein estimate 346NPATBUI (FY:13) 346NPATBUI/Sales (FY:13) 0.4%

Chrysler consolidationAdjusted Net income - add back minority (less interest)

1,142NPATBUI/Sales (FY:13) - adjusted 1.3%


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Exhibit 28Debt servicing metrics also get hit


Fiat Auto/Chrysler Cash Flow & Debt Service€mn Group (as reported)

Gross industrial debt (including pension and OPEB) -35,506

Retained Cash Flow (FY:13) - cash from ops less dividends before working capital & capex - SCB

5,789

Retained Cash Flow to Debt 16%

Industrial free cash flow (FY:13) - Bernstein ests -966

FCF to Debt -3%Gross interest (FY:13) - clean -1,851

EBITA (FY:13) - calculated 4,801

EBITA/Gross Interest (FY:13) 2.6xEBITA/Net financial charges (FY:11)

ADJUSTED FOR HIGHER INTEREST

Lost Interest @ 5% of cash outflow -222Gross Interest (FY:13) - adjusted -2,073EBITA/Gross Interest (FY:13) 2.3x

Retained Cash Flow to Debt 16%Industrial free cash flow (FY:13) - Bernstein ests -1,189FCF To Debt -3%


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Exhibit 29US housing starts have picked up since the end of 2012

Exhibit 30Prices have followed suit

Source: Bloomberg LP and Bernstein analysis. Source: Bloomberg LP and Bernstein analysis.

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Disclosure Appendix

Valuation Methodology

In a "normal" economy, we value stocks on the basis of their returns on capital, using the calculation "EV/IC = (ROIC – g)/(WACC – g)" where g accounts for growth. We believe that over time, even in the momentum-driven auto sector, valuations will be driven by the ability of a company to generate a return on its capital base and grow its business. In a "normal" economy, we also look at EV/EBITDA and P/E to gauge relative valuations and peak stock price potential. In more challenging times, when earnings areminimal and stocks de-rate, we also look at valuations versus historical troughs on metrics such as EV/IC and EV/sales and look at balance sheet strength.

Risks

The risks to our view on European Autos stocks and our share price targets are straightforward and are mainly macroeconomic in nature. Earnings, liquidity and equity value could be severely tested in the event of a double-dip recession proves even deeper and longer than we forecast and if auto and truck sales fall far below our assumptions, putting our price targets for the European Autos stocks at risk. The ability of the financial services businesses to remain viable is at risk if the financial system deteriorates again and capital market access becomes impossible.

Our forecasts are also sensitive to moves in the Euro versus the US dollar and the UK sterling as well as Latin American and Asian currencies.


SRO REQUIRED DISCLOSURES

∑ References to "Bernstein" relate to Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited, and Sanford C. Bernstein (business registration number 53193989L), a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C, collectively.

∑ Bernstein analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration, productivity and proactivity of investment ideas. No analysts are compensated based on performance in, or contributions to, generating investment banking revenues.

∑ Bernstein rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for stocks listed on the U.S. and Canadian exchanges, versus the MSCI Pan Europe Index for stocks listed on the European exchanges (except for Russian companies), versus the MSCI Emerging Markets Index for Russian companies and stocks listed on emerging markets exchanges outside of the Asia Pacific region, and versus the MSCI Asia Pacific ex-Japan Index for stocks listed on the Asian (ex-Japan) exchanges - unless otherwise specified. We have three categories of ratings:

Outperform: Stock will outpace the market index by more than 15 pp in the year ahead.

Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead.

Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead.

Not Rated: The stock Rating, Target Price and estimates (if any) have been suspended temporarily.

∑ As of 09/26/2013, Bernstein's ratings were distributed as follows: Outperform - 41.3% (0.9% banking clients) ; Market-Perform - 46.2% (0.4% banking clients); Underperform - 12.5% (0.0% banking clients); Not Rated - 0.0% (0.0% banking clients). The numbers in parentheses represent the percentage of companies in each category to whom Bernstein provided investment banking services within the last twelve (12) months.

12-Month Rating History as of 10/06/2013

Ticker Rating Changes

F.IM M (RC) 05/17/13 O (DC) 02/01/13 O (RC) 05/21/12

Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated

Rating Actions: IC - Initiated Coverage, DC - Dropped Coverage, RC - Rating Change

OTHER DISCLOSURES

A price movement of a security which may be temporary will not necessarily trigger a recommendation change. Bernstein will advise as and when coverage of securities commences and ceases. Bernstein has no policy or standard as to the frequency of any updates or changes to its coverage policies. Although the definition and application of these methods are based on generally accepted industry practices and models, please note that there is a range of reasonable variations within these models. The application of models typically depends on forecasts of a range of economic variables, which may include, but not limited to, interest rates, exchange rates, earnings, cash flows and risk factors that are subject to uncertainty and also may change over time. Any valuation is dependent upon the subjective opinion of the analysts carrying out this valuation.

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Approved By: CDK

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Documents

Fiat Auto: Chrysler -The IPO That Will Never Happen · Fiat currently owns 58.5% of Chrysler –the company has also informed VEBA of its intention to acquire incremental tranches