Ripping Yarns

How is FCA’s bejumpered boss managing?

I don’t think I’m necessarily alone in finding Sergio Marchionne’s penchant for jumpers a little unsettling. Yes I concede it is lazy of me to expect an Italian captain of industry to cleave to national sartorial stereotype; why shouldn’t he buck the norm, even if the result is somewhat unedifying.

Fine tailoring might be what we expect, but in Marchionne’s case the knitwear appears a little too studied, just a tiny bit artful. The cosy jumpers appear to be more of a mask than the maverick anti-corporate statement they’re dressed up to be. I’m not fooled.

Behind this fluffy veneer of nice jumpers and informal joviality, lies a gimlet-sharp business mind and a ruthlessness that has masterminded a transformation within Fiat as hitherto unthinkable, as it is now inexorable.

Marchionne has orchestrated perhaps the most ambitious and potentially perilous revolutions in modern automotive history, by taking Fiat; a company as synonymous with Italy as sharp design and equally sharp practice and reshaping it into a global multinational.

It’s either corporate alchemy of the highest order – to be dissected and lectured over for decades to come or the last throw of the dice for a dying behemoth.

Either way, It’s difficult to remain on the fence when it comes to Marchionne. Since his appointment, motor enthusiasts from Maine to Modena have formed disorderly queues to stridently inform us exactly what they’d have him do with himself, which tends to approximate to what they believe he is currently doing to their favoured marque within the corpulent Fiat empire. Saviour or nemesis – genius or lunatic? You choose, but the pariah-in-chief tiara appears to fit.

Italy’s vast automotive conglomerate was in deep financial trouble when Marchionne was appointed as CEO of Fiat in 2004. Nothing too unusual here, since Fiat had been on the brink of disaster on several previous occasions, the legacy of decades of failure to face up to the fundamental weaknesses that lay at the heart of their business.

Some of these problems were a consequence of the chronic over-capacity that bedevilled the entire European motor industry for years, while others stemmed from the growth of rivals within the de-regulated Italian market. But mostly it was Fiat’s long-standing and totally ingrained over-reliance upon the volatile small-car market and upon Italy itself.

Fiat, since the 1930’s has been a small car specialist and despite the growing affluence across Europe in the post-war years, the firm remained stubbornly entrenched in the mindset of small, fuel-efficient cars. This policy stood them in good stead during the periodic downturns that have occurred at various points over the past 50 years, but their inability to drive upmarket meant that they were unable to capitalise on the better times and generate the profits vital to fuel growth and stabilise their business.

More fundamentally still, it has excluded them (until recently) from tackling the most lucrative market of all – the USA. All of these and many other chickens had come to roost in Fiat’s Turin headquarters by the time Marchionne took over the leaking vessel a decade ago.

Despite some clever deal-making which did much to stabilise the situation, the 2008 financial crash and the Euro sovereign debt crisis that followed it brought Fiat to the very brink of collapse. Marchionne claimed then and continues to assert now that his purchase of Chrysler was the only option available to keep the ship afloat.

And while it looked risky as hell during the dark days of 2010, with the US market’s recovery, it has increasing appeared to be another deft swerve out of the fire. Chrysler has somewhat messily extricated itself from collapse, now generating $millions in revenue and appears to be keeping the Italian side of the business above ground.

While holes remain in Chrysler’s US product range, the success of it and the Jeep brand has enabled a turnaround almost as miraculous (some would say illusory) as that led by fellow Italian, Lee Iococca during the 1980’s.

Back in Europe, things have been considerably bleaker. Italy remains in deepest recession – years of inept government and simmering high-level corruption has led to one of Europe’s richest countries coming close to requiring a Greek or Irish-style bailout.

The car market, previously depressed, has been decimated and Fiat has been hardest hit of all the European carmakers. So while its range appears to chime with these austerity times, the irony is that it is next to impossible to make a profit with small economy cars.

Furthermore, Fiat suffers from a poor image in more vibrant markets like Germany and Britain, so sales remain depressed there too. Worse still, these markets want larger, more prestigious cars and remain virulently brand-conscious – the Fiat nameplate simply can’t and won’t do and at present they have nothing with a more desirable nameplate to offer.

Still more troubling is the fact that Fiat has not been a significant player in the two biggest and most lucrative markets in existence – the USA and China. Leveraging Chrysler/Jeep compensates to some extent for this, but a lack of a suitable upmarket brand presence in China comes with grave risks.

Still, with the merger in place, Marchionne now has access to $10 billion with which he can revitalise the European car business and fuel a concerted push into both the US and China.

This money (albeit paltry in automotive terms) is sorely needed, and would not be readily available to him otherwise. The flipside of the merger means that Fiat is now financially liable for Chrysler’s $4.9billion pension obligation, so should any further reversal take place, the consequences for Marchionne and FCA Empire could well be dire.

In Fiat’s former Italian stronghold, vast swathes of their workforce are on enforced leave of absence – a scheme partially funded by the Italian government. Once bustling factories like Mirafiori and Cassino lie mothballed, awaiting an upturn in fortunes that may be a long time coming.

This state of affairs cannot be maintained indefinitely – everything now hinges upon Marchionne’s high-wire skills. In a recent Automotive News piece, Ugo Arrigo, a professor of public finance at Bicocca University in Milan said, “Fiat has managed to free itself from Italy, but Italy hasn’t freed itself from Fiat. Marchionne managed to transform a local producer into a global player at the expense of its roots in Italy.” The prospect of hundreds of thousands of these workers being forced into redundancy is only one of several unimaginable vistas.

Still, the turnaround in the US has been impressive, but the really difficult job lies ahead. How can he bring his plans for the European side of the business to fruition while Italy and mainland Europe remain depressed and while the gap between Fiat’s low-return product and the premium end remains so vast?

Has Marchionne and Fiat learned from the errors of the past and do they truly grasp the strengths and weaknesses inherent within their marque portfolio? More crucially still, will there be time to see this transition through before the wheels come off?

The success of his ambitious strategy for the Alfa Romeo marque seems likely to determine the future viability of the entire European venture, especially with Ferdinand Piëch waiting in the wings to snap it up, should he fail.

If Marchionne and Fiat get it right, the entire European side of the business could be revitalised within five years. Getting it wrong however could mean the end of Fiat’s mainstream European operations and of Italy as a major car producer.

It is possible that the tipping point has already been reached. Sergio is going to need a lot more than a nice line in knitwear to steer the FCA empire through the next five years.