Fiat SpA, Italy's largest
manufacturer and a symbol of the country's struggle to adapt to
globalisation, is leaving home after 115 years.
The controlling Agnelli family and other investors met yesterday in
Turin to seal the end of Fiat as an Italian company after it merges
with Chrysler. Created by Italian-Canadian chief executive Sergio
Marchionne, Fiat Chrysler Automobiles (FCA) NV will be incorporated
under Dutch law, based in Britain and listed on the New York Stock
Exchange.
"Marchionne doesn't want to abandon Italy; he wants FCA and himself
to be global players and the centre of gravity of FCA has to be
repositioned to do that," said Professor Erik Gordon at the University
of Michigan's Stephen M. Ross School of Business. "It is a little sad
for Italy."
The new entity's cosmopolitan structure reflects an industry shift
away from national champions such as Fiat which, for decades, prided
itself in its Italian and Turin heritage. By combining resources with
the United States carmaker, the company formerly known as Fabbrica
Italiana di Automobili Torino can better compete with heavyweights such
as General Motors, Volkswagen AG and Toyota Motor, the CEO says. A
brush with bankruptcy a decade ago proved the Italian focus was
unsustainable.
"Marchionne needs the lights of Wall Street", where Fiat Chrysler
plans to locate its primary listing by the middle of October, said Mr
Vincenzo Longo, an investment strategist at IG Group in Milan. There is
more opportunity there than a "peripheral place like what the Italian
market has become".
Hampered by insufficient reforms, the Italian economy has stagnated
over the past 14 years and contracted 10 of the last 11 quarters.
Unemployment rates are near record levels, leading thousands of
Italians to leave in search of a better future.
The same goes for Fiat. Toughening regulation calls for large sales
volumes to finance development of cleaner engines and expand in growth
markets such as China and India. Bolstered by the combination, Fiat
plans to invest
€55 billion (S$92 billion) in the next five years to boost
deliveries by 61 per cent to seven million cars by 2018. That is still
less than Volkswagen's target to sell 10 million vehicles this year.
There is little option for Fiat as a standalone company. North
American operations, which were nonexistent before Fiat gained control
of Chrysler about five years ago, accounted for 62 per cent of the
group's second-quarter operating profit. The manufacturer's once-core
European operations lost
€6 million as the saturated market is gradually recovering from a
two-decade low. Without its US division, Fiat would have been
unprofitable last year and in 2012.
To reduce its reliance on Italy for sales and as a production base,
Mr Marchionne started seeking a partner about 10 years ago, when he
took charge of the manufacturer which was financially strapped at the
time.
The search, which included a failed bid for GM's Opel unit, was not
successful until Chrysler's 2009 bankruptcy. Faced with the prospect of
liquidating the third-biggest American carmaker, the US government gave
Fiat a chance to turn around the Auburn Hills, Michigan-based company.
While Italy will not be completely abandoned, it will become less
central. The headquarters will move from a villa adjacent to Fiat's
iconic former Lingotto factory, which features an oval track on its
roof and now houses shops, a hotel and a theatre, in a sign that Italy
can move on. The new location will be in Slough, England, until Fiat
opens a London office by the end of the year. Milan will be relegated
to a secondary listing for FCA's shares.
To take the sting out of the shift, Mr
Marchionne plans to keep administration and IT functions in Turin. He
has also vowed to keep all of Fiat's Italian factories open and rehire
about 30,000 line workers, who are largely on furlough.
To do that, he plans to build the compact Jeep Renegade as well as
other models from the Chrysler brand in Italy. Fiat also intends to
expand the upscale Alfa Romeo and Maserati nameplates to compete
worldwide with the likes of BMW, Audi and Porsche.
Still, the deal is not a cure-all. FCA lacks a sizable presence in
China and its Latin American operations are struggling. Even before the
Chrysler combination is finalised, Fiat has been linked to mergers or
deals with Volkswagen as well as France's PSA Peugeot Citroen in recent
weeks. While Fiat has publicly denied talks, the reports reflect
investor scepticism about Fiat's ability to meet its targets, even as
Mr Marchionne basks in his fairy-tale deal.
Before Chrysler's turnaround under Fiat, "we were the poor kids, Cinderella at the ball", the CEO said in June.
"People in the US actually like that. They like what happened."
