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Fiat-Chrysler expects new plant to boost Brazil profitability

By Agnieszka Flak

GENEVA (Reuters) - Fiat Chrysler Automobiles (FCA) expects a new plant in Brazil to boost its profitability in that market by 2017 after a cut to subsidies and currency effects hit profits there last year, Chief Executive Sergio Marchionne said on Tuesday.

FCA, created after Fiat took full control of Chrysler in January in a $4.35 billion deal to create the world's seventh-largest auto group, cut its 2014 profit forecast after an 80-percent slump in Latin American core earnings in the final quarter of 2013.

Brazil used to account for about one fifth of Fiat profit, helping to offset losses in Europe, but an end to car sales incentives, higher input costs and currency effects have weighed on profitability in the region.

"I'm absolutely convinced that by 2017, which will be the first year of full production at the Pernambuco plant, we will return to making double digit margins in Brazil," Marchionne told journalists at the Geneva auto show. He did not say whether the margins referred to profit or sales.

The Pernambuco plant, which will open next year, will produce models that better match market demand, Marchionne has said. It will build the small Jeep Renegade that FCA unveiled at the car show, and whose production has already started at a plant in Italy, among other models.

Marchionne said he was optimistic about the market recovery in Europe, but added he did not think underlying problems of oversupply had been cured, and cuts in production were needed for the recovery to gain momentum.

"Supply issues still continue to be a big problem in Europe and we've only partially dealt with that," he said.

Marchionne expects a new strategy focusing on premium car brands such as Maserati and Alfa Romeo for exports to help override some of the weak demand in its traditional markets, especially Italy. A new industrial plan outlining new models and investments will be presented in May.

FINANCING OPTIONS

Marchionne said a convertible bond remained among FCA's options to boost capital and help fund the shift upmarket that will help it break even in Europe by 2016. A decision on the bond or another option may be announced with the May plan.

Fiat's financing has been a key concern among analysts who fear the group, which took full control of U.S. unit Chrysler in January, may struggle to find all the cash it needs to revamp idled plants in Italy and roll out a whole range of Alfa Romeos and Maseratis at the heart of its recovery plan.

"Whatever will happen (on the financing), it will happen after we've finalized the merger, moved the listing to New York ... so it will take until at least the fourth quarter if not until next year," he said.

Marchionne reiterated a share issue was not feasible in the current market conditions. Listing or selling parts of its luxury brands Ferrari and Maserati would remain an option for the future, but would not be part of the May plan, he added.

FCA plans to list the merged group in the United States as of October 1, but acknowledged it may be tough to do so.

The carmaker expects to keep the production of its sporty Alfa Romeo brand in Italy, he said, adding that productivity at the Italian plants had improved greatly and was on a par with other production sites in Eastern Europe.

"It's not a nationalistic thing, but there are some things that belong to a place," Marchionne said, adding that, at least in his time as CEO, Alfas would be assembled in Italy. "Alfa Romeo belongs to Italy as Maserati and Ferrari do."

Marchionne said the first new Alfa to be developed under the new plan would be produced before the end of next year.

(Reporting by Agnieszka Flak; Editing by Mark Potter and Louise Heavens)

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