When I decided to join Ford of Europe I had an attractive counter-offer from Fiat, my then-employer. I would move from America to Turin at a high level in the public affairs office. Awkward problems of Italian taxation would be avoided by delivering some of my pay to Switzerland. But the idea had its attractions, writes Karl Ludvigsen.

When I thought more about it, however, I realised that the job would inevitably be a dead end. An American's aspirations would soon be stalled at Fiat. There was no way that the Italians would tolerate a foreigner in the upper reaches of the company, I felt.

How right I was!

Not a few foreigners have passed through Turin's revolving doors. Britisher James Blades served a few years at the top of marketing, a job later taken by Klaus Fricke, formerly with Smart, who's now back in Germany. American Anthony Sheriff was director of product development for a time before finding a new home in Britain at McLaren Cars. These were relatively minor posts, however, compared to those that have just been vacated by some of the industry's highest-level personalities.

Highly experienced and qualified foreigners have been shown the door. Herbert Demel and Martin Leach must be numbered among those men who are able to run motor companies. The evidence is firm for ex-VW man Demel although we have to be cautious about ex-Ford executive Leach, who so far has been making a fine career of collecting golden handshakes. Nevertheless he was once a candidate to head Fiat Auto, so someone in Turin must have thought well of Leach.

Also shown the exit was the ultimate foreigner, General Motors. GM must be relieved to have removed the threat of a forced purchase of Fiat Auto. It's facing more than enough challenges in its businesses both at home and in Europe, with erosion of market share undermining its ability to profit from its automaking and big problems in funding its pension plans. Europe in particular has been a sore spot for GM. Adding a money-losing Fiat Auto to its European portfolio — where Saab is already living on borrowed time — would have far exceeded GM's ability to manage its combined European operations, let alone to fund them adequately.

This was over and above the special challenge that a takeover of an Italian company would have offered GM. They do things differently in Italy. Italy may be a member of the EU, but few governments surpass Italy's in their ability to work around the dictates that emanate from Brussels. Italy's banking networks are Byzantine and her governments impenetrable and bordering on incompetent. Still with an unmistakable whiff of Communism — they don't know it failed — her labour unions are among Europe's most volatile. In the past the Americans have come close to gaining a foothold in Italy, Ford trying on both a purchase of Alfa Romeo and a merger with Fiat Auto — Chrysler also considered the latter — but wisely withdrew from a country where too many stakeholders would work against their interests. Now it was GM's turn.

Dismantled as well are the two joint ventures that GM and Fiat formed five years ago. The Powertain joint venture had already shown some results. That its overall costs were down was shown by a staff reduction from 27,000 to 22,000 for the JV, which shuttered plants at Ellesmere Port, Kaiserslautern, Mirafiori and Arese and laid off staff at Termoli. The purchasing joint venture was less advanced in terms of results.

Interestingly, that wasn't the limit of their co-operation. The new Fiat Croma, unveiled at Geneva, is built on GM's Epsilon platform as used for the Signum. A jointly developed platform will be under the new Punto, due this September, and a new Corsa next year. GM and Fiat also worked together on a new top-level platform for Alfa, Lancia, Saab and Cadillac. The GM-owned brands subsequently dropped out of the project, but the new platform will be under Alfa's replacement for its 156 and also under the Brera coupe, another Geneva debutante. So the two companies will still have relationships for several model cycles to come.

Replacing the GM alliances will be selected partnerships that follow the PSA Peugeot-Citroën model. Already partnering with PSA in several areas, Fiat feels less threatened by this strategic style. 'We learned about alliances in the last five years,' said chief executive Sergio Marchionne. 'In the future we will have targeted alliances.' They are likely to be with fellow Europeans, not with those fickle and troublesome Americans, who showed their unreliability by pulling out of the executive-car JV and thus undermining its scale economies..

I was pretty confident that it wasn't the aim of Fiat SpA to sell its auto unit to GM. At first glance such a sale seemed feasible. Auto produces some 43 per cent of the Group's revenues, so quite a lot would remain if it were hived off. But we're forced to reconsider after a closer examination of the rump that would remain after a sale of Auto.

Eighteen percent of Group sales are made by truck company Iveco, which has been bouncing back and forth between profit and loss in Europe's highly competitive commercial-vehicle market. We're told it's returning to the profit column. Then there's CNH Global, formed by a merger between Case and New Holland in 1999. Based in Illinois in the USA, the agricultural equipment maker contributes one-fifth of turnover but has found profitability elusive.

A tiny 2 per cent of Group sales comes from Ferrari-Maserati, which is owned directly by Fiat, not Fiat Auto. F-M has been struggling to fund the revival of its Maserati arm, which has now been folded back into Fiat Auto in preparation for a stand-alone Ferrari IPO this spring. While this liberates Ferrari, Maserati will become a burden on Alfa Romeo, with which it plans to co-operate on future models. Glamorous though it is, Ferrari will never throw off the kind of cash that can support the Agnelli tribe. And after the planned IPO Fiat would own only 51 per cent of Ferrari.

Around 13 per cent of Fiat Group revenue comes from Magneti Marelli, Teksid and Comau, companies that are suppliers to the motor industry. Although none is convincingly profitable, their roles as principal suppliers of goods and services to Fiat Auto means that their transfer pricing can be regulated to suit the net financial results that incur the lowest taxation. But if GM had owned and operated Fiat Auto, that company's comfortable relationship with these Italian suppliers would have ended. Their futures would have been in doubt.

Remaining are other holdings in publishing, advertising, business management, power generation and banking that contribute less than 4 per cent of group revenue. Included are respectable businesses in their own right, such as the La Stampa newspaper, but again several whose activities are linked with those of others in the Group, including Fiat Auto. Without Auto, therefore, the Fiat Group courts disintegration. Auto is the glue that holds the whole enterprise together. Selling it is not an option. Only reviving it will meet the needs of its shareholders.

Therefore we are not surprised that Sergio Marchionne has added Demel's Auto portfolio — with his 28 direct reports — to his own at Fiat SpA. 'Of all Fiat Group sectors,' he said, 'Fiat Auto must be the principal focus of our attention. The auto [sector] remains the group's main problem.' He said that his decision to take the helm of the auto unit was intended 'to speed up the company's recovery, concentrating Fiat Group's efforts on the recovery and relaunch of Fiat Auto.'

In taking this line, Marchionne has been quoted as saying that he's already dealt with the problems of the enterprises that make up the other 57 percent of the Group's revenues. The test of that will come at the end of this month when Fiat SpA's latest results are announced. They will tell us whether the new CEO's vaunted turnaround skills are applicable to the automotive world.

Sergio Marchionne is an interesting choice to be offered complete operating control of Fiat. Of Italian origins but raised in Canada, he girded himself with a varied education that includes a philosophy degree at the University of Toronto and a law degree at Osgoode Hall Law School in 1983 while earning a chartered accountant's credentials. He then completed an MBA at the University of Windsor. Thus he qualified as a barrister, solicitor and chartered accountant.

Marchionne first made his name in Switzerland at the Alusuisse-Lonza Group in various capacities, including chief financial officer, and from 1997 as CEO. Then when the Lonza Group AG was spun off from Alusuisse-Lonza in October 1999 he became its CEO. Although he claims a turnaround of the maker of chemical and biotechnological precursors, its reported earnings have been in steady decline.

In February 2002 Sergio Marchionne became CEO of Switzerland-based goods inspection and testing company SGS, where he gained a reputation of being an aggressive executive and a turnaround expert. 'He gets things done,' testified David Loggia, fund manager at Carmignac Gestion in Paris. The Canadian was a non-executive board member at Fiat before he was tapped by chairman Luca di Montezemolo to replace Guiseppe Morchio in the operating job.

We're seeing a revival of the good-cop, bad-cop regime at Fiat of Gianni Agnelli and Cesare Romiti. Under Agnelli's patronage, Romiti too was given command of both the Group and Auto. With a degree in economics, like Marchionne he came from non-automotive industries that included a chemicals company and state-owned Alitalia, where he was managing director. The lantern-jawed Romiti brought an iron hand to a Fiat SpA which, at the beginning of the 1980s, was loss-making and debt-burdened. Starting to sound familiar?

Cesare Romiti won a power struggle with Vittorio Ghidella, a talented auto man who was forced out of the company — the Demel of his day. Romiti then proceeded to 'sanitise' Fiat Auto by the simple means of emasculating future product development. The gap in products and profits thus created fell to later managers to fill, including Romiti's former aide Paolo Cantarella.

Will history repeat itself? Will the traditional feast-and-famine cycle of Fiat Auto products and profits continue? The best guarantee that it won't is Luca di Montezemolo's presence as chairman. With impeccable automotive credentials from his Ferrari years, di Montezemolo should and indeed must stand guard over Fiat Auto's future product programmes. If he does, these good and bad cops might just get the job done.

- Karl Ludvigsen

Karl Ludvigsen is an award-winning author, historian and consultant who has worked in senior positions for GM, Fiat and Ford. In the 1980s and 1990s he ran the London-based motor-industry management consultancy, Ludvigsen Associates. He is currently an independent consultant and the author of more than three dozen books about cars and the motor industry, including Creating the Customer-Driven Car Company.