Moody's on Wednesday downgraded Fiat from Ba1 to Ba2 over fears that Fiat's merger with Chrysler could burden the carmaker with debt.
Moody's said the outlook is negative, which means the Turin, Italy-based automaker faces another possible downgrade in the near future.
The ratings agency said it downgraded Fiat because the integration with Chrysler -- which it rates three notches lower -- "could result in the two companies having to support each other in the event of financial difficulty."
The ratings agency also pointed to Fiat's business risks, including "relatively infrequent model-renewal rate, which is constraining the group's competitive position" in Europe, it said.
The agency had placed Fiat under watch for a possible downgrade on April 26 following the announcement of an agreement permitting the Italian group to take control of 46% of Chrysler.
The Italian group has continued to take control of the U.S. brand and now controls 53.5%.
Fiat took over management of Chrysler in June 2009. The iconic Italian carmaker took a 20% stake in exchange for sharing technology and providing trusted leadership as the U.S. brand emerged from a government-backed bankruptcy.
Chrysler had suffered from an implosion of sales for the auto sector in the United States, but was able to offer dealership networks that Fiat lacked, notably in the United States.
Together, Fiat and Chrysler have a combined production volume of about 4 million vehicles a year, which should be increased to 6 million by 2014 -- putting the combined company among the top automakers in the world.
Copyright Agence France-Presse, 2011
