Fiat: Encyclopedia II - Fiat - History

Fiat - History

Giovanni Agnelli led the company until his death in 1945, while another man, Vittorio Valletta, administered the day-to-day activities of the company. In 1903, Fiat produced its first truck.⁸ In 1908, the first Fiat was exported to the US.⁹ That same year, the first Fiat aircraft engine was produced. Also around the same time, Fiat taxis became somewhat popular in Europe.¹⁰ By 1910, Fiat was the largest automotive company in Italy—a position it has retained since. That same year, a plant licensed to produce Fiats in Poughkeepsie, NY, made its first car. This was before the introduction of Ford’s assembly line in 1913. Owning a Fiat at that time was a sign of distinction. A Fiat sold in the US cost between $3,600 and $8,600 ($73,909 to $176,561 today). Compare this to the $825 ($17,000 today) Henry Ford charged for his first Model Ts in 1908.¹¹ However, upon the entry of the US into World War I in 1917, the factory was shut down after US regulations became too burdensome. At the same time, Fiat had to devote all of its factories to supplying the Allies, producing aircraft, engines, machine guns, trucks, and ambulances. After the war, Fiat introduced its first tractor.¹² By the early 1920s, Fiat had a market share in Italy of 80%.¹³ In 1921, workers seized Fiat's plants and hoisted the red flag of communism over them. Mr. Agnelli responded by quitting the company, retiring to private life, and letting the workers try to run the company. Shortly afterward, 3,000 of them walked to his office and asked him to return to the helm—-a request to which he reluctantly agreed. In 1922, Fiat began to build the famous Lingotto car factory--the largest in Europe up to that time--which opened in 1923. It was the first Fiat factory to use assembly lines. Fiat made military machinery and vehicles during World War II

for the Italian Army and Air Force. Fiat made fighter aircraft, which was one of the most common Italian aircraft used along with the Savoia-Marchetti, and also made light tanks and armored vehicles. These were weak compared to some of the German and Soviet counterparts, but were still used often. In 1945—the year Hitler’s ally Mussolini was overthrown as leader of Italy--the Italian Committee of National Liberation removed the Agnelli family from leadership roles in Fiat because of its ties to Mussolini’s government. These were not returned until 1963, when Giovanni’s grandson, Gianni took over as general manager until 1966 and as chairman until 1996.¹⁴

Fiat - Gianni Agnelli

Among Gianni's first steps after he gained control of Fiat was a massive reorganization of the company management, which had previously been highly centralized, with almost no provision for the delegation of authority and decision-making power. Such a system had worked effectively enough in the past but lacked the responsiveness and flexibility made necessary by Fiat's steady expansion and the growth of its international operations in the 1960's. The company was reorganized on a product-line basis, with two main product groups--one for passenger cars, the other for trucks and tractors--and a number of semi-independent division and subsidiaries. Top management, freed from responsibility for day-by-day operations of the company, was able to devote its efforts to more far-reaching goals. In 1967, FIAT made its first acquisition when it purchased Autobianchi. Then, in 1969, it purchased controlling interests in Ferrari and Lancia. According to Newsweek in 1968, FIAT was “the most dynamic automaker in Europe . . . [and] may come closest to challenging the worldwide supremacy of Detroit." In 1967 Fiat, with sales amounting to $1.7 billion, outstripped Volkswagen, its main European competitor; in 1968 Fiat produced some 1,750,000 vehicles while its sales volume climbed to $2.1 billion ($11.5 billion today). At the time, Fiat was a conglomerate, owning Alitalia Airlines, toll highways, typewriter and office machine manufacturer, electronics and electrical equipment firms, a paint company, a civil engineering firm, and an international construction company. That same year, Fiat acquired Citroën--one of France’s three major automakers at the time. However, in 1976, it sold the company. Following up on an agreement that Valetta had made with Soviet officials in 1966, Agnelli constructed a Fiat plant in the new city of Togliattigrad on the Volga that went into operation in 1970. On his initiative, Fiat automobile and truck plants were also constructed in industrial centers of Yugoslavia, Poland, Bulgaria, and Romania. In 1979, the company became a holding company when it spun off its various businesses into autonomous companies, one of them being Fiat Auto. That same year, sales reached an all-time high in the United States, corresponding to the Iranian Oil Crisis. However, when gas prices fell again after 1981, Americans began purchasing sport utility vehicles, minivans, and pickup trucks in larger numbers (marking a departure from their past preference for large cars). Also, Japanese automakers had been taking an ever-larger share of the car market, increasing at more than half a percent a year.

Thus, in 1984, Fiat and Lancia withdrew from the American market. In 1989, it did the same in the Australian market.

In 1986, Fiat acquired Alfa Romeo from the Italian government. In 1992, two top corporate officials in the Fiat Group were arrested for political corruption.¹⁵ A year later, Fiat acquired Maserati. In 1995 Alfa Romeo exited the US market. Maserati re-entered the US market under Fiat in 2002. Since then, Maserati sales there have been increasing briskly.

Fiat - Paolo Fresco

was brought in as chairman of Fiat in 1998. The hope was that the veteran of General Electric would bring more of an emphasis on shareholder value to Fiat. By the time he took power, Fiat's market share in Italy had fallen to around 41%¹⁶ from around 62% in 1984.¹⁷ However, a John Welch-like management style would be much harsher than that used by the Italians (e.g., precarious versus lifetime employment). Instead, Fresco focused on offering more incentives for good performance, including compensation using stock options for top and middle management. However, his efforts were frustrated by union objections. Unions insisted that pay raises be set by length of tenure, rather than performance. Another conflict was over his preference for informality (the founder, Giovanni Agnelli, used to be a cavalry officer). He often referred to other managers by their first name, although company tradition obliged one to refer to others using their titles (e.g., "Chairman Fresco"). The CEO of the company, Managing Director Paolo Cantarella, ran the day-to-day affairs of the company, while Fresco determined company strategy and especially acted as a negotiator for the company. In fact, many speculated the main reason he was chosen for the job was to sell Fiat Auto (although Fresco fervently denied it).¹⁸ In 1999, Fiat formed CNH Global by merging New Holland NV and Case Corporation.

Fiat - Recent events

Over time, most automotive companies around the world have become holding companies of foreign as well as domestic competitors. For example, the US company General Motors controls Japan’s Isuzu, Subaru, and Suzuki as well as Sweden’s Saab (also known as SAAB). Fresco signed a joint-venture agreement in 2000 under which GM acquired a stake in Fiat. This made it appear as if Fiat was next, although GM has made joint ventures with other companies (such as Toyota) without acquiring them. Nevertheless, Fiat did not see the GM partnership as a threat, rather as an opportunity to off-load its automotive business. Fiat had put a provision into its contract with GM that stipulated the company could force GM to acquire its automotive business. If GM balked, it would be forced to pay a penalty of $2 billion. When Fiat tried to sell GM the company, GM chose the penalty. On May 13, 2005 GM and Fiat officially dissolved their agreement, and Fiat is now courting Ford.¹⁹ The current CEO views alliances such as these as the deciding factor of the future success of Fiat.

As part of the recent divestitures, in 2003 Fiat shed its insurance sector, which it was operating through Toro Assicurazioni to the DeAgostini Group. In the same year, Fiat sold its aviation business, FiatAvio to Avio Holding. In February 2004, the company sold its interest in Fiat Engineering, as well as its stake in Edison.

Fiat faces a multitude of threats, including rising steel prices (up 68% between January and October 2004),²⁰ a strong Euro, and increased competition from Japanese and Korean car manufacturers in Europe. Although the light-vehicle market share of Japanese and Korean automakers in Europe is less than in the US (12.5% and 3.9%, respectively versus 30% and 3.9% in the US), it has been increasing steadily at about a half a percent a year.²¹ Fiat has also suffered operating losses for four years now.

Nonetheless, Sergio Marchionne has begun to impress investors since taking over as CEO in June, 2004. Losses have fallen steadily since 2002, but some point out that they are still critical (1.5 billion Euros in 2004 alone, down from 4.2 billion in 2002).²² Mr. Marchionne has succeeded more than Fresco in taking an axe to Fiat's bloated managerial bureaucracy and changing its tone from a paternalistic, engineering one to an Anglo-American focus on markets and profits. (Mr. Marchionne was raised in Canada by Italian parents.) While the charismatic chairman, the well-connected Luca di Montezemolo, deals with politicians and unions, Marchionne is trying to rebuild the car business panel by panel. Although Fiat's Italian factories are operating at barely 80% of capacity, Marchionne is not willing to provoke a crisis, as his predecessors did, by closing any of them.²³

Generally, if Mr. Marchionne is nearly as successful as he was when working at the Swiss quality-assurance service company SGS, then Fiat's future is brighter than many predict.

Adapted from the Wikipedia article "History", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki