Fiat’s Fall From Grace – Can Fiat Turn It Around?
Times have changed for Fiat, once the icon of Italian industry. The company literally drove much of the Italian economy for decades, at one stage accounting for 5% of its GDP. The car company is over a century old and is dominated by the Agnelli family dynasty, which still controls 34 percent of Fiat’s shares. The company was once seen as Europe’s leading automotive player but now faces mounting debts which threaten its very survival. Fiat, during the course of its lifetime, has evolved into an unwieldy conglomerate, diversifying into a wide range of industries such as insurance and pharmaceuticals. Nevertheless, Fiat Auto still accounts for 40 percent of the Fiat business.
The car manufacturing operations were seen as the very essence of the Fiat brand, yet Fiat Auto division today is haemorrhaging cash at an enormous rate. The brand has lost much of its lustre due to its market share for both the Italian and European car markets being halved in recent years. Fiat has failed to keep pace with leaner and meaner competitors and the changing needs of the market. So how could a company that made profits of £1.8bn in 1987 now be making losses of nearly £4bn only 18 years later? What went wrong?
The car manufacturing giant has been facing enormous difficulties since the late 1990s: falling sales, falling share price, erosion of market share, disgruntled workers, countless management reshuffles, poor sales of new models, economic difficulties in key overseas markets, retrenchment of foreign expansion, investor discontent and operating losses running into billions of Euros. Its bosses and investors are trying to come up with strategies to halt the decline. The firm has focused primarily on cutting cost and selling off assets and the Fiat group has attempted to raise cash by selling off non-core business and is considering splitting up the company Into separate entities. In addition, setting up Fiat Auto as a totally separate entity from the rest of the group is seen as a viable alternative. In the past, the Italian government would have intervened to help out the beleaguered company but due to EU competition laws it cannot inject cash from government coffers to protect the Italian colossus. The company seems destined to fall into total foreign ownership or face collapse.
Fiat has survived past crises in its eventful life: crippling debts, labour unrest and even terrorist attacks. But this crisis may well prove to be terminal Gianni Agnelli, the Fiat patriarch, died in January 2003, aged 83. Gianni had been one of Italy’s leading industrialists for more than 60 years. In the post war boom period of the 50s and 60s, Italians bought small cars in their thousands and by the mid 60s fiat was producing a million cars a year. It then began diversifying into trucks, tractors and even planes and expanded to further market such as the (then) Soviet Union, Turkey and South America. In 1968, Fiat acquired another Italian carmaker, Lancia. By 1980, Fiat was sprawling conglomerate and due to its diversification strategy was involved in a myriad of enterprises ranging from pharmaceuticals, newspapers, telecoms and trains, even investing in football – the Agnellis owned European soccer giants Juventas.
During this boom period the other large motor manufacturers continually wooed Fiat with offers. Agnelli was courted by Ford, Volkswagen, BMW, Toyota and Daimler Chrysler. In 1986, Fiat bought Alfa Romeo. But Fiat relied heavily on its domestic market and the removal of Italian protectionist policies left it uncompetitive in terms of global market forces. During the 1990s, its share of the Italian auto market fell from 60 percent to 40 percent.
Fiat has always over relied on a few popular car models to be the main earner for the division. On numerous occasions in the past, the company has been saved due to the sales performance of particular small car models such as the Punto, Panda, Uno and the famous 186. The Fiat Uno saved the company in the 1980s, as did the Punto in the 1990s. Fiat is forever seen as a small car specialist. Fiat always prided itself on the performance of its models in this ‘subcompact’ category. In 2001, fiat launced its next great hope for the future, the Stilo, the replacement for the Bravo/Brava model. The stilo was Fiat’s attempt to capture the lucrative mid-size hatchback market, popular with families and fleet buyers. It was seen as Fiat’s attempt to move into the middle-range category of the market.
In 2000 General Motors took a 20% stake in Fiat for 1.75 (Euro) billion but as Fiat losses mounted, Wagoner got into an acrimonious dispute with Fiat management over the five-year put option Fiat negotiated as part of the deal. With Fiat burning $ 1.9 billion a year in cash, GM was desperate to avoid being stuck with the Italian automaker. So on the eve of Valentine’s Day In February 2005 GM ponied up 1.35(Euro) billion to cancel the put and end the foreign engagement. Recently Fiat and Diamler Chrysler signed and agreement calling for strategic co operation. As part of the alliance, Fiat will contribute to Chrysler its world-class technology, platforms and powertrains for small and medium sized cars, allowing the company to offer an expanded product line including environmentally friendly vehicles increasingly in demand by consumers.
Chrysler will also benefit from Fiat’s management expertise in business turn around and access to Fiat’s international distribution network with particular focus on Latin America and Russia.
Now Fiat has launched a cheaper and more basic version of the car. In addition, competitors successfully undertook price cuts on their competing models, which damaged Fiat’s sales even more. Fiat is now experiencing decline in the majority of car categories in which it competes.
Sources: www.businessweek.com
www.fiat.com
www.economist.com
www.uk.reuters.com
www.daimler.com
————————————————————
We have to write a report which will be a fairly equal balance between theory and application, by giving answers of the following three questions:
1. Outline and discuss the macro environmental and micro environmental factors that are influencing Fiat’s strategy.
2. Justify your response by referring to the Fiat Group (www.fiatgroup.com) and constructing a detailed SWOT analysis of the Fiat Auto Division and contrast their situation with examples of other companies.
3. Summarize the strategic options available to the Fiat Auto Division and recommend what you consider to be the best option available. Present detailed reasoning for your answer. You must refer to the Fiat case and comment on their general positioning in the global marketplace and you should also make use of other company examples.