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Fiat SpA: Love For Sale

Friday, August 24, 2012



Unions and Low Margins and Italy. Oh my!
You get that same feeling when you think of lions and tigers and bears, or when you thought about the Detroit
automakers in the winter of 2008, the same time we were piling in money into Ford Motor bonds and equity (see our
internal memo from 9/25/08). Of course this time around, Fiat SpA (F IM) is the company in question. It has the
same symbol, is family-controlled, is run by a fabulous CEO and it has a very similar valuation to Ford's at the time
of 2008 congressional hearings, if not cheaper (relative to mid-cycle earnings). The company is ahead of a
significant two-year product renaissance, which together with multiple cost-saving opportunities, should go a long
way to raising Fiat's mass-market operating margins from 1.5% to at least 5% (excluding Ferrari, Maserati and
Chrysler).

While Fiat, as all other global automakers, operates in abysmal Europe, Fiat-Chrysler is actually less exposed to
Europe (as a percent of company revenue) than is Ford. And while Fiat is headquartered in Italy, where the
government appears increasingly likely to default in the absence of debt monetization by the ECB, there are some
stark differences this time around that make Fiat more of a no-brainer than Ford was over three years ago.

An Easier Decision This Time Around (versus Ford in 2008):
1. Generating Cash: You have resilient businesses that are contributing cash to new product investment and the
despondent European operations, which will be restructured in 2013 (either the company will begin absorbing
current under-utilized capacity by manufacturing additional Alfa Romeo models and Jeeps, or if labor certainty
cannot be reached, there will likely be several plants shuttered). Ford did not have any resilient division helping
offset North American weakness in 2009. Fiat is EBIT and EBITDA positive, (whereas Ford had negative
EBITDA).
2. Superior Capital Allocators: Fiats CEO, Sergio Marchionne, is perhaps the only auto CEO who understands
how to rationally allocate capital. This can be proved numerically: Fiat's share count has actually decreased by
2% since 2006, vs. Ford's increase of 113%. You can see him on 60 Minutes here, or deliver a great speech
here.
3. No Hidden Liabilities: There are no massive pension or healthcare liabilities on Fiat's stand-alone balance sheet
(thanks to Italy's socialized medicine and generous state pensions). Chryslers current value is impeded by an
underfunded pension, but the rapidly growing operating profits should fully-fund this pension over the next few
years.
4. Valuation: Lastly, and most importantly, the current Adjusted EV/EBITDA (Adjusted EV= Market Cap + Net Auto
Debt + Pension Underfunding) of 3.5x stand-alone and 2.7x on a proportional basis completely bakes in the
negative working capital swings that come along with shrinking production volumes in Europe. Fords
EV/EBITDA was negative back in 2009, not because the Enterprise Value (takeover valuation) was less than zero,
but because EBITDA was negative. Fiats current valuation (see Table A) is bested only by bankruptcy-possible
Peugeot.

Fiat in a Nutshell
Small-car manufacturer that loses money in Europe given low capacity utilization and lack of large and luxury
(more profitable) models to offset structural costs. This completely changes with both platform harmonization
savings and a re-launch of Alfa Romeo
The largest auto manufacturer in Brazil, with nearly one quarter of this important market, with a distinct low-
cost advantage vs. Volkswagen, GM and Ford (the next three largest automakers in Brazil) as Fiats massive
plant is scaled up to produce 700,000 vehicles a year (contrasted to most plants producing 150,000-300,000)
A strong commercial van business in both Europe and Brazil
A 58.5%-owner of Chrysler (soon to be 61.8%), the best performing full-line auto manufacturer in North
America in the last year, with options to wholly-own this asset (roughly 40% of these options are struck to be
neutral to Fiat's Enterprise Value, and the rest is at a fixed valuation). Using Fords and GMs adjusted
valuations (Adjusted EV= Market Cap + Net Debt Finco Book Value + Pension Underfunding), the value of
Fiats 58.5% stake in Chrysler is rapidly growing and worth approximately !5.1 billion (!4.05 a share), up
from "4.1 billion in the first quarter. This rapid growth is being fueled by the same drivers that will propel Fiat
stand-alone in late 2013 and 2014: quickly growing cash-flow that allows the company to pay down debt, a
powerful combination to expand the debt-adjusted value of the equity. Of course, Chrysler is growing much
more quickly than Ford and GM, and should have a higher historical valuation
A leader in natural gas / gasoline bi-fuel power-trains (achieving roughly an 80% market share in Europe for
natural-gas vehicles), which could be a stealth "Prius" effect in the making. In the US, retail natural gas prices
are less than $2.00 per gallon equivalent, and with some infrastructure / distribution upgrades, could achieve
parity with the variable costs of electric vehicles while avoiding the $15-30k battery (see Table D). The new
Ram pickup will offer this engine combination, and weve been trying to get the company to launch the option
across Jeep and Dodge platform
A 90% owner of Ferrari and 100% owner of Maserati, which is building out its luxury line-up, with important
launches in 2013. Using BMWs current EBITDA multiple, Ferrari would be worth !2.0 billion (!1.63 a
share) if it were a stand-alone company. Of course, the durability of the Ferrari brand is much stronger than
BMWs (Ferrari has a waiting list for the super car to be sold next year for over $1.5 million, while BMW is
buying roughly 30% of its own vehicles off German dealer lots in order to preserve market share), so this
valuation is quite conservative

And most importantly, valuation: assuming 58.5% of Chrysler's net debt, pension hole, and EBITDA, we are paying
2.4x trailing (at our average price of !4.00) Adjusted EV/EBITDA, levels which completely "bake in" the worst
Italian auto sales market in over three decades and do not reflect the 2013-2014 product renaissance and variable
cost savings on components and platform harmonization, and certainly no European restructuring, which will
inevitably come by next year. Either labor market reforms will explicitly give Fiat a high degree of confidence in the
reliability and cost efficiency of a revitalized Italian factory, or the country will lose the opportunity to repeat
Volkswagens solid example of filling unused capacity with high-value production of luxury cars (Audi) and the
excess capacity will be shuttered indefinitely.

Table A: Global Auto OEM Comparable Valuations, Figures Converted to US Dollars Adjusted EV Multiple
Company
Mrkt
Cap
Net Auto
Debt
Finco
Book
Pen-
sion
Adj
EV
Sales EBITDA
Auto
EBITDA
EBIT
Auto
EBIT
Sales EBITDA EBIT
GM 33.2 -18.8 5.5 31.3 40.2 149.7 13.2 12.3 7.2 6.5 27% 3.3x 6.2x
Volkswagen 76.0 -11.4 15.0 23.4 73.0 198.6 29.1 23.9 14.6 12.8 37% 3.0x 5.7x
Toyota 130.2 -13.7 10.7 8.8 114.6 248.9 19.7 15.9 10.3 6.5 46% 7.2x 17.5x
Ford 38.1 -9.6 8.7 20.2 40.1 120.2 11.0 8.8 7.2 5.1 33% 4.6x 7.8x
Nissan 43.9 -6.9 5.9 2.3 33.5 113.9 13.7 9.2 6.6 4.8 29% 3.6x 7.0x
Hyundai 45.0 -6.7 4.3 0.6 34.6 68.6 8.1 7.0 7.1 6.0 50% 4.9x 5.8x
Fiat Group* 6.9 5.4 1.5 5.4 16.1 60.6 6.7 6.5 2.7 2.4 27% 2.5x 6.6x
Chrysler 12.5 0.4 0.0 9.3 22.2 56.9 5.6 5.6 3.2 3.2

Fiat 6.9 5.1 1.5 0.0 10.4 34.7 3.4 3.2 0.8 0.6 30% 3.3x 18.5x
Honda 59.9 -3.6 3.8 7.3 59.8 103.5 9.7 4.8 4.9 2.7 58% 12.4x 21.9x
Peugeot 2.9 3.1 4.6 0.7 2.0 70.6 3.8 3.2 -0.4 -0.5 3% 0.6x NM
Renault 12.7 1.0 3.2 1.9 12.5 53.2 5.3 4.9 3.1 2.2 23% 2.6x 5.6x
Median

30% 3.3x 6.8x

Note: companies ranked by number of vehicles sold. Uses stock closing prices from Friday, August 24, 2012 and corresponding foreign
exchange rates. Sources information from companies disclosure and at times CapIQ
*Fiat Group includes 58.5% of financial values from Chrysler, given Fiats current ownership of Chrysler (not consolidated)

While a sum-of-the-parts valuation seems compelling (Fiat, Ferrari and Maserati are free if we fairly value the 58.5%
stake in Chrysler), we believe the best way to value Fiat is by a proportional method, using either EBITDA or EBIT.
Fiat has options to acquire the remaining 41.5% Chrysler stake it doesnt own, 40% of which has a strike price tied
to Fiats own valuation. The remaining options have a fixed valuation given to Chrysler, which is great given the
unexpected surge Chrysler is experiencing, surprisingly before its own aggressive product refreshing in 2013. A
sum-of-the-parts valuation is unlikely to be actualized over the next few years, but a merger with Chrysler is very
likely, thus we value Fiat on a proportional basis, by including 58.5% of Chryslers operations.

Through re-launching the Alfa Romeo brand, cost savings on driving platform and parts commonality, we believe
Fiat stand-alone EBIT will expand significantly from "0.6 billion in the last twelve months to "1.3 billion in 2013
(taking into account a weaker remainder of 2012) and "2.4 billion in 2014. Including a growing percentage of
Chryslers EBIT, we estimate LTM EBIT of "2.1 billion will expand to "4.1 billion in 2013 and "6.5 billion in 2014,
more than the current market capitalization. Importantly, this holds global selling volumes constant from Q2 2012,
which especially hurts Fiats stand-alone operations as Italian auto sales hit a multi-decade low in the quarter. We
believe it makes sense to estimate an abysmal selling rate in Italy for the foreseeable future.

Table B: Key Higher-Certainty EBIT Drivers, Net Automotive Debt & Equity Valuation
(! in millions)
EBIT Drivers LTM 2H 2012 2013 2014
Manufacturing Efficiencies 150 380 380
Common Platform Savings 21 93 224
New Alfa Romeo Contribution 0 97 636
Chrysler Market Share 137 653 833
Purchasing Savings 340 314 314
Maserati Contribution 0 52 93
Total 649 1,589 2,479
Cumulative 649 2,237 4,717

EBIT- Fiat 629 837 1,319 2,446
EBIT- Chrysler 2,557 2,998 4,105 5,457
% of Chrysler Owned 58.5% 61.8% 68.5% 75.1%
Potential EBIT (w/ flat economy) 2,125 2,690 4,129 6,544

Net Auto Leverage- Chrysler 1,351 884 -377 -2,522
Net Auto Leverage- Fiat 4,084 4,411 4,817 3,196
Net Auto Leverage- Proportional 4,874 4,957 4,559 1,301

Shares Out 1,250 1,250 1,250 1,250
Equity Value @ 6.8x Multiple !7.66 !10.67 !18.82 !34.56
Please Note: These estimates are intended to show possibilities, not a direct projection. Realization of such projections are
dependent on the company, the economy, commodities, and industry dynamics which cannot be projected with any certainty.
These are estimates of the possibilities, given realistic, if not conservative assumptions.

Chryslers market share is being driven by an aggressive product refreshment that begins in the next few months
with the new Ram 1500 pickup. Its exciting for Chrysler that even prior to this product rejuvenation, the company
has been successfully taking market share across the lineup. It will be interesting to see the market response to the
new Ram which will beat every competitor on fuel efficiency, increasingly the most important metric for buyers
consideration. The market share gains should continue as the entire Jeep and Chrysler lineup gets refreshed
between 2013 and 2014. The EBIT drivers shown above assume no change in auto sales levels in the US over the
period (from Julys 14.05 million annualized pace). Manufacturing efficiencies come largely from two sources:
implementing best practices developed by Fiat at Chrysler factories, which will have a measured rollout, as well as
reconfiguring existing Fiat facilities to drive down the time it takes workers to assemble cars. The company has
consistently beat its projections, but displayed above are Fiats projections given at the 2010 investor day (click
here for slide deck). Also, its important to note that while the Common Platform Savings line item may be far
more conservative than the companys estimates, it assumes that Fiat will plow half of the savings back into more
expensive and higher quality content. Thats been the customary practice of Chrysler, Ford and GM as they all
have given new life to stagnant products.

Margin expansion combined with reductions in net automotive debt drive the value of Fiats equity higher, assuming
all potential drivers hit around our assumptions. Such a scenario of flat macroeconomics, fixed exchange rates and
constant commodity costs is impossible, but given the current stocks undervaluation combined with a large margin
of safety, should Fiats operations deviate negatively from these assumptions, we should still do fairly well over our
medium-term time horizon. We also note that we use the current industry median EBIT multiple of 6.8x to show the
debt-adjusted equity value of Fiat going forward, but nearly the entire auto industry trades at steep discounts to
historical valuations. Even using this low level, the debt-adjusted equity value of Fiat will grow quite nicely over our
typical holding period.

Alfa Romeo, Chrysler and Lancia: A Changed Business Model
Alfa, Chrysler and Lancia have been neglected brands over the past decade. If we take Alfa as a specific example:
in recent quarters it has been selling just two models that have been updated in the last five years. One of the
primary reasons has been the lack of unit scale to justify developing a diverse product line-up on its own. Both of
the relatively fresh models share high-volume platforms with their Fiat-brand brethren, which helps reduce the
upfront cost to developing the models. Management has estimated that up to 60-65% can be saved on
engineering R&D and capital expenditures through sharing common platforms and production lines. The consulting
firm Oliver Wyman assumed very similar levels in a 2005 report. Because all new Chrysler, Lancia, Jeep and Alfa
Romeo models are being developed on common platforms, similar savings are achievable. This now allows Fiat to
achieve rates of return in excess of 25% on invested capital with nearly every new product launch, with some new
launches far higher (assuming a 3-year life of the particular model). Specifically, by our estimates, the weighted
average return on invested capital of all seven new Alfa Romeo products coming will be 40-60%, as opposed to -
10% to 0% without such savings, the variation being primarily the level of market acceptance for the new products.
This combines the development cost savings, as well as modest savings on common parts with Chryslers vehicles.
All of a sudden, the combined company makes Alfa, Chrysler and Lancia viable brands going forward. Chrysler
gets much-needed cars and Fiat gets much-needed larger vehicles.

Table C: Estimated Alfa Romeo Returns Using Estimated US & EU Sales
Model Shared IRR Unshared IRR
Mito -5.7% Shared
Giulietta 81.4% Shared
Giulia 88.8% 4.7%
Fullsize -11.2% -44.6%
4C -31.5% -56.0%
Spider 16.3% -30.0%
SUV 161.2% 36.0%
Total Brand 48.4% -5.1%
Note: Assumes only US and EU sales as estimated in Chart 2 and 65% of total vehicle development costs are shared, as Fiat has guided

Given product launches in 2013, 2014, and 2015 we estimate Alfa will contribute an incremental ~"100 million,
~"600 million, and ~"200 million respectively, to Fiat stand-alone operating profit (see the quarterly breakout of our
base case scenario in Chart 1). This takes into account the showroom in Europe increasing from 2 to 7 products,
and an introduction of the brand back to the United States, with a very modest market response as shown in Chart
2 (these estimates are below managements expectations, and we trust their market research more than ours).
Importantly, it leaves out a very possible launch of Alfa in South America using Fiats significant dealer network, as
well as the nearing launch of Alfa into China. Also importantly, this holds industry volumes constant in US and
Europe, where Italy is currently 40% below mid-cycle auto sales levels. Should the US and Chinese launches go
well (both cultures love Italian luxury brands), one can easily envision the brand adding an additional "1.5-2.0 billion
or more to the companys operating profit (which is currently running just over "600 million at Fiat standalone).

Chart 1: Incremental Operating Profit Contribution from Alfa Romeo Launches

Source: GreenWood estimates based on most recent product launch timetable given by Fiat (see slide 25) and our own assumed profit margins
of certain models.

Chart 2: Comparable 2011 US Sales of Key Competing Brands and Models to Projected Alfa Romeo Volumes (with
Profit Impact Featured in Chart 1)

-t 30
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A Better Way To Run an Auto Business
In our extensive meetings with most global automakers, and on investor calls, nearly every auto company
continuously stresses the need to keep investing in new product development. By and large we agreed with this
mantra, as Chart 3 demonstrates how impactful key vehicle refreshes and new launches are to a companys market
share.

Chart 3: Indexed Impacts to Product Refreshment on Selling Volumes

Note: Includes nearly all major product refreshes and launches by the top seven automakers in the US over the past four years

The Japanese 3 or J3 (Toyota, Honda, Nissan) gained a tremendous share of the US market by keeping
products fresher than Detroit rivals in the 1990s. At times, the product cycle was only one year shorter than
domestic rivals, but this fresh product slowly and surely overtook the more stagnant vehicles in the market. So to
invest, invest, then invest some more, appeared to be the smartest strategy, until one looks at the current
environment in European compact cars. Because automakers face incredible resistance and condemnation the
instant they mention the need to reduce their under-utilized manufacturing footprint in Europe, these companies
have been forced to keep production lines open. As long as the selling price of the vehicle was above variable
(component) costs, it made sense to continue producing vehicles in the factories they were unable to shutter.

Naturally, this focus on pushing volume has led to nasty business practices (self-registration) and profits on certain
vehicle segments (particularly in the compact segment where Fiat competes with the Punto against the VW Polo
and Ford Fiesta) have converged to the vanishing point. Mr. Marchionne has admirably refused to invest in a
successor to the Punto, as current margins in the European market would never pay back the needed investment to
launch such a refreshed product. Fiat may lose temporary market share in this vehicle segment, but when
automakers are reduced to making only a few euros above variable cost, do investors actually care about that kind
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of market share? Of course not, and to the contrary, investors in other auto companies should voice their
dissatisfaction at companies who invest in areas that will guarantee suboptimal returns (including electric vehicles),
as we have with Renault (another of our deeply undervalued investments in the auto industry).

Recent Scorecard: Whos A Better Operator?

Chart 4: Recent Automotive Profit Margins by Key Regions

Note: excludes luxury brands for Fiat, but includes such brands for competitors

While segment reporting earlier than Q1 2012 wasnt broken out geographically for Fiat, comparing these first two
quarters to its far larger competitors demonstrates just how well Fiat is being run, even prior to significant cost-
savings to be achieved by integrating operations with Chrysler. The one segment with room for relative
improvement is Chrysler in North America. Fiat has dedicated a lot of engineering, research & development
expenses to Chryslers 2012, ahead of a fairly aggressive new product cadence that kicks off in the coming months
with a new class-leading fuel efficient Ram pickup and Dodge Dart. Platform development for the new Jeep Liberty
also happens to pay for platform development of SUVs to be launched under the Fiat, Alfa Romeo and Maserati
brands. At the same time, these heightened ER&D expenses bring down the value that Fiat will pay for the next
3.3% slug of Chrysler, which it intends to buy from the UAW healthcare trust (VEBA) in the coming months.
Furthermore, although Chryslers recent strength in the market can make one forget about the products it currently
sells, Chrysler is achieving this recent solid performance with a very uncompetitive and unrefreshed product lineup.
When viewed in this context, were quite happy with North American margins, even though they remain modestly
below peers for the time being.







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Chart 5: US Auto Market Fundamentals: Vehicles Sold vs. Implicit Demand*

*Implicit demand defined as annual cars scrapped (NADA Data) plus new licensed drivers in the year (FHA Data)

Only in recent months have vehicle sales in the United States started to catch up to implied demand. We estimate
that pent-up demand created by scrapping more cars than were sold, and at the same time adding over 2 million
new drivers to the road each year, to be between 8-9 million vehicles over the past five years. The pent-up demand
is perhaps greatest in the pickup truck market, positioning the Detroit Three well for the coming catch-up in their
most profitable segment. Incredibly, Chryslers market share has roared back at the same time its lineup is largely
uncompetitive relative to its peers. Adding vehicles in segments that Chrysler currently is absent from, and
refreshing key models like the Ram pickup and nearly the entire Jeep lineup should continue to drive Chryslers
market share higher, even excluding product introductions by Fiat and Alfa Romeo.

Chart 6: Chryslers Recent and Projected Market Share in the US

Note: GreenWoods projections based on past performance of refreshed vehicles, and Fiats guidance on product launch timing
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Fixed Cost Absorption: a German Example
Before Volkswagen built Audi into a behemoth global luxury brand, it was just a small niche luxury automaker.
Volkswagen was long under-utilized capacity in Germany, and after Audis car platforms began sharing
underpinnings with Volkswagens of similar size, filling the under-utilized capacity with Audi production easily spread
fixed operating costs of factories across a broader number of vehicles. Now that Alfa Romeo can share large car
and crossover platforms with Chrysler and Jeep, suddenly a faded brand gets a new lease on life. The Alfa Romeo
Giulia will easily be able to be manufactured along side the next generation Chrysler 200 and Jeep Liberty. Theres
one catch: Chryslers incredible renaissance has led to its own factories to become capacity constrained. Its Italys
golden opportunity to capture some global Jeep production, in factories that can easily produce two to four times
their current levels. Fiats plans to do such have been hindered by idiotic magistrates in Italy having authority to
force Fiat to hire members of a communist union it doesnt have a labor agreement with. If Fiat cant gain operating
certainty in Italy, the country will miss an important and symbolic opportunity to gain economic ground. While we
would love to see Italian plants producing more Alfa Romeos and Jeeps, as Fiat investors, we will win in either
scenario. Either the plants will begin producing Jeeps and Alfa Romeos next year, or the plants will be shuttered,
thereby reducing current European operating losses.

The Stealth Prius Effect
Should private industry or government incentives roll out natural-gas fueling stations around the country (GE is
currently working on a low-cost monthly financed version of a home filling station), we believe Fiat-Chrysler is
poised to dominate this emerging market. Interestingly, since natural gas is often the marginal supplier of electricity
in the US, filling a car up with natural gas will give the driver roughly the same fuel-cost savings that an electric car
will, while saving $15-30k on a battery. Parity will only come if infrastructure is scaled up from the current sporadic
footprint. Fiat has a roughly 80% market share of natural-gas-fueled vehicles in Europe. In Italy, where the
government recently raised tariffs on gasoline, and has therefore widened the differential between Russian natural
gas and gasoline, up to 15% of recent auto sales have been natural-gas fueled vehicles, as opposed to 0.5% of the
market buying hybrids. Fiat has the no-brainer solution to Americas natural gas glut, and is going to start
producing bi-fuel gasoline/ nat-gas Rams this fall. We hope they will soon follow with other vehicles, being the first
brand to offer the lowest fuel-cost lineup.

Chart 7: Power-Train Market Share of New Vehicle Sales in Italy

Source: ANFIA
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Table D: Natural Gas Cars Economics is a No-Brainer:
Gasoline Nat Gas Bi-Fuel* Electric
Dodge Dart Dodge Dart Nissan Leaf
MSRP $15,995 $15,995 $35,200
Bi-Fuel Add-On $0 $1,500* N.A.
Uncle Sam Kicker $0 $0 $7,500
Net Price $15,995 $17,495 $27,700

Fuel Costs in gallons gallon equivalent kWh
Commercial $3.744 ~$2.00 N.A.
Residential N.A. $1.80 $0.118
MPG / Battery Capacity 29 MPG 29 MPG 24 kWh

Cost of 100-Mile Trip $12.90 $6.21 $2.83
Driving Range Unlimited Unlimited 100 Miles

Annual Variable Cost** $1,934 $932 $425
Annual Depreciation $1,066 $1,166 $3,333
Equipment Life
Vehicle 15 Years 15 Years 15 Years
Battery 6.7 Years**
2
nd
Battery 6.7 Years**
Total Annual Cost $3,001 $2,098 $3,758
*Assumes if launched, would price at a similar add-on cost to Fiat automobiles in Italy
**Assumes 15k miles driven per year

All of This For a Song
Besides the mere fact that Fiat is currently headquartered in Turin (the name is an acronym for Fabbrica Italiana
Automobili Torino, which means Italian Automobile Factory of Turin), theres almost nothing that isnt lovable about
Fiat as an investment opportunity. Even better, the recent price happens to be even more compelling: love for
sale. Even if Fiat was trading at more normalized valuation multiples (4-5x EBITDA or 7-9x EBIT, versus the current
2.5x and 6.6x using a proportional method of only 58.5% of Chryslers contribution), we think it would still be a
good investment. The company has a clear trajectory to nearly triple operating profit margins from 3.4% to around
10%. This profit expansion (again, assuming a flat macroeconomic environment) will be coupled with de-leveraging
in late 2013 and 2014 to propel the debt-adjusted equity value of Fiat significantly higher.

Table E: Debt-Adjusted Equity Value Given Various Multiples:
Year Net Debt Pension EBITDA 4.0x 5.0x EBIT 7.0x 9.0x
2012 4,857 4,108 5,916 "11.67 "16.40 2,690 "7.81 "12.11
2013 4,559 4,108 7,490 "17.03 "23.02 4,129 "16.16 "22.79
2014 1,301 4,108 10,040 "27.79 "35.82 6,544 "32.31 "42.78

Many notable investors have cherry-picked an automaker to add to their portfolios, as nearly the whole sector is
trading at very reasonable levels. We think Fiat is the best investment, having been thrown out because of its
historical ties to Italy. Those investors who like Ford or GM, you would do well to look at Fiat, as the current price is
below the fair value of its stake in Chrysler and you get everything else for free. Even if the current valuation stays
at incredibly low levels, Fiats underlying operations will justify at least a tripling of value, if not more, over the
coming years. As value-minded and contrarian investors, we appreciate the opportunity given to us by traders who
are scared of their perception of uncertainty. The current travails of Italy and Europe will force an operational fix
on the one weak spot of Fiat, thus we should welcome a difficult environment in Europe. After all, it took such an
environment to get Detroit back into the ring, swinging for its life.

In closing, well leave you with Mr. Marchionnes own words from a recent speech:
"The hardest, the most difficult moments, when we feel lost and beyond hope are also the most
meaningful at shaping our character. Because they ultimately change us forever. Those who survive, who
find strength and the courage to stand and fight, will never be as before." -Sergio Marchionne

Please email the author (swood@gwinvestors.com) if you have any questions or observations, particularly if they run
contrary to our thesis.

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