Fiat S.p.A. - Extraordinary General Meeting

Address from the CEO Sergio Marchionne

Centro Congressi Lingotto 16 September 2010

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Good morning Shareholders, The transaction that we are presenting to you today has for some time been the subject of debate by the financial community and international media. That debate centers on the configuration our Group has taken over the years and the heterogeneous nature of its various businesses. Separation of the Group into two distinct entities will finally enable the strategic issue that has been a thorn in Fiat’s side for a number of years to be resolved. It will allow our Group to launch a new chapter in its history. I will now describe the proposed demerger in detail, beginning with the key considerations that motivated us to pursue this course. Following that, I will give you an overview of the two groups resulting from the demerger and their respective strategic objectives for the 2010-2014 plan period. And to conclude, I will comment on certain aspects of the financial structure and transaction timetable.

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Today, Fiat is a combination of two different businesses: on the one hand, the automobile and automobile-related components and production systems activities; and, on the other, the capital goods activities, consisting of trucks and commercial vehicles, agricultural and construction equipment and related powertrain activities. These activities are fundamentally different from each other in terms of:

- business cycles, - characteristics of their customers and markets, - capital requirements, - profit margins, - and returns on capital employed.

The automobiles business operates in a market where the key competitive drivers are style, quality, price, technological content, degree of choice, fuel consumption and emissions levels, functionality and coverage of the distribution network. Competing in this sector requires constant innovation in products and services backed by significant investment in R&D. The capital goods business, on the other hand, operates in a market driven by product quality and productivity, solidity of the brand, and the professionalism of the distribution and service network. That market is influenced by general economic conditions, as well as certain specific factors such as, for agricultural equipment for example, demand for foodstuffs, commodity prices and climatic conditions.

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The level of investment in R&D required for companies in this sector is lower than for automakers, due to the longer product life cycle and lower dependence on aesthetic design of the models offered. All of these aspects underscore how different strategy and implementation for these two businesses needs to be. Even the stock market tends to value them differently. Investors have in recent years been pressuring us to spin off the automobiles division, perhaps focusing more on the potential market value of the two independent businesses than the strategic and industrial benefits that a separation would bring. Up until now, we have not done it for one simple reason. From 2004 to today, despite the fact that there were more differences than similarities between these businesses, it was important for us to preserve the Group's existing structure so that in the turnaround process we could fully benefit from the collective effort required. A spin-off was unthinkable at a time when we needed all energies focused on restoring the Group's ability to generate earnings. Now, however, that process is complete. There is no longer any reason to keep together sectors that operate with such diverse financial and industrial logic. The concept is not only outdated, but it no longer serves any useful purpose. We believe the time is now right for a separation. Not least because the automobiles business has, as a consequence of the alliance with Chrysler, achieved the critical mass necessary to operate independently. From a financial and industrial perspective, this is the only solution that offers each sector the best potential for strategic development. This choice is driven by growth, autonomy and efficiency. The two groups resulting from the demerger will have greater freedom of movement, including the ability to pursue potential alliances.

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Each will be focused on its core business, with well-defined objectives that are clear to the market. Each will have a focused operating profile, enabling it to fully demonstrate the value that might otherwise only be partially realized.

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In concrete terms, the transaction entails the separation of the activities of CNH and Iveco, together with the "Industrial & Marine" business of FPT Powertrain Technologies from the automobile-related activities – which include Fiat Group Automobiles, Ferrari, Maserati, Magneti Marelli, Teksid, Comau and the “Passenger & Commercial Vehicles” business of FPT Powertrain Technologies. The new group created by the demerger will be named Fiat Industrial and it will be listed on the Milan stock exchange with ordinary, preference and savings shares, exactly mirroring Fiat’s current share structure. The listing of all three classes of shares will be concurrent with completion of the demerger. As a consequence of the transaction, shareholders will receive, for no consideration, one share in Fiat Industrial for each share of the same class already held in Fiat. Holding shares in both companies, which represent two distinct areas of business, will provide current shareholders and prospective investors the choice between investing in both areas of business or focusing their investment in only one area. The demerger will be tax neutral and will not impact the rights of minority shareholders or be prejudicial to any class of shareholding. In addition, the transaction will not trigger early repayment of any outstanding bonds.

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Efficiency gains achieved over the past few years through internally-generated synergies will be maintained and leveraged upon. A series of agreements will govern the provision of shared services to the two groups, ensuring that the advantages of collaborating in certain specific areas and achieving significant economies of scale are preserved. These relate in particular to Purchasing, the World Class Manufacturing program, diesel technology and R&D activities.

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This slide shows the impacts of the transaction on the equity of Fiat S.p.A. Equity will be reduced by approximately €3.7 billion through a reduction in both share capital and reserves. The reduction in share capital will take place through a reduction in par value from €5.00 to €3.50 per share. No shares will be cancelled. Fiat Industrial's share capital – which at the date of incorporation was €120,000 – will, as a consequence, be increased by approximately €1.9 billion and reserves by approximately €1.8 billion. The number and classes of shares in Fiat Industrial will exactly mirror the share structure of Fiat. Par value per share for all 3 classes of shares in Fiat Industrial will be €1.50.

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This table shows the impacts of the demerger on the debt of Fiat S.p.A., as a stand-alone legal entity, and therefore is not representative of the consolidated debt position, which we will discuss further on. In relation to the parent company’s statutory balance sheet, division of the net debt of Fiat S.p.A. between it and the beneficiary company will be substantially consistent with the division of assets. The equity transferred to the beneficiary company will not be subject to any adjustments.

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This illustrates the impacts of the demerger on dividends. As you can see, following the demerger, the sum of the distribution entitlement of each class of Fiat and Fiat Industrial shares will remain unchanged from the entitlement provided under Fiat S.p.A.'s current By-laws. There will be no change in the rights and privileges attached to any class of shares. Fiat Industrial may commence dividend distributions on the basis of 2011 results, at which time the new provisions of the Fiat By-laws relating to dividend distributions will also take effect.

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This slide gives a snapshot of the two groups post demerger. We will take a more detailed look at each group in a moment, but this gives an idea of market position, expected revenues and the relative contribution of the individual businesses in each group. Fiat will have the opportunity to improve its competitive position at the global level and increase efficiencies, leveraging on increased strategic flexibility. The stake in Chrysler will have increased visibility, as will the value created by the international collaboration between the two automakers. Under the 2010-2014 Plan presented to the financial community on April 21st, Fiat revenues are targeted to increase steadily to €64 billion in the final year of the plan, approximately double expected 2010 revenues. This represents a compound average growth in revenues of 19% per annum. Based on the 2010 targets, the majority of revenues – approximately 80% – will come from Fiat Group Automobiles, with Ferrari and Maserati contributing 6% of the total. The remainder will be primarily attributable to the components activities. Fiat Industrial will have the opportunity to take its rightful place as a global player in the capital goods sector, leveraging off a stable worldwide industrial presence. It will also have adequate flexibility to take advantage of the best growth opportunities that present themselves.

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2014 revenues are projected at €29 billion. This represents a compound average growth in revenues of approximately 11% per annum. Based on the 2010 targets, the largest contribution to revenues will come from agricultural equipment, followed closely by trucks and commercial vehicles. Together they will generate 85% of Fiat Industrial's total revenues. 11% of revenues will come from construction equipment and the remaining 4% from powertrain activities.

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Now let's take a more detailed look at the characteristics, strategic plans and financial targets for each group, beginning with Fiat.

After the demerger, Fiat will be a global industrial group with a clear strategic focus in the automobiles sector. It will have attained the necessary strategic flexibility to leverage further growth opportunities and maximum freedom of movement to pursue the most advantageous strategic choices to develop the business, including the creation of alliances. The partnership with Chrysler will have a fundamental impact on several fronts. First and foremost in the area of international expansion, by enabling Fiat to access major new markets. The alliance will also have positive effects in terms of products and the diversity of the product portfolio, providing solutions in all segments to meet the expected future demands of the market. The presence and experience of Fiat in the smaller car segments and of Chrysler in the medium and larger segments will enable the Group to offer a full and competitive range of products across segments. In addition, the allocation of production between FGA and Chrysler will enable optimization of our manufacturing capacity.

Merging the capabilities of the two groups will also facilitate development and value enhancement of the brands and enable full leverage of the distribution network.

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The 2010-2014 Plan laid out the key strategic elements that will drive each sector over the next few years. In partnership with Chrysler, Fiat Group Automobiles is destined to become a leading automaker at the global level, reaching the critical mass threshold of 6 million cars produced per year by 2014. Another key element of the plan is more efficient use of production capacity. The allocation of new architectures is geared toward rationalization and efficiency, ensuring optimized utilization of production capacity for both organizations. This will enable us to eliminate operating inefficiencies linked to the current low utilization of plant capacity in Italy. The partnership with Chrysler also offers an ideal opportunity to leverage synergies between the two groups on the distribution side. Brands in the Fiat Group Automobiles portfolio will be able to improve their coverage and strengthen the quality of their presence in the market. Chrysler Group brands – Jeep® in particular – will be able to benefit from an increased commercial presence outside the NAFTA region. The plan also calls for an acceleration in development of international markets, with particular focus on China, Russia and India, where agreements signed in recent years have established a solid base for our growth ambitions.

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The Lancia brand will be most impacted by the Chrysler alliance, with the product portfolios of the two brands being fully integrated in Europe. This will equip Lancia with a complete offering, transforming it into a full-liner brand. Another pillar of the FGA plan is a strong commitment to develop Alfa Romeo and make it the Group's premium brand with expansion of its product line-up also benefiting from the Chrysler Group’s SUV technology. This development plan for Alfa also includes a return to the United States, Canadian and Mexican markets. The plan for Ferrari calls for a focus on increased profit margins with volumes expected to remain substantially flat over the next few years. Maserati, on the other hand, will focus on repositioning the brand and expanding its product portfolio. In addition to its historic presence in the G and H segments, the brand also has plans to enter the premium end of the E segment for the first time. The Components businesses will continue in their crucial role of supporting the Group's technological development. There are also plans to bolster presence in the BRICs markets and increase the share of business generated from non-captive customers.

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Fiat's financial targets reflect the strong growth in business volumes projected over the next few years, accompanied by robust improvements in margin performance. As mentioned earlier, in 2014 the Group expects to achieve revenues of €64 billion. There will be a marked shift in gears in 2012, when revenues are targeted to hit €45 billion. From that point forward, it is expected that revenues will reflect the full benefit of business development initiatives. 2014 trading profit is projected to be around €3.5 billion, with a trading margin of 5.5%. The steady improvement in trading margin reflects the commitment to eliminate the handicaps that are weighing down on our business model in Europe, optimize synergies and transform the group into a best-in-class competitor, including in terms of operating efficiency. EBITDA for the industrial activities is expected to show consistent year-on-year improvement to reach nearly €7 billion in 2014. To get an idea of how Fiat is positioned relative to its competitors, we have provided a comparison of industrial EBITDA margins for the sector. This comparison is for 2012 as that is the year consensus estimates were available for all comparable peers. Clearly, the new Fiat’s performance will be in line with the best competitors.

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This slide provides a summary of Fiat's key strengths, some of which we have already discussed. Fiat's existing industrial know-how and commercial position, together with future development plans, guarantee that it will be a solid and competitive player. We have a proven leadership position in several strategic markets and leading-edge technological know-how. In Europe, Fiat is leader in the smaller passenger car and light commercial vehicle segments. In Brazil, it has been market leader for 5 consecutive years. Both FGA and the Fiat brand have been recognized as the most eco-performing producers in Europe. Fiat has achieved excellence in time-to-market performance at the global level, with significant reductions in product development time. For production processes, the highest quality standards have been introduced at all manufacturing sites through the application of World Class Manufacturing. There are also several areas where the alliance with Chrysler will provide enormous advantages, representing a significant step forward. First is achievement of the critical mass necessary to be a competitive global player in the auto sector.

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The second key area is the sharing of resources and investment. The partnership between Fiat and Chrysler will enable us to optimize capital allocation and achieve maximum utilization of production capacity for both groups. Full integration of the product portfolio will bring Fiat's excellence in the smaller passenger car segments together with Chrysler's experience in the medium, large and SUV segments. At the same time, Fiat's leadership in eco-compatible technologies and the production of fuel-efficient engines will complement Chrysler's existing know-how in hybrid and electric propulsion and its fully-developed proprietary technologies. Joining the strengths of the two organizations will enable us to multiply our technological know-how to the full, applying it across the entire product range. The integration will also offer significant synergies in the purchasing area, enabling us to increase our purchasing power. If we also factor in volumes for Fiat Industrial, we reach an estimated €60 billion in direct materials purchased in 2014. Naturally, the alliance also opens up new geographic markets to each partner. For Fiat Group Automobiles, this means gaining access to the North American market. For Chrysler, it means developing its presence in Europe and Latin America. When I say that what exists between Fiat and Chrysler is a partnership in the truest sense of the word, that is exactly what I mean. It is an alliance based on mutual advantage because it brings together two complementary businesses with significant potential to enrich each other and grow together. One of Fiat's strong points is its partnership with Crédit Agricole in the financial services sector: an example of a competitive business model. FGA Capital is the product of shared objectives of a major industrial group and a major European financial institution.

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This joint venture is already offering financial services to customers of Chrysler Group brands in Europe. And the process of integrating the sales and service activities of the Chrysler, Jeep® and Dodge brands with the Fiat Group Automobiles network began in April. The integration is on track to be completed by year end. With regard to Fiat's financial structure post demerger, the company will have ample financial resources and adequate liquidity to cover scheduled debt maturities and meet operational requirements linked to the plan.

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Now let's take a more detailed look at Fiat Industrial. The demerger will create a global capital goods player capable of competing successfully with other multinational groups operating in the sector. The combination of CNH, Iveco and the "Industrial & Marine" business of FPT Powertrain Technologies will represent an enormous manufacturing base, an extensive portfolio of products and a global geographic presence. In addition to its adequate size, Fiat Industrial will also have the autonomy necessary to pursue the best strategic options, develop its business and take advantage of opportunities for growth and consolidation. It will also have adequate resources and a solid financial structure.

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This slide outlines the group’s principal strategic objectives over the 2010-2014 plan period. We expect the trucks and commercial vehicles market in Europe – one of the hardest hit by the recent crisis – to gradually recover. Iveco is well-positioned to take advantage of an upward trend in demand and return to steady volume growth. This will also provide the conditions for efficiency improvements at our plants, with 90% capacity utilization achievable by the end of 2014. These growth projections are also based on an increased presence in Latin America, where Iveco is expanding rapidly, and the opportunity to leverage its strong presence in China, including as a manufacturing base for exports to South America, the Middle East and Asia. We also intend to grow the Special Vehicles business, through both product and geographic expansion. The course established for FPT Industrial leverages on its technological leadership and expansion of the product portfolio, which will also enable an increase in the contribution from sales to non-captive customers to be achieved. CNH will focus on completing and strengthening the product range with new model launches planned in all segments.

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In addition to leveraging its proven capabilities in the area of higher-powered agricultural equipment, CNH will focus on improving its competitive position in medium-powered tractors. CNH's growth projections are also based on the expected improvement in macro-economic conditions and other fundamentals specific to the industry over the coming years. These factors will yield an increase in demand for both agricultural equipment and construction equipment, which was particularly hard hit by the recent crisis. In addition, initiatives already in place to streamline CNH's manufacturing processes, together with actions to restructure the construction equipment business initiated in 2009, will continue to yield significant benefits. Rigorous attention will also be directed at improving the cost structure, including through closer collaboration with FPT Industrial, simplification of the product range and development of a modular production system. All of Fiat Industrial's sectors will derive advantages from the synergies generated by the World Class Manufacturing programs and sharing – including with Fiat and Chrysler – of a substantial supplier base. Actions programmed over the plan period will enable the Group to consolidate its industrial leadership globally and achieve significant financial results.

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Under the plan, Fiat Industrial's revenues are targeted to increase at an average annual rate of 11%, reaching €29 billion in 2014. Steady year-on-year gains are expected for industrial activities, with EBITDA targeted to increase from €1.4 billion in 2010 to €4.1 billion in 2014. Trading profit will also increase significantly over the period and is targeted at €3.3 billion in 2014. The progressive increase in trading margin – from 3% to 11.4% – also reflects the plan's commitment to the achievement of significant efficiency gains. A comparison of estimated 2012 Industrial EBITDA margins for the sector shows Fiat Industrial as one of the leaders in the trucks and commercial vehicles market as well as for agricultural and construction equipment.

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Here is an overview of the key strengths of the new group to be formed by the demerger. In terms of product offer, one of Fiat Industrial’s key strengths is that it will have one of the most extensive and diversified ranges of products in the sector. Nearly half of the group's revenues come from the agricultural equipment business, which benefits from a healthy competitive environment that is expected to experience strong growth over the next few years. The other half of revenues comes predominantly from trucks and commercial vehicles, which account for around 40% of the total. The contribution from construction equipment is around 11%. Both of these markets have entered a phase of recovery, from the extremely low levels experienced in 2009, and both have high potential for growth. In addition, Fiat Industrial has a solid global presence that is well-balanced in the mature markets. It also benefits from an increasing contribution from BRICs markets which has resulted from the progressive strategy of international expansion implemented in recent years which remains a key element of its plan going forward. The group is positioned as one of the most important capital goods players globally. Fiat Industrial is the second largest producer of agricultural equipment worldwide, with leading positions in Europe and Latin America, and one of the global leaders in the trucks and commercial vehicles market.

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In recent years, Iveco in particular has built a solid presence in China. It has signed 3 joint venture agreements with a solid partner, SAIC, and initiated a targeted strategy to leverage the significant potential of the Chinese market. Last year, in fact, sales by joint ventures exceeded 100,000 units, placing Iveco second globally by total sales. This number is expected to increase. In Latin America, following a major program to position the products and the brand, Iveco is strengthening its presence with the support of a rapidly expanding commercial network. As a group, Fiat Industrial has high margins and a moderate R&D expenditure ratio. Over the plan period, cumulative EBITDA for industrial activities will be above €13 billion. A key strength of Fiat Industrial is its significant presence in financial services. This is an area where all major competitors are active and it is vital in supporting sales. The portfolio of loans to the distribution network and end customers exceeds €10 billion and is for the most part managed directly, primarily through CNH Capital. Additionally, in European markets the group conducts its financial services activities through two joint ventures: one with Barclays (for Iveco) and one with BNP Paribas (for CNH). Fiat Industrial's initial financial structure will be commensurate with its strong cash-generating ability. The group will have ample financial resources to ensure adequate liquidity and be able to access global credit markets on an autonomous basis.

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Following the demerger, both groups will have full financial independence and adequate liquidity to repay scheduled maturities and meet ongoing operational requirements. Fiat Industrial Finance was established as a centralized treasury to service all of Fiat Industrial Group's treasury and financing requirements. Financial relationships between Fiat and Fiat Industrial will be reduced to a minimum and for a limited time. Several operations have already been put in place to ensure Fiat Industrial’s financial autonomy, including the issue of a $1.5 billion bond by CNH in June and extension of maturity on a €1 billion credit line. In addition, in July an agreement was reached with a group of 8 international banks for provision of a €4 billion credit facility to Fiat Industrial. This facility – the terms of which will be finalized by year end – will be utilized to finance working capital and for other operating purposes. It will also enable Fiat Industrial to pay back intercompany loans from Fiat outstanding at the time of the demerger. Prior to completion of the demerger, the transfer of approximately €1 billion in bilateral credit lines from Fiat to Fiat Industrial is also planned.

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This slide provides a snapshot of the expected net debt position of the two groups subsequent to completion of the demerger. Upon completion of the transaction, Fiat and Fiat Industrial will have equal amounts of net industrial debt. Taking Fiat Group's current target for net industrial debt at year end – above €5 billion – each group would therefore have near €2.5 billion in net industrial debt. The two companies will also have strong liquidity commensurate with their respective financial requirements: around €10 billion for Fiat and €3 billion for Fiat Industrial. Bonds currently outstanding will remain with the issuing entities the shareholdings in which will not be transferred as part of the demerger. This means that post demerger Fiat will have around €9 billion in bonds outstanding and Fiat Industrial will have the bonds issued by CNH, equivalent to approximately €2 billion. Any financial liabilities outstanding between the two groups will be repaid during 2011.

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For the financial services activities, the net debt position will be as shown here. Fiat will have consolidated net debt of around €1.5 billion against a portfolio of receivables from financing activities of approximately €2 billion. The net debt relates to Ferrari Financial Services and the sales financing activities of Fiat Group Automobiles outside of Europe. In Europe, the financial services activities of FGA are managed through the joint venture with the Crédit Agricole Group, which is accounted for under the equity method. Fiat Industrial will have consolidated net debt of around €10 billion against a portfolio of receivables from financing activities of approximately €10.5 billion. This figure relates almost entirely to the financial services activities managed directly by CNH. CNH Capital funds itself primarily through ABS and factoring programs in North America and Australia, currently around €7 billion in funding, and the remainder is provided through bank debt and intercompany loans. As mentioned previously, in Europe these activities are conducted through the joint venture with BNP. Iveco manages its financial services activities directly in a few markets. In Europe, however, it operates through the joint venture with Barclays.

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Completion of the demerger is expected to take place at year end. By the end of September, application will be made for the shares in Fiat Industrial to be admitted to listing. It is expected that approval will be received before the end of November. This will enable the deed of demerger to be executed in mid-December with the transaction taking effect from the 1st of January 2011. The 3 classes of shares in Fiat Industrial will commence trading on the Milan stock exchange from 3 January 2011.

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I would like to conclude by sharing a few thoughts with you on the significance of this transaction and its potential impacts at the human level. In life there are moments when we all make quantum leaps forward. They are critical moments because they cause us to see things from a different perspective, they force us to grow, they give us the strength to change our lives radically and improve them. Often people remain anchored to the present or, even worse, to the past, because they are not capable of imagining anything different. For Fiat, today represents one of those quantum leaps forward. What we have laid out is a new vision of our group. We have outlined a transaction that represents commitment and ambition. We have proposed the creation of two companies that will each finally have full freedom to act independently. Two groups with the ability and determination to compete at an international level. We have presented a new auto group which – as a result of what has been accomplished in recent years, its technological developments and the alliance with Chrysler – no longer needs crutches to walk but, rather, is fully capable of charting its own future. Today, we move the hands of time forward. Our company – or rather our companies – will be able to move significantly faster than ever before. I understand that decisions of this caliber – yielding such far-reaching implications – are not easy to take. I am fully aware of the emotional reaction that there may be to idea of the loss of identity of a group that has operated as one entity for more than a century. But just as the Fiat leaders who preceded us had the foresight and the tenacity to develop these businesses in anticipation of changing market conditions, the obligation is on us to do the same.

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Given the major transformation taking place in the market, we no longer have the luxury of looking at these activities in terms of historical boundaries or legal domicile. The challenge is much greater and much more complex, and requires a strategic solution which is sufficiently powerful to redefine the industrial landscape. The transaction we have presented is a testimony to the courage and determination of our organizations to transcend traditional boundaries and reshape their future. All in all, the obligation of business leaders is not only to the assets they manage, but to the people in their organizations. And this plan is a way of providing them, in the medium to long term, with a safer harbor. The best way to understand the value of this transaction is to consider the opportunities for personal growth that it offers our employees. During the course of its history, Fiat has developed personnel of the highest caliber, not just in terms of their professional and technical abilities, but most importantly their competitive spirit and leadership abilities. These qualities are invaluable to the development of a company. I also believe this is the greatest endowment we can give to Fiat and Fiat Industrial. Thank you all.