MOTORSNEWS:ALMOST OVERNIGHT, Fiat has transformed itself from bit player into global titan, effectively taking over Chrysler and possibly a big chunk of General Motors. And nobody is more surprised than the Italians.
“If you had asked me four years ago whether I could imagine that Fiat would be able to restore itself. . . I would have said you were crazy,” said Sergio Chiamparino, mayor of Turin, the Italian city Fiat calls home.
In 2005, Fiat was struggling to overcome chronic losses and recover from the death of its legendary chairman, Gianni Agnelli, who had ruled for decades. General Motors, afraid it might get stuck with an Italian basket case, paid Fiat $2 billion to abandon a partnership.
But the tables have turned. Fiat has stabilised and is attempting to become the third-largest manufacturer of automobiles in the world, behind Toyota and Volkswagen. Without spending a dime, Fiat has cut a deal to take over Chrysler, the bankrupt US automaker. It is expected to acquire a 20 per cent equity stake that could lead to majority ownership in a few years.
Fiat is also negotiating with ailing GM to absorb its European and Latin American operations. If successful, Fiat will oversee a new company with the capacity to build almost six million cars a year — roughly triple what it produced last year.
That prospect has led to a surge in national pride in Italy, but anxieties are growing.
“We’re worried Fiat will internationalise itself and leave Italy in the dust,” said Giorgio Airaudo, the regional general secretary of the Italian metalworkers union, which represents thousands of Fiat workers in Turin.
Doubts also linger over the assumption that Fiat will succeed in selling to US consumers.
“I hope Americans will want to drive around in Alfas and Cinquecentos,” Airaudo said, referring to Fiat’s stylish, if tiny, sedans. “But I’m not so sure.”
Fiat workers and shareholders, as well as US and Italian officials, are pinning their hopes on Sergio Marchionne, the accountant who was named Fiat’s chief executive five years ago.
Marchionne is credited with engineering Fiat’s comeback. He returned the company to profitability in 2006, although it sank back into the red during the first quarter of this year, with a $550 million loss.
Since the onset of the recession, Marchionne has predicted that the auto industry is ripe for consolidation and that a handful of global manufacturers will dominate.
Martin Leach, a longtime auto executive who served as president of Ford’s European operations and managing director of Mazda in Japan, said Marchi-onne’s plan for a three-way merger with GM and Chrysler is “extremely ambitious”.
“It is a massive undertaking,” said Leach, now chairman of Magma Group, an automotive technology and consulting firm based in London. “Most people would put it on the too-hard-to-handle list.”
Matteo Colaninno, a member of the Italian Parliament, said Fiat has little choice but to accept Chrysler and GM Europe as partners. “It’s very risky, but it’s the only path for them to follow,” said Colaninno, a member of the opposition democratic party. “It’s much better to ensure that Fiat is in a strategic position to determine its own fate.”
Fiat is banking on substantial help from the US and German governments. The Obama administration has already approved $12 billion in public financing for Chrysler. It has also forced private creditors to write off more than $4.5 billion in debt as the Detroit automaker goes through bankruptcy proceedings.
Fiat will pay nothing for its stake in Chrysler but will have to ensure some of the US government loans are repaid and meet other benchmarks before it can take majority ownership.
Similarly, Fiat is seeking up to $9 billion in loan guarantees from European governments, primarily Germany’s, to help it run GM’s European operations.
“The idea is that for two or three years Fiat can rely on public funding,” said Francesco Zirpoli, a management professor at the University of Salerno. “Which, if you put yourself in the shoes of Fiat shareholders, is appealing and very smart. It’s really managing to build up an empire with no cash.”
– Washington Post