The Fiat rescue – if such a thing can be arranged – is going to be swift and it’s going to be tough. That much was clear from the way that Sergio Marchionne handled the analysts’ conference after the 2004 financial results were posted.
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Everyone knows what he has to do. He has to make better cars and sell more of them.
And it became clear after General Motors handed over a lot of money to be allowed to have nothing more to do with the drama, that Fiat was going to get one more go at achieving the objective. After that, there is no more free money. When it’s gone, it’s gone and if revival doesn’t work this time the task must become an MG Rover-esque management of decline.
Marchionne therefore has the toughest job in the industry, but if the tough talk is a measure of his substance there is a chance.
His stirring stuff was reserved for a question that could so easily have been patted away: “Which was the aspect of the problem that you most underestimated before you took the job.”
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By GlobalDataHe was very clear: he hadn’t realised the extent to which the organisation was unwilling to compete.
“One of the main issues for large organisations is to recognise where they are because they can reach a point where they become accustomed to losing. We have got an organisation that has to be stamped out if its stupor. Changes of leadership are designed to snap organisations back into reality.” That’s tough.
“We will do it; and hopefully in quarter one.” That’s swift.
In a reference to his decision to take control himself, two weeks ago, of Fiat Auto in addition to his role as CEO of the Fiat group, he also said that the organisation had been left to snap itself out of its stupor on its own. It had not managed it, and Fiat Auto CEO Herbert Demel paid the price.
Marchionne is the fifth chief executive of the group in five years and has been in place since June. He has the support of the banks having managed rapid remedial action at major companies twice before.
By September the group was trumpeting that it has appointed 24 new people in key jobs at Fiat Auto, so yesterday’s judgement that they have all been caught asleep on watch has the appearance of a tactical judgement rather than an objective one.
Marchionne is not just fussed about the in-house expertise at Fiat; he’s fussed about the dealers in a big way. According to him they make one fifth of the money that dealers do on average by representing other brands. They are therefore not motivated and not the best – or both. So a large part of the General Motors farewell gift will go to addressing that problem. Spending will be more than half as much again as last year. Other than in Italy though, where the spend is to be maintained, Fiat is not going to help dealers with product ads. Far too much has been wasted outside Italy, he believes, and the wastage is to be capped.
The other cow that has became sacred on the expenditure side – the only other one – is R&D. Marchionne may know little about making cars but he has found out that bad ones don’t sell. Rather disappointingly, he discovered, Alfa (which makes good ones) failed to hold its position in 2004 over 2003. “That shows you how much we still have to do in the car group,” he said.
There are doubters when it comes to believing that the intended spend of around 10 or 11% of revenues on capex and R&D can do the trick, when Fiat is such a low volume producer, and that is the amount being spent routinely by the big boys. Marchionne was firm. He’d looked at the plans. There was nothing missing.
An irritation he has got is the new model flow. New Croma will be at the Geneva motor show this week, but new Punto will not arrive until the fourth quarter. Worse, new Stilo has been delayed because no-one is happy with it and it has been taken back for a rework. That has implications for Lancia also which needs refreshing and which would use that platform.
Fiat is saying very firmly in its published material that “2004 was the last year in which the group will report a net loss.” Misleading investors is not something you do sleeplessly these days, so the board must be have a pretty high quality crystal ball. The negative argument about the auto group (a small operating loss in 2005, and a profitable operation in 2006 according to the narrative) is that it has to fund huge restructuring (€250m this year was one guess), rising raw materials costs that are bothering all the opposition (€500m maybe), €130 million to pump up the dealers, and do all that with old product in the high volume sectors. Punto alone – which does not show up until the end of 2005 – is supposed to be a 350,000 a year performer.
And the unions. Are they as hawkish as they sound? Will the turnaround plan be opposed? “I feel confident that the unions will support the transition.” They’d better. There’s barely time for a chat over an espresso never mind a lightning strike.
Rob Golding
