In recent months, things have started to look up for Fiat, it would seem. New products on the horizon and an arrest in the collapse of its Italian market share, for example, are being touted as the first evidence of better times ahead. But many question marks still hang over the group, such as why a strategy for long-term profitability is yet to be made public, if it exists. The parallels with Nissan before the Renault rescue are striking (huge debt, so-so product, a tarnished image, an obsession with sales rather than profitability) yet where is the Carlos Ghosn-like figure to lead Fiat Auto to the sunny uplands of a strong and confident future? Clearly, Fiat is not out of the woods yet. Glenn Brooks reports.
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Debt aside, the biggest problem Nissan had was its management’s loss of confidence in themselves and their company. Quite simply, the maker of the iconic Fairlady Z and Skyline GT series had forgotten how to make cars people wanted to buy, as extraordinary as that sounds. Analyse the actions that Carlos Ghosn empowered Nissan executives to take and you soon see that he had no magic wand, no bag of endless Renault money. His genius was making Nissan’s management believe that they could solve the company’s admittedly enormous problems. As the saying goes, making a monumental mistake can be the most important lesson a man ever has, if he learns from it. Ghosn made everyone understand how serious the problems were but also how they could be overcome. Getting all the hidden debts out in the open, examining cash-flow and working with the banks and his executives to construct a step-by-step schedule of recovery was the start of the turnaround, as we can see from the vantage point of five years hence.
So far then, recent activity at Fiat matches much of the Nissan recovery pattern. The patient appears stable and plans are being drawn up that will ensure a brighter future. But Fiat MUST soon show strong evidence to its banks and other shareholders that it has changed its old ways and is determined to become rich and self-sufficient. Ghosn was the facilitator, not the messiah, as he is constantly reminding anyone who will listen. He did what others could or would not bring themselves to do: he looked the banks in the eyes and told them they would get their money back if they gave Nissan some space, just as Fiat’s management has now done. Large-scale asset sales then took place, in both cases, until what was left was a core business ripe for growth.
Now comes the tough part: delivering. If Fiat stumbles, the banks will get jumpy and so will minor but vital shareholder GM. Without the Opel joint venture for future European product, Fiat Auto’s forward model strategy would be in disarray. All of Opel-Vauxhall-Saab’s and Fiat Auto’s potentially big-volume models are to be based on shared architectures. Some of them are Fiat-designed, while others will use Opel architecture but each needs the joint volumes to justify the investments. In terms of sales, both Fiat and Opel have fallen a long way behind rivals such as PSA and Volkswagen in recent years so this is GM and Fiat playing catch-up on a large scale. Pooling resources is the name of the game and both parties are trying hard to convince themselves that it will work.
But will it? Opel is being forced to revamp the current Astra platform for the next generation while watching Ford and Volkswagen launch their next Focus and Golf models using all-new components. Why? GM wants economies of scale but it must wait until a new Fiat-developed platform is ready and that’s still three years away. A small consolation for Opel is that it will have first use of the new components set when the Astra-after-next comes on stream in 2006 (a year ahead of its Stilo replacement twin). It’s a huge show of faith in Fiat’s engineering skills by GM and one that it must be praying will be worth its patience. Yet surely it would have been better to have given Opel the lead for this project a few years back – what Fiat and Opel both need right now are all-new replacements for the declining Astra and disastrous Stilo. Imagine what the sales numbers for the current Stilo will be like by 2007, for example, even allowing for an uptick provided by the imminent facelift.
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By GlobalDataFurther up the size scale, it is stunning to think that Fiat Auto has NEVER had a real rival for the Passat, Mondeo & Vectra if you exclude the short-lived, half-hearted Marea. Its entrant into this huge market sector has been plagued by delays brought about by several redesigns and even a platform change to GM’s Epsilon architecture. Worryingly, every Epsilon vehicle launched thus far has received only luke-warm reviews (step forward 9-3, Signum, Malibu & Vectra) so hopefully the engineers in Turin will make the most of their longer development time to improve dynamics. We’ve heard it before but Fiat really cannot afford the 2005 New Large and Lancia Lybra replacement to fail. As the Alfa 156 proved briefly before indifferent dealer service and iffy reliability sent buyers back to their 3 Series BMWs, it IS possible to succeed with a premium-priced Italian family car.
The one seemingly secure sign of hope, however, is Fiat rediscovering what it used to do better than anyone: small, cleverly-designed cars. The British still love the Mini but nowadays nostalgia only goes so far: BMW understands that a generation brought up on Nissan Micras expects faultless reliability and build quality as well as cute looks. UK buyers are also quite a bit wealthier than they were a generation ago, as are Italians, let us not forget, so premium-pricing is possible if the car is right. Assuming the quality of the new Lancia Ypsilon is spot-on, it could prove to be a big seller to European city-dwellers. After all, there will be a lot of smarts coming off-lease in Paris & Rome next year and the oh-so chic baby Lancia certainly will be on many of those shoppers’ lists.
The Gingo is of course the other, larger cause for real hope. Aside from a name that is less than ideal in some markets, the car is roomy, looks good inside and out and, unlike its predecessors, will have both the diesel engine and the five-door bodystyle that budget-conscious buyers in central Europe demand. It will also have a clear run as the freshest and most advanced car in the sector for at least the next year. As yet it is unclear if 2004’s Twingo II will be a five-door vehicle, for example, while much of the Japanese and Korean-badged competition is mostly reliant on thinly-disguised old models powered by wheezy petrol engines.
As much as there is now evidence of a potential large lift in sales for Fiat Auto’s brands, there are a couple of large causes for concern. Both Chairman Umberto Agnelli and chief executive Giuseppe Morchio seem to have stopped the red ink and secured the future of their relationship with GM for the time being. However, clear strategies for Alfa Romeo and Lancia are notable by their absence (we assume Fiat will remain the big-volume family car brand). Is Lancia to draw on its rallying heritage or its luxury-saloon lineage or both? How will Alfa Romeo succeed in the USA when buyers there remember ‘spaghetti electrics’ and several returns and retreats? Has indeed Fiat asked itself the big question – will Alfa make serious money in the USA and if so, how?
To best illustrate the point, we must ask ourselves if we can imagine Fiat Auto turning ever-larger profits, five years hence. Has the company sensed the real danger that it could yet collapse if it takes its eye off the profit ball? There will be no more divisions to sell off in the next cyclical downturn: shareholders of Case New Holland and Fiat Iveco will not tolerate their cash being pumped into a drowning Fiat Auto, of that we can be sure. The nightmare scenario for all parties involved in the company’s restructuring would be a jittery bank refusing to roll over large scale refinancing thus setting off a chain reaction or else new management at GM suddenly saying ‘no more cash and an end to joint ventures’.
The Agnelli family has five and a half years to exercise the infamous Put option, starting from January 2004. If this summer’s new cars flop, we may well see GM eventually taking the reins in Turin to protect its investment. Large-scale factory closures would surely follow and the Fiat and Lancia brand names might be lost. That would be a tragic end but one that can be avoided should we see evidence of a serious and sustainable profits turnaround every quarter from now on. Giuseppe Morchio must be burning the midnight oil to ensure that he is remembered as the man who saved Fiat, rather than its final, failed would-be saviour.
