L’Estrema Unzione

Amid reports suggesting Fiat will shortly abandon Italian car production, Driven to Write posits a requiem.

Fiat’s Mirafiori car plant. Image credit: kollectium

So it has come to this. After almost 120 years of car production, Fiat cars, for so long synonymous with the place of their birth will no longer be produced there. Yesterday, we examined Automotive News’ report outlining FCA’s plans to shift Fiat’s entire production output to low-cost outposts outside of Italy. Instead, Fiat’s domestic plants will be refitted to produce upmarket models as FCA transitions towards high-return product.

There is a certain inevitability to this of course, given both the pattern of FCA’s fortunes and the path the wider motor industry is taking, but regardless of the pragmatism of Sergio Marchionne’s decision, it can equally be read as a vote of no confidence in Fiat’s homeland. Grimly ironic too, in that it’s the small, economical cars for which the carmaker made its reputation that are proving its undoing.

Founded in 1899 upon principles of intellectual socialism, Fabbrica Italiana di Automobili Torino was one of the most potent symbols of the Italian industrial revolution, and post-WW2, of Italy’s rebirth following their crushing defeat and subsequent economic collapse. A powerhouse of enterprise, engineering talent and creative flair, Fiat were industrial pioneers with a distinctly humane ethos towards the social function of the motor car within Italian society. Fiat might have brought mobility to its homeland, but at their best did far more: They ennobled it.

Fiat’s Lingotto car plant in Turin. Image credit: skibbereeneagle.ie

The wealth of engineering talent which the Turin car business nurtured and disseminated encompasses most of the great names of the Italian automotive scene; giants like Jano, Zerbi, Becchia, Giacosa and Lampredi. But outside the automotive realm, Fiat also innovated – in aviation, commercial vehicles and agricultural machinery. In architecture too: Giacomo Matté-Trucco’s state of the art and elevatory Lingotto plant in Turin, was a technological and aesthetic marvel when it opened in 1920.

But in truth, Fiat was also a somewhat lopsided business. Over-reliant upon a protected home market, blind to more lucrative upmarket sectors and deaf to the notion of customer satisfaction. Even Fiat’s corporate logo was ill-defined and subject to almost constant reinvention. And if Fiat couldn’t adequately define its identity, what hope had it re-drawing anyone else’s?

Image credit (c) Car Brands

Hubris too was a factor. Having acquired vast swathes of the failing domestic car industry amidst the contractions of the post-oil shock era, Fiat, in a manner similar to that of the god Saturn, consumed its adopted children one by one.

Too many Fiat Auto chiefs’ behaviour became more redolent of the Borgia dynasty than of professional managers, leading to a culture of boom and bust that punctuated the car maker’s fortunes over decades. But a forensic dissection of Fiat Auto’s decision making is for another time. Because surely the question now for Fiat’s Italian workforce, for its supplier base and for the wider domestic research and development businesses who rely upon them is one of quo vadis?

Addio Punto. Image credit: (c) Parkers

Italy’s economic and political woes are deep and possibly chronic. Its industrial might is spent and having failed to re-emerge from the privation and austerity of the post 2008 Eurozone collapse it appears to be drifting away from its predominantly post-war socialist ethos towards right-wing populism and protectionism. All of which makes manufacturing an even more parlous exercise, and adds further dimensions to the high-cost rationale being posited by FCA management.

Even with new models (allegedly) coming on stream, higher margin vehicles mean lower volumes, and that usually spells job losses. Furthermore, with the car production centre of gravity moving inexorably Eastwards it may prove expedient to shift ever-more of it in that direction. Ultimately, it might make more sense to produce Alfa Romeos in the US, given the stated importance of that Market to the brand.

Sergio Marchionne has vowed to eliminate FCA’s debt burden before he steps down next year. Central to this is his continued belief in a super-merger, ideally with another US carmaker, and one he’s moving heaven and earth to achieve. And with debt-reduction the primary goal, all actions, be they product-related or strategic can only be viewed through this narrow, restrictive prism.

Completed Fiats outside the Melfi (Potenza) car plant. Image credit: (c) ANSA

There have never been icons or sacred effigies in the pragmatist church of Marchionne. FCA’s chief executive doesn’t go in for sentiment. By shifting Fiat’s car production east, FCA’s chief executive is subtly recasting his vow protecting Italy’s jobs and industry. Because what was once holy writ is more akin to what Roman Catholics describe as extreme unction, better known as last rites.

It will probably happen incrementally, but the death of Fiat as a European car brand now looks inevitable.

©Driven to Write. All rights reserved.

Author: Eóin Doyle

Founding Editor. Content Provider.

12 thoughts on “L’Estrema Unzione”

  1. Already forty years ago there were discussions on the consequences of surplus production capacities within the European car industry. The long term perspective was that no more than five players would survive and that the most probable to go first was Fiat.
    It’s sad to see what became of one of the most creative and innovative manufacturers of them all.

    Bad Italian management isn’t limited to Fiat. Not meeting customers’ expectations already (together with lack of money) ruined Alfa Romeo and in a closely related industry, Ducati and Guzzi, too.

    How do other Fiat branches do?
    Fiat Medico once was very good (ask your dentist what type of dental chair he uses) and New Holland is something like the largest manufacturer of agricultural machinery. It seems that sometimes Italian managers get it right.

  2. Checks & balances has always been an issue at Fiat. Like Porsche/Piech-run VAG, Fiat’s leadership generally enjoyed too much freedom, which in most cases led to a very hegemonic approach towards leadership.

    Paolo Cantarella, for example, inherited Europe’s most profitable car business from Vittorio Ghidella, but rather than continue with his predecessor’s sober modus operandi, he decided to reinvent Fiat, according to his own principles – which eventually led to to the equally inept and cynical Stilo (which cost Fiat so dearly) and the Lancia brand falling into coma (which appears morbidly appropriate, given Cantarella had stated that Lancia was supposed to be positioned as a ‘pensioner’s car’).

    The likes of Cesare Romiti and Marchionne today employed different methods, of course, but in each case, the supervisory board and corporate structure had allowed them to go about their business in any way they please, without too much resistance – which means Gianni Agnelli and John Elkann must be held responsible as well.

    Family businesses are fine and dandy – but multi-billion dollar enterprises ought to be run in a significantly different way.

  3. In a car market where every manufacturer bar Dacia wants to become “more premium”, would it be so unlogical to concentrate FIAT as a brand of affordable cars? The Tipo is less sophisticated than the class competitors, but it seems the affordable pricetag gave it 120 000 sales in Europe last year.

    The premium-hype is driven by economic fortunes, company cars, favourable car loans, … When the next economic storm hits Europe, having an affordable and economic model range might be a comfortable position to be.

    Make it rational with five models (+ the 500) and maybe replace models every seven years, like the industry standard for car companies.

    1. Oh undoubtedly, SV – it’s a tragedy. But Fiat’s fortunes have always been bound up with those of its homeland – and vice-versa. Now, given the economic and political situation gripping Italy, the possibility of them exiting the Eurozone or indeed the EU itself seem less fanciful by the week. Within such a dystopian landscape, investing in continued manufacturing on the Italian mainland appears fraught with danger. It is my suspicion that ultimately FCA (or whoever buys them) will aim to cease all mainstream production in Italy as soon as they can expediently extract themselves.

      Regarding the premium versus value model, one of the curious aspects of this as-yet unconfirmed move is Marchionne’s stated antipathy to the current Tipo model, which has been a runaway sales success (it seems) in Europe. Sergio obviously knows where the bodies are buried of course, but the fact that he’s talking of axing the model suggests that despite it being made in lower-cost Turkey, it clearly isn’t making him any money.

      But it chimes with the Marchionne no-prisoners charter. If a model line is not doing its bit to erode that all-important debt burden, it’s addio.

    2. I wish I could come up with some calculation proving how much money was thrown away by allowing the Punto badge to wither and die. Brand equity is a kind of equity, you know? Not that Sergio cares about such unfounded claims…

  4. Let’s not be too harsh on Sergio Marchionne.
    I learned from him a valuable fashion lesson, that a blue sweater is adequate for every occasion. From meeting the Queen to visiting a construction site. A pity Fiat doesn’t sell sweaters.

    Seriously, though, I don’t know if there were any significantly better decisions to be made by the Fiat brand regarding its product line in the last 5 years. It’s not efficient (from FCA’s point of view) to go upmarket with Fiat, and their current small car lineup is competent enough to make it minimally stable and profitable. My main support, however, comes from the fact they didn’t come up with an entire range of SUVs under the Fiat badge. They let Jeep do the dirty work of being profitable in this – hopefully temporary – age of nonsense with jacked up, tall and heavy wagons with efficency/hybrid/eco written all over.

    1. FCA is now detached from the Italian economy compared to 1999. There are interactions still but I would say FCA’s debt status won’t influence Italy’s directly or indirectly. I’m quite concerned Italy will torpedo itself economically. Or more worryingly, that it’ll damage the EU and thereby itself.

  5. Marchionne is not really chasing partners for FCA anymore. That was so three years ago. Or this time last year.

    If the second quarter 2018 is as financially lucrative as the first, FCA will be debt-free by the end of June, next month in fact.

    I’ll predict by the end of quarter three. After he flogs Magneti-Marelli to some poor soul or another by this time next year, and with his moneybags filling, it’ll be interesting to see where he spends development money next, just before he canters off to a retirement castle in Switzerland somewhere and changes his sweater.
    https://www.reuters.com/article/us-fiatchrysler-results/fiat-chrysler-cuts-debt-by-more-than-expected-idUSKBN1HX1OG

    As for Europe:
    “When I look at the economics, and I look at return on invested time — forget about invested capital — return on invested time and the effort that’s required to make Europe reasonably profitable, one would have to wonder why one is doing it, because it is fraught with difficulty, it is an incredibly complex jigsaw puzzle,” he said.”
    More at:
    https://www.bloomberg.com/news/articles/2018-05-18/fiat-ceo-is-said-to-plan-sweeping-production-shift-in-italy

    The money to be made in RAM pickups and secondarily Jeeps must have come as a shock to Marchionne once he got settled in at Auburn Hills seven or eight years ago. To take Chrysler fully over, one Obama condition was to produce a 40 mpg US car in the US; 40 mpg highway that is.

    There have been enough stories of the high-handed capuccino-swilling Fiat executives, as characterized by one industry observer at least, to cajole and lord it over the low-brow “incapable ha ha” US engineers into producing the Dodge Dart from some Giulia pulled and stretched platform or other.

    So in a mere two or so years, a completely unsaleable Dodge Dart appeared powered by a 1.4 gas MultiAir turbo, itself made in the US in incredible hasty retooling at Dundee MI. The gearboxes were either a manual (chosen by what, 2%?) or a recalcitrant DCT lifted out of some Fiat commercial van. The trunk lids didn’t even fit, it was such a rush job. It languished on lots while the new Escort sold well. This was 2012/13.

    However, there was the car the US government had demanded. Nobody said it had to be popular as well as economical, and Fiat was able to finish off its Chrysler purchase.

    Apparently not up on modern QA standards like the entire rest of the industry and powered by brio of the “who needs that cr*p” variety, Fiat finally allowed Chrysler the time to complete the Dart with a semi-decent 2.0 litre and proper slushbox. Sales were never more than semi-brisk either. It was a 1500 kg porker.

    Further investment finally produced a 2.4l wheezer with MultiAir cylinder head off the bones of the old World engine. This could be slid into the later Darts, the new Cherokee, 500L, 500X, Renegade, Compass and the ever-memorable Chrysler 200, which was OK with the Pentastar V6 but as with the four, and to this day, fitted with the useless ZF 9 speed automatic for transverse powertrains. This nightmare gearbox ZF managed to also flog to JLR for the Evoque and Acura for its two upper models. Poor old Sergio bet the farm on it and produces it under licence in FCA’s own US factory to save paying ZF an extra profit buck.

    Still, it must have become pretty obvious early on to SM that there was precious little loot to be coined out of small cars. 10% of a $20K unit is less than half of 15% of a $35 K unit. While Chrysler recovered it literally held up Fiat Europe from crashing and burning. Instead of wasting investment on small Fiats, SM allowed them to wither on the vine for want of updates. His big gamble for Italy was to design new upscale Alfas for world markets to be made in Italy. The success of that tack remains to be seen, but the vivacity of their driving characteristics compared to the plodding Jag XE and F-Pace seem to bode well so far.

    In addition, the Jeep Renegade is made in Italy, so SM can hardly be accused of not providing make-work projects there, shipping 100,000 engines/transmissions from the US for US-bound cars. That isn’t cheap and the price reflects it in Canada at least. A decent RAM costs less, so Renegades are a side show here but sell well in the US.

    Italy has been in the news here these past few days, characterized as the sick man of Europe. The EU highbrows rather stupidly wanted monetary union between economies of vastly different size and productivity. No floating exchange rate as even a moderate dullard could see was needed. No – wacko theory overtook the fevered brows of bureaucrats, and so the Union dropped itself in it by daydreaming of Nirvana. Bankers now own Greece, heigh ho, now it’s likely Italy’s turn. There will be revolution if Italy begins to get screwed – bet on it, and I for one would not blame them.

    In the current scenario with Trump browbeating car companies into producing in the US for domestic consumption, labelling Canada and Mexico as cunning and slick robbers of US precious bodily fluids under NAFTA, plus any other damn fool thing he can think of, the crossover revolution continues apace in Europe as elsewhere. If you were SM, beholden to the Agnellis for providing profits, no wonder he’s trying to bring up value per unit built in Italy. No point investing in small car re-engineering to make them in Italy and clearing a few pence each for his trouble. Let Poland have them.

    I know people here revere the 500, but it’s as out of date as last November’s pork pies. Charming if you like them with whiskers, but not enough people do. And that’s about all she wrote. No money in small cheap cars unless you get serious like Renault/Dacia and make a science of it. Nobody else has had the focus to do so. GM has been chased out of Europe and India, dragging its uncompetitive tail behind it, after all.

    Change happens.

    1. I wonder if FCA becoming debt-free will change the EUrocrats’ minds. It’s the bellwether for the Italian economy.

  6. The problem with FCA as a viable operation must be put in context as a general problem concerning makers from a predominally closed domestic market. The auto industry has become truly global the last couple of decades, and only those with a global presence will survive into the future.

    Synergy effects through spreading costs over many platforms and brands generates profit through scale, the larger the maker, the more cheaper it becomes for them per unit, the more profit they make. The larger they become, the bigger the gap becomes.

    Makers who can not not compete on scale can survive on niche products or premium products or brand cachet alone, but only as long as people are willing to pay a premium over a lesser product, they must deliver on perceived if not real quality, they must have a unique selling point.

    Before, the auto industry was splintered into closed and separate domestic markets. Except for the British who had to export or die, the British had 50% of global exports during the fifties, they exported cars all over the globe. Austins were the most imported cars to other countries on a global scale during the fifties, something the English has mourned ever since.

    While at the same time, Ford had domestic operations in the UK, France, and Germany. The French auto industry was mostly a French affair, the same for the Italians and Germans, with a small trickle of imports between the countries. To keep markets closed, taxes were imposed on imports on a punitive level, taxes was set very high to favor the domestic market.

    Volkswagen is really on a league of its own with its massive expansion during the sixties in the US and South America, but they have had a problem since keeping that beachhead. Fiat expanded through central and eastern Europe with assembly plants in Yugoslavia and Brazil, and also the entire Soviet operation helping 20 million russians to get their hands on a Lada.

    Ford, VW, and Fiat practically owned the entire South American market up until the 90’s, with operations that were really semi independent entities of their own. It is a mistake of enormous proportions neither of those has been able to capitalize on that investment, Brazil alone counts for about 10% of the global market.

    Mercedes has had a very long standing global presence, they have very deliberately worked for a very long time to achieve a stronghold in every single country on the planet. Even if the sales were only a trickle, they have very consistently captured their market demographic, there isn’t a place on this world without a Mercedes on the streets.

    The Japanese worked in the same way, mostly by building up strong American sales from the 60’s and up. The American market has been the most important export market for a very long time, it has really been the battleground where the war for global dominance has been fought, a role now taken over by the Chinese market.

    Volvo and Saab could survive on the US market, and Saab only just so. For the larger part of the 70’s to the 90’s more than half their outcome went to the US. Honda is a minor Japanese player with a major US presence, they sell more cars in the US than in their own domestic market. Citroën, Peugeot, and Renault has tried several times to capture the American market to no avail. And Fiat has only recently got their foot in through Chrysler.

    Ford is only really strong through truck sales in the US, and they are pulling out on passenger car production, they don’t have either the portfolio or global presence of VW and Toyota. GM sold off its entire European operation to PSA, unclear why because they are also only strong through truck sales in the US. Without a Daewoo/Opel they don’t have access to develop their own small car platforms anymore.

    The market will contract around premium products on one end and cheap cars made in low wage countries at the other end, and that will mean the demise of the entire middle ground. To survive, the auto makers will need access to cheap labour and cheap production, and those without that access won’t survive in the long run. That leaves a handful of truly strong global survivors, and a handful of weaker prospects fighting to maintain their hold under them.

    That leaves VW, Toyota, Renault/Nissan, and Hyundai/Kia as strong players, and Ford, GM, PSA, FCA, as strong contenders to either fight and survive or fight and die or being taken over. Under them we have even weaker players in an even worse condition, like Mazda, Mitsubishi, Suzuki, etc. BMW is strong on premium products and Mercedes can survive on its own on their brand cachet alone, but in the long run they need a smaller player like the aborted tie up with Mitsubishi.

    Renault/Nissan has shown how it can be done with its Dacia operation, VW wreaks heavy profits on its east European Skoda operation as well. What makes this situation a problem for both Fiat but also the entire PSA group is their inability to capitalize on their low cost operations. Neither of those has access to low wage labour, that means they are extremely vulnerable for market variations with little prospects of gaining profits through scale.

    Fiat had the entire of South America at their hands, they had operations in Yugoslavia that just withered and died. And they don’t have access to Asian production, they don’t have access to the Chinese market. The same with PSA, they don’t have either North or South America and they have been unable to capitalize on their really strong foothold in the Chinese market, they had sales in China upwards a million cars per year.

    The only true survivors that will stand is those with a global brand presence in all the markets in the world, and with access to low cost production in Eastern Europe/Turkey/India/China/Mexico and Brazil. That leaves PSA and FCA and the rest of the weak contenders very vulnerable for a hostile takeover from someone with the pretension of becoming a global player.

    Geely has shown how it can be done, Volvo and Jaguar/Land Rover could become parts of a larger portfolio. There could be an opportunity for Ford or GM to acquire PSA of FCA in its entirety. There could be an opportunity from someone totally unknown that see a window of opportunity to do a Carlos Ghosn and turn the entire operation around. There could be an opportunity for someone like Tata to really step up the game.

    And it could all end up with the conglomerates divided and their assets splintered and sold off for market gain alone. The market will contract and some will survive and some will die. Now this comment became very long indeed, if you think it will hold and that there could be room for discussion around it, feel free to edit it for spelling mistakes and spin it off as an article on its own.

    1. Returning for a moment to the narrow prism of FCA, I am of the belief that Sergio has not for a moment abandoned his ambitions of a super-merger. He may not achieve one with either of his US-based rivals. GM is dead-set against and it’s difficult to see how Ford could countenance being the weaker partner in such a marriage. If push came to shove, I could envisage Ford and GM joining forces before either doing a deal with FCA. (As heretical as that seems).

      Meanwhile, of the European carmakers who could potentially elect to join him, the most likely contender is PSA, who are very keen to re-enter the US market and remain perilously weak in global terms, despite having some international reach. (Albeit, Iran is looking a good deal more problematic since the US decision on sanctions). Even VW has been suggested, given their ongoing weakness in the US, although given the distractions of the emissions scandal and its fallout, I can’t see that happening anytime soon.

      BMW is protected by the Quandts to a greater extent and Daimler is already part-owned by a number of hugely wealthy investors who could ultimately force control. (Neither would touch FCA with a bargepole anyway) In either case, the urge to merge is tempered by bitter past experience. Similarly, JLR is protected to some extent by Tata, but dependent upon the wider fortunes of the parent, who remain decidedly India-centric. However, should they get their act together, they could be a power to watch. Ditto Volvo and Geeley.

      Of the Japanese, only Toyota and Nissan are strong enough to stand – everyone else will probably get eaten alive. In Korea, Hyundai / Kia are strong, but not inviolate and they appear to have stumbled of late. They may not grow sufficiently before a reckoning takes place.

      As Ingvar points out, Fiat Auto had made good strides at being a global player, making notable forays into Eastern Europe and South America, but Fiat’s inability to manage its business with any consistency meant they never capitalised upon this, succumbing to the endless cycle of boom and bust. And look where that’s got them. Ironic isn’t it that the factories they were instrumental in setting up in Poland etc seems likely to henceforth produce their entire Fiat-branded output.

      If indeed FCA have suspended all European R&D in the cause of debt clearance, there is no way they can be in any position to meet forthcoming EU-wide emissions regulations, to say nothing of the urgent drive to electrification or the modern modular platforms this will require. What is quite clear is that Marchionne’s push to eliminate FCA’s debt makes them a far more attractive partner to any car business looking to make a deal (not to mention the power of JEEP and RAM in the US), but given their structural weakness, a deal is just about essential – certainly in the medium term, if not sooner – unless of course they pull the drawbridge on Europe entirely.

      And should none of the US, European or South East Asian car makers bite, there are suitors aplenty in China. If I was a betting man, I’d be placing one on a merger – albeit, having said that, Serge has surprised us in the past, so what are the odds of him doing so again?

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