470624.pdf

The FIAT Case: a Therapeutical Crisis

Why did we choose to analyze Fiat? Our interest and curiosity arose when we thought about the agreement that Fiat signed with GM…at the end, this one preferred to pay a huge penalty rather than do business with FIAT. Why was this possible? What were the reasons that brought GM to such a decision? These were the first questions we had and with this work we have tried to give us, through the support of specific tools, the answers we were searching for. Fiat Auto was one of the founders of the European motor industry. With this work, we want to understand the reasons why the company has run into a huge crisis. This situation has deeply damaged Fiat reputation in the period 2000-2004. This had logically bad consequences on sales and profit. We propose an introduction of FIAT to understand the historical and economic evolution of the company. Then, it is fundamental to understand the characteristics of the automotive industry that plays a huge role in the world economy. In this section, we will analyze the main actors, the increasingly importance of suppliers in the industry value chain, the great opportunities that stems from emerging countries, the importance of investments in corporate strategies and the environmental commitment. The tools we have used are: the PEST analysis, the Porter’s Five Forces analysis, the FIAT Value Chain and the SWOT analysis. On the base of the SWOT analysis, we propose a ray of strategies in order to overcome the crisis of 2000-2004. These proposals are compared with the 2005 strategy that has been really implemented by the company. Finally, we underline what, according to our analysis, is in line with our conclusions and what diverges.

Lugano - 02.07.2006 – USI - Corporate Strategy SI 2005-2006 – Prof. Erik R. Larsen

by Vincenzo Cammarata, Veronika Kurucz, Valentina Maj, Aleksandra Pavlovic, Katherine Portmann

© 2006 - The FIAT Case: a Therapeutical Crisis by Vincenzo Cammarata, Veronika Kurucz, Valentina Maj, Aleksandra Pavlovic, Katherine Portmann�

for Università della Svizzera italiana, - Corporate Strategy – Prof. Erik R. Larsen – SI 2005-2006

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Table of contents Prologue p. 3

1. The FIAT Group p. 4 1.1 Focusing on FIAT Auto 1.2 Products and Services

2. The Automotive Industry p. 7 2.1 Economic Importance 2.2 Industry Value Chain 2.3 The main actors 2.4 The great importance of suppliers 2.5 The opportunities coming from the new markets 2.6 Competitiveness and international markets 2.7 Internationalization:

investments and corporate strategies 2.8 Consumers 2.9 The environmental approach:

the manufacturers’ contribution 2.10 The P.E.S.T. Analysis of the Industry

3. Analyzing FIAT Auto p. 13 3.1 FIAT Porter’s Five Forces 3.2 FIAT Value Chain 3.3 S.W.O.T Analysis 3.4 Drivers for Strategic Solutions

4. Recent adjusting actions in FIAT house p. 24 4.1 “La grande auto torna a parlare italiano” 4.2 The turnaround year: 2005

Epilogue p. 26

��- The FIAT Case: a Therapeutical Crisis�by Vincenzo Cammarata, Veronika Kurucz, Valentina Maj, Aleksandra Pavlovic, Katherine Portmann for Università della Svizzera italiana, - Corporate Strategy – Prof. Erik R. Larsen – SI 2005-2006

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Prologue

«GM to Pay FIAT $1.99 Billion To Settle Dispute Over Alliance Under the deal reached yesterday, FIAT is giving up its right to force GM

to buy the 90% of the Italian company's ailing auto unit that it doesn't

already own. The prospect of absorbing FIAT Auto and its heavy debt

load contributed to fears that GM's credit rating would be downgraded.

The agreement also preserves GM's access to FIAT technology it needs

to bolster its unprofitable European operations. � By Gabriel Kahn in Rome and Lee Hawkins Jr. in Detroit,

The Wall Street Journal, Feb 14, 2005�

Fearing FIAT

The rumors before and the official news after confirmed what was known since the end of

2004: the reverse of General Motors on Mega-Deal with FIAT Auto SpA. The alliance signed by

the two OEM’s in 2000 was part of a strategic plan aimed at reinforcing the giant of the US

automotive industry but threatened by Toyota, and at saving the last glorious symbol of the

historical Italian industry.

But, what were the real reasons behind this decision? Why GM preferred to pay a penalty

rather than proceed with the Alliance? Was the crisis of Fait so evident and desperate to the extent

that also the American company became anxious? Maybe was there the sensation that FIAT could

�� burden for the ongoing Wall Street downfall of the Detroit’s group? (fig. 1)��

Let’s analyze FIAT strategy and identify the drivers for the wished rebirth of the Phoenix.

�

fig.1 – Stock quotes

for FIAT SpA (FIA)

comparing to GM and

Toyota share on NYSE

from 2001 to 2006


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1. The FIAT Group �

FIAT was one of the founders of the European motor industry. Right from the outset the

company pursued two growth strategies that became the cornerstones for its later development: a

strong international vocation and an innovative spirit, as seen in the technological quality of its

products and the advanced production and organizational solutions it adopted.

But in more than one century- activity, FIAT has meant much more than cars alone. In fact

the company interpreted its vocation for the motoring world in an original manner, expressed by its

commitment to all forms of mobility for people and goods: from cars to trucks, agricultural tractors,

marine engines, aeronautical engines and, in more recent years, space launchers.

In 2003, the Group restructured its core business area by focusing on manufacturing and

service activities of the traditional motor vehicle sector. Today, the company has made up of nine

Operating Sectors: Automobiles, Agricultural and Construction Equipment, Commercial Vehicles,

Ferrari and Maserati, Metallurgical Products, Automotive Components, Production Systems,

Publishing and Communications and Services. This new structure of the Group, also with Business

Solutions (service company of the group) and ITEDI (Publishing & Communications division of

FIAT Group), ensures a total focus on the automotive industry.

Following the conclusion of important transactions aimed at the financial and industrial

strengthening of the Group, FIAT is now committed to carry out a turnaround plan which

envisages the achievements of the operating breakeven in 2004, a positive net result of more than

500 million euros in 2006 and operating profitability that accounts for 5-6% of total revenues in

2007.

fig.2 – FIAT Group after 2003 restructure is a clear vertical integration model


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1.1 Focusing on FIAT Auto

�� ne of the pioneers in the car industry; it built its first car in 1899. Since then, it has

produced approximately 87 million cars and light commercial vehicles and many of its models

marked important milestones in the motoring history.

FIAT Auto operates in international markets under four brands, all distinguished by their

innovative content, style and manufacturing solutions: FIAT, known for its creativity, versatility

and practicality; Lancia, which features an elite and exclusive line of models; Alfa Romeo, the

combination of spottiness, technology and elegance in a unique design; and FIAT Veicoli

Commerciali Leggeri��

gratifying working experiences.

To round out the range of products and services offered, FIAT Auto activities include sales

financing and a broad array of support programs for customers and the dealer network.

FIAT Auto has plants in Italy, Poland, Brazil and Argentina. Manufacturing is also carried out

through either joint ventures or licensing agreements in France, Turkey, Egypt, South Africa, India,

China and Vietnam.

On eleven occasions FIAT Auto models have won the Car of the Year Award, the car industry’s

most prestigious recognition worldwide. The award has been won eight times by FIAT, twice by

Alfa Romeo and once by Lancia.

In 2004, FIAT Auto's sales increased by 4.2% over 2003. On the light commercial vehicle

market, the Sector sold a total of 271,000 units, a gain of 9.8% over the previous year that

confirmed FIAT's leadership in Italy and many other countries.

1.2 Products and Services

�� in order to sharpen its

competitive edge, FIAT Auto put five new cars on the market in 2004. Well received by the public,

these new models included the Lancia Musa compact MPV, the New FIAT Multipla – restyled and

an even more lavish array of standard and available features – the Panda 4x4 and two Alfa Romeo

models: the new 147 and the Crosswagon Q4, which mark the brand’s return to all-wheel drive.

Attention was also devoted to improve existing models,

to extend the product lineup with new versions: the Lancia Ypsilon with the DFN robotized

automatic transmission, the FIAT Idea with the Dualogic transmission, the FIAT Punto bConnect

with standard satellite navigation system, and the FIAT Stilo equipped with a 100 horsepower JTD

engine. FIAT’s range of light commercial vehicles was also reinforced during the year with the

Ducato Model Year and Doblò Cargo versions. The real star of the season, though, was the New

© 2006 - The FIAT Case: a Therapeutical Crisis�by Vincenzo Cammarata, Veronika Kurucz, Valentina Maj, Aleksandra Pavlovic, Katherine Portmann for Università della Svizzera italiana, - Corporate Strategy – Prof. Erik R. Larsen – SI 2005-2006

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�� nd technological features that brought further

improvements in ride comfort and safety.

Solid preparations for continuing to renew the FIAT Auto product lineup were also made in

2004, when an agreement was signed which will enable FIAT to enter the SUV market with a

vehicle produced at Suzuki’s plant in Hungary. Moreover, through an agreement with AdamOpel

AG, the Opel Epsilon architecture will be used for the New FIAT Croma. The latter, together with

the New FIAT Punto, the Alfa Romeo 159 and the Alfa Brera, is one of the new models with which

FIAT Auto plans to take the market by storm in 2005.

Through its subsidiaries and joint ventures, FIAT Auto went on providing financing services to

dealers and suppliers in 2004. In vehicle rentals, the sector’s subsidiaries and associated companies

used their efforts to upgrade the sales and service network, focusing in particular on improving the

profitability of new contracts. Leasys, jointly owned by FIAT Auto and Enel, reinforced its leading

position on the Italian long-term rental market by setting up a new business unit specialized in

equipped light commercial vehicles. Savarent acquired 14,000 new contracts during the year and

this confirmed its important role as a captive company operating through the FIAT Auto dealer

network.

In short-term vehicle rentals, the year 2004 saw important improvements in the distribution

network which has now 72 outlets (eleven of them in the Italian major airports).


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2. The Automotive Industry

2.1 Economic Importance

��motive industry is one of Europe’s major industries. It contributes about 6% to total

European manufacturing employment and 7% to total manufacturing output. Within the EU, the

production of motor vehicles is concentrated in a few countries. The largest producers are Germany

(which accounts for 45% of EU value added in motor vehicles production), France (17%), the

United Kingdom (11%), Italy (7%), Spain (7%) and Sweden (6%). Together, these six countries

account for about 93% of motor vehicle production within the EU.

Motor vehicle manufacturing is an investment-intensive industry. There are high levels of

investment in fixed capital, plant and equipment.

2.2 Industry Value Chain

�� its own production,

the automotive industry generates economic activity in other sectors: we can underline the large

importance of inputs from other sectors in the production of motor vehicles. In fact, the main

impact of an increase in the final demand for cars is visible in the automotive sector where the

production of automotive products increases. As a consequence, this has an impact on other sectors:

steel production, the metal working industry, high-tech manufacturing (mechanical and technical

engineering, electronics, and so forth) chemical products and rubber. There are also strong links

between car production and several service sectors, including R&D and IT services, financial

services, transport and trade. We must not forget all the effects on the automotive repair and

maintenance services, since these services are contracted through final users of vehicles. These links

through the value chain demonstrate the importance of the automotive sector as an engine for

growth and employment.

��– Value Chain

Scheme of the Industry :

new challenges requires

new production system.

Source Deloitte Research


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2.3 The main actors

�� characterized by large internationally owned manufacturers and

suppliers as well as a number of small and medium sized companies which meet the criteria of

component suppliers.

Considering the passenger cars for the world market, Europe leads with a share of 42% of

world production, followed by Asia-Oceania with 35% and America with 21%. In terms of cars

produced, Europe’s share is 37%. The leading car manufacturer is Toyota, followed by General

Motors, Volkswagen, Ford, Honda. Within the Europe, Germany has the highest production share

(29%), followed by France (18%), Spain (13%) and the UK (9%).

2.4 The great importance of suppliers

�� ned by the

fact that the manufacturer and supplier partnerships are now indispensable. Suppliers are assuming

more and more responsibility for different parts of the value chain. The largest twenty supplier

companies fall into four geographical groups dominated by UK, Germany, France, and Japan.

2.5 The opportunities coming from the new markets

�� characterized by many developments that have accelerated

in the last decade with the opening up to international competition of new and increasingly

important markets such as Eastern Europe, China and Russia. China is regarded as the market with

the highest overall potential and Russia is attractive for its size and proximity to the EU.

The search for scale and scope economies by large manufacturers and the difficulty for smaller

ones to sustain the investment race have led to an ever increasing number of independent

manufacturers in the market. For instance, the number of independent manufacturers decreased

from 36 in the seventies to 14 in 2003. Despite the decline in the number of car manufacturers,

competition in the regional, local, and niche markets has increased as larger companies are now

present in all of them. Mergers and Acquisitions have played an important role in the process by

giving instant access to particular regions and niche markets. As a result, manufacturers have

transformed themselves from automobile companies to automobile groups.

Another important issue that has been underlined by many Western car manufacturers is the

one related to remain viable in the future and this implies to develop the capability to do business in

other existing world markets. An important reality that can not be underestimated is the saturated

status of the Western automobile market where there is not much more to gain.

Therefore, it is necessary to find new markets. These can be found in the Third world

countries. The automotive industry, once established in these countries, can form the basis of other

industries that eventually could upgrade the general well-being of the total country. In the past,

these countries used high tariffs to protect the fledgling auto industry that they were trying to

develop. Established automakers were able to participate in these markets by shipping car kits that

© 2006 - The FIAT Case: a Therapeutical Crisis�� Vincenzo Cammarata, Veronika Kurucz, Valentina Maj, Aleksandra Pavlovic, Katherine Portmann�


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the developing countries were able to assemble in their own plants. But this arrangement did not

work too well. Because of the volume, the kits were very expensive, and the assembly of the kits

required only unskilled labor. Consequently, no appreciable skilled labor force developed.

As we can understand, these countries represent a significant chance for auto makers in order to

discover untapped opportunities. These are markets from which you can expect growth.

2.6 Competitiveness and international markets

��

and, at the same time, the brands are still considered to reflect some national identity. The

European market is dominated by European brands. Between 1998 and 2002, German and French

brands hold the largest share, while Italian and UK market shares declined. Japanese brands are the

largest external players on the European markets, considerably ahead of Korean brands. Large

American manufacturers serve the EU markets mostly through their European branches and hence

brands (e.g. Opel). Therefore, while traditional American brands might be absent from the

European markets, the US manufacturers are not.

The Japanese brands control almost completely the Japanese market, and only some German

brands have made recognizable inroads into the Japanese market.

In the US market, American brands hold the largest share, and Japanese brands hold a sizeable,

but declining stake. In contrast, Korean brands gained considerably in the US between 1998 and

2002. German brands hold the third largest share of the US market.

From a European perspective, the most prominent feature is the strong performance in

international markets of Germany across all market segments, followed by France. Spanish firms are

also growing successfully while Italy and the UK have lost market share. The majority of trade of

European automotive companies happens within the EU. This is logically facilitated by the single

market.

2.7 Internationalization: investments and corporate strategies

��nvestments abroad are a very important factor. FDI have become

a significant element in corporate internationalization strategies. The benefits that derive are

different but the most important ones are: 1) Efficiency reached with global economies of scale,

advantage of location; 2) Knowledge leverage, that is, use people and ideas globally; 3)

Responsiveness obtained by adapting to local customer demands.

For these reasons, FDI in influential regions seem to be an appropriate mechanism in order to

open up a more efficient channel for companies to harness these forms of tacit knowledge abroad.

The German automotive industry is the most active in Europe, followed by France, Italy and

the UK, but all significantly below the US.

Evidence of corporate strategies towards internationalization beyond exports can also be found

at a company level. Not only do motor vehicle producers realize sizeable shares of their sales abroad


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�� icant assets there ( especially for Honda, BMW and Volvo). In addition,

most manufacturers (Volvo, Toyota, Honda, Volkswagen, FIAT) accompany their international

market orientation in sales not only with investing in assets abroad but also with transferring

employment out of the home market. Their corporate internationalization strategy is based on all

leverage points (efficiency, knowledge and responsiveness).

2.8 Consumers

Considering passenger cars, there are different aspects (individual, social, economic, and so

forth) that influence people to buy a car. Obviously, the need for transportation should be the

primary cause, but others have gained significant relevance. One of them is the relationship of

owners towards their car. To meet this need, car manufacturers offer a startling variety of different

models. In addition, cars have also become an element of style through which their owners can

express their individuality. This fact certainly reflects a country’s wealth but also its general

tendency to treat cars as a status symbol.

The demand advantage can become a competitive advantage for those manufacturers that have

complete access to the relevant market and customer information.

It is appropriate to consider a brand perspective since the brands are the primary channels

through which customers recognize manufacturers. Interesting is the strong affiliation of French

and German car buyers towards brands that originates in their respective home market. This

suggests an atmosphere of trust into cars that are domestically built and designed. For Italian,

Swedish, and British brands this link is weaker and customers are less focused on domestic brands

but keep a strong interest in other EU brands.

As far as Japanese consumers concern, they are satisfied with their home brands and this is

reflected in their intentions to buy.

There is evidence that this demand advantage in the home market plays an important role and

it is fundamental to create success abroad. Therefore, this is a very important source of advantage

that every company should build and exploit.

2.9 The environmental approach: the manufacturers’ contribution

��

community. According to the Kyoto protocol the European union must reduce greenhouse gas

emission by 8% . Many countries throughout the world take measures to reduce the specific

emission for vehicles. In particular, the traditional car producing countries have implemented

legislation or have set targets in order to increase fuel efficiency of cars. This is very important in the

European Union where the Automobile Manufacturers Association negotiated a voluntary

commitment with the European Commission in order to reduce CO2 emissions.


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What is interesting to underline is the fact that manufacturers dedicate research work in order

to develop promising technologies for the reduction of CO2 emissions. Funding for this work is

sought from the European Framework Program for Research and Development.

2.10 The P.E.S.T. Analysis of the Industry

��

influence the performance of FIAT and the car industry as a whole. The dimensions that are

considered are the political, economic, social and technological ones. On the base of this analysis,

important scenarios can be created and the corporate strategy shaped, as implicit information will

come to the fore.

�

2.10.1 Political factors

�ccording to the Kyoto� protocol, �� countries must reduce greenhouse gas

emissions by 8% compared to 1990 levels in the period of 2008–2012; more than 100 countries,

including the EU and its member states, have deposited their instruments of ratification. However,

some large countries have not ratified the protocol yet. As far as environmental restrictions regard,

the strictest market is the EU.

Another fact to take in consideration is the enlargement of the European Union��

May 2004 grew from 15 to 25 States, including the following new members:

Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Hungary, Slovenia, Malta, and

Cyprus.

Considering the distribution in the automotive industry, car producers do not carry out the

distribution of their products by themselves but they organize it through a dense network of

authorized dealers whose function is to resell the products to the final consumer. The Block

Exemption for Cars1� ��

� � ��

The War in Iraq�� (6.1 $ pro barrel for

20072) has been driven up. This fact has effects on the car demand, since petrol and cars are

complementary products. However, the demand is price elastic and the good is perceived as prime

necessity. (The demand tends to be less elastic in countries where the revenue per capita is lower).

��Economic factors

�� automotive market is growing rapidly: sales increased by 69% reaching

1 EC Competition Law (Articles 84 and 85) Enforcement Regulations 2001 2 KOF ETH 2005


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1.45 million cars3 . Sales of commercial vehicles increased by 30% between 1999 and 2002, while

sales of buses doubled at the same time. According to the forecasts, China will be the third largest

market for automobiles by the end of the decade4. A relevant factor is that ��ina has joined the

WTO��this means both a threat for FIAT, since the growing giant has more opportunities

to market internationally and an opportunity since FIAT can trade much easily).

In the production of �� urope leads with a share of 42% of

the world production, followed by Asia-Oceania with 35% and America with 21% (2002).5

2.10.3 Technology

�� global oil production will peak and demand will outstrip production - a scenario

known as the "peak oil"6�� , car makers are researching into alternative fuels; other

countries (like Iceland) hope to be self-sufficient in energy in another 40 years by using hydrogen

fuel cells.

2.10.4 Social factors

�� middle class is growing� �� ng pace, 11.9% is the actual growth

according to China Academy of Social Sciences 2006.

Another arising issue is the � �� people to use public

transportation which is also supported in Europe, for instance, by government policies.

The consumer behavior ��

as the �� September�� 7

�

3 �� Resources Asia,2003

4 The German Association of the Automotive Industry (VDA): World Auto Statistics, 2003 5 The German Association of the Automotive Industry (VDA): World Auto Statistics, 2003 6 ASPO, Association for Study of the Peak Oil land Gas, 2005 7 Survey conducted by the US firm Fleishman-Hillard International Communications in 2003.


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3. Analyzing FIAT Auto

3.1 FIAT Porter’s Five Forces

3.1.1 Competitive rivalry within the industry�

There is an intense rivalry between firms in the automotive industry because of the

concentration both on the national and international markets. FIAT pursued advantage over its rivals is product differentiation by improving features and implementing manufacturer process innovations. For instance, FIAT began to look seriously at cutting components costs and outsourcing more contracts in the 90s. By understanding the need for smaller supplier networks and just-in-time delivery, FIAT began to concentrate on larger tier-one suppliers who would absorb much of the R&D costs necessary to develop components.

In a constantly changing market, there is a strong competition coming from abroad (in particular, from Japan and Korea) that has obtained part of the FIAT's domestic market share.

At the same time, investments abroad can become a significant factor in corporate internationalization strategies by exploiting comparative advantages in foreign countries, especially in labor costs. Fiat could do profit by cutting costs and through alliances with other car makers such as Ford and the Indian group Tata Motor.

3.1.2 Supplier power

Suppliers provide raw materials, different components and the labor required by the producing

industry. In the FIAT value chain analysis we will discuss about the “rules” on which supply is based. In

this section, we want to mention the double situation referring to suppliers' power. Suppliers of FIAT have been divided into two categories. The first group involves the Italian component suppliers which rely on the FIAT Group for their business. In this group there are firms, such as Magneti Marelli and Teksid that are subsidiaries of Fiat and economically dependent on it. In the



��

�� there are hundreds of smaller firms that are usually dependent on Fiat but in a more indirect way.

In recent years, FIAT has tried to expand its production abroad and so it has fostered the possibility of international expansion of many Italian suppliers as well.

��Threat of new entrants��he possibility that a new firm can enter the market influences competition. However, barriers

to entry could also exist. These barriers can reduce the rate of entry of new firms and maintain a level of profit for all the other firms in the industry.

Fiat is pursuing a strategy by expanding its portfolio. In fact, firms can choose to merge in foreign markets like India, and thus creating new relationships with other companies.

Firms can choose to merge in order to avoid barriers to entry in new markets. Almost all the major car companies, such as Renault and Nissan, Toyota and Honda merged and many of them find themselves in a very complex cross-ownership network. The pattern is to emerge in the global economy which is characterized by a very small number of large players.

Furthermore, FIAT has to be able to manage brand identity in order to avoid the threat of new entrants.

3.1.4 Power of costumers The power of costumers is the impact that buyers have on the producing industry. In the

automotive industry, many firms such as Volkswagen, Ford, GM, and BMW are groups that have developed multi-brand marketing strategies in order to serve different customers in different markets. All of them are now working on new distribution channel strategies as part of their product differentiation on the market.

The FIAT marketing strategy revealed to be weaker than that of many competitors and this

condition was made worse by the trend that took place in the last ten years. Even style-conscious Italians started looking elsewhere for their wheels and, as a consequence, the share of FIAT on the Italian market decreased considerably. In the international markets, FIAT lost many costumers because some FIAT models were perceived as unreliable and because spare parts were difficult to get and often very expensive.

Now, the new Fiat Punto seems to be the only ray of hope for the company to foster the FIAT

Auto in doing profit. As Giulio Salomone recently pointed out, the priority is to improve the buyer power and in order to reach this goal FIAT has introduced a new dealer training: “We and our dealers must improve the customer experience, give better customer satisfaction and we now have the right models for them to sell.”8

3.1.5 Threat of substitutes�� products inside the industry. In the automotive industry, the

consequence can be price competition. Although FIAT has launched the new Punto last year (September), it has to face tougher competition when rivals such as Peugeot and Opel will launch their own city car models.

The situation raises much more concern if we consider the fact that FIAT models’ popularity and sometimes even availability is weak elsewhere in Europe (excluded Italy) and as a consequence, it is difficult for the company to become a strong competitor and substitute for the other car makers in the industry.

The crisis of FIAT Auto is also due to the inefficient management of the brand. The success of

FIAT depends on having the ability to give the company a serious position on the market on the base of tangible assets and creating different categories of cars such that buyers can find the input to compare various models of different brands.

8 http://www.just-auto.com/news_detail.asp?art=50758


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��2 FIAT Value Chain

3.2.1 Research & Development

��FIAT R&D is essentially carried out in two centres: CRF and Cento Stile ��.

CRF was founded in 1976 as an Engineering Centre providing R&D services to each of the

different companies within the FIAT group. The centre presents high quality and this is confirmed

by the awards it won. An example is “Italy 2004-Best innovator award” promoted by A.T. Kearny

and by the Italian newspaper Il Sole 24 Ore� ��Confindustria��

Italian Industries.

As far as the Environmental matter is concerned, the centre is engaged in research to find

solutions for environmental protection, particularly in terms of reducing overall vehicle fuel

consumption and emissions. This is in line with the introduction and diffusion of the increasingly

stringent emission legislation. The FIAT environmental commitment has been proved by the results

gained in 2004 by putting a range of products on the market whose environmental impact was

lower than before in all the three key areas of fuel economy, emissions control and efficiency.

The commitment of CRF is demonstrated also on a European level: together with other

European car makers and component manufacturers, the FIAT Research Centre participates in two

15-year-projects co-funded by the European Union to promote the introduction of hydrogen-

powered vehicles. Research addressed the pressing need to reduce fuel consumption and hence CO2

emissions.

One interesting achievement of FIAT Research Centre in 2004 was Stop & Start prototype

which uses a new power plant control device aimed at shutting off the engine and re-start it

automatically at traffic lights or during stop-and-go driving and deceleration. The prototype, that

��4 – Weights and

Considerations after our

FIAT Value Chain analysis.


16

has been successfully tested, cuts fuel consumption by over 20% under particular severe traffic

conditions and provides an excellent cost-benefit ratio.

An important aspect that characterises this centre is the constant involvement of specialists and

experts. Real debates and exchanges of perspectives among experts are encouraged by the centre that

finds in this “open system of exchange” the right way to discuss about new technologies and

innovations.

On the other hand, there is �� was part of the FIAT

Technical Department, and designed a range of products, including industrial appliances and

fridges, and over time it has been transformed into an articulated organization dedicated exclusively

to the automobile. Today, it has its own premises, employees about 200 people and it is divided

into specialist departments including Exterior Design, Interior Design and trim and Colour Design

First, Design Laboratories in which designers from the FIAT Style Centre can experiment new

concepts of car.

Second, the Reality centre which is a unique system of visualization of the models. The Reality

Centre helps to focus on the design quality and in particular on individual details: the process starts

at the Style Centre, where the individual details are studied, and then switches to the visualization

by the Reality Centre, which allows the team to concentrate on each individual component of the

model.

Although these centers reveal to be qualified and oriented to the development of innovations,

many are the issues that we must take into account while considering the role and the impact of

R&D on the FIAT crisis within the period 2000-2004. The most serious problem we have

recognized, while analyzing this part of the value chain, is the “supremacy” of Engineering over

customers’ needs. The requests of Marketing are often rejected because considered as wrong from an

engineering perspective. This is an issue of huge concern because Marketing is the one that gives

information about customers’ needs, expectations, and market trends.

The so called “supremacy” of Engineering can be recognized in the Centro Stile as well. This

centre is characterized by the presence of very qualified people and great designers, such as Giugiaro,

but the style reveals to be submitted to the engineers’ instructions.

As many analysts have underlined, FIAT lacks of the fundamental ability of understanding

customers’ needs and tastes; this is relevant in order to produce and offer car models able to satisfy

customers’ expectations.

Another issue is related to the financial problems that FIAT is facing during the years we are

considering. FIAT must be analyzed in relation to the whole market and its competitors; for this

reason we can assert that FIAT cannot invest in R&D as much as its competitors do and this makes

the company to remain a step behind to them, such as VW and BMW which invest huge amounts

of money in R&D and innovations.

�



��

��Suppliers

�� is conducting an outsourcing policy that splits the operative and productive cycle into

lots of segments. This policy, if wrong implemented, has many negative implications. In order to

understand this concept we want to show the case of another car company, Toyota, that has

successfully implemented this policy. Toyota has shown how the outsourcing trend does not

necessarily mean an impoverishment of the traditional supply. This efficient system has been

reached through the awareness of belonging to the same “system” and of being committed on long-

term relations. This is interesting if we consider two aspects: first, the outsourcing has brought lots

of benefits to Toyota; second, the success is even greater if we consider the fact that Toyota

delegates the greatest part of the production of the car to its suppliers. Toyota has achieved this goal

by focusing on the development of relationships based on loyalty and on the fact that everyone

(manufacturer and supplier) want to reach the same goals.

The Toyota success is far from the FIAT situation in which the negative implications related to

the wrong implementation of the outsourcing are emerged and have caused lots of problems. In the

following paragraph we want to show the role of suppliers and the outsourcing impact on FIAT.

Firstly, the importance of suppliers is constantly increasing within the value chain. This makes

the partnership between suppliers and manufacturer fundamental but, at the same time, the

manufacturer becomes more and more dependent on them. Thus, there is an increase in the

complexity of the value chain and, as a consequence, FIAT seems to have lost the control of the

value chain itself. This has serious social implications that translate, for instance, into the action of

firing employees.

Another important implication of the FIAT outsourcing process is the reduction and

impoverishment of the internal know-how and competencies.

For all these reasons, we can understand that FIAT has clearly implemented a wrong

outsourcing policy that leads the company to develop only a short-run perspective rather than a

long-run one. In fact, this policy leads to lower costs in the short term but, since there are not

integration and scope economies, it will bring to lower quality and impoverished brand identity in

the long term. This is mainly due to the fact that the company is increasingly loosing control on the

value chain.

��Manufacturers

Since the beginning of the 90s, FIAT has focused its attention on an internationalization trend

by establishing plants in the emerging countries, such as Brazil, Argentina, Turkey, Poland, and

India. At those times, these countries were very attractive because, according to analysts, they

showed the highest growth rates. Nevertheless, analysts were wrong: the situation turned out to be

not so attractive and this was mainly due to their economic weakness. In this context, FIAT started

to face a very serious crisis: FIAT had invested a lot in trying to develop economies of scale, on the

model of the big US car companies. The aim of FIAT was that of building a “world car”, that is a



��

��

FIAT to encounter huge debts because its investments were concentrated in achieving these

productive goals. Moreover, the concept of the “world car” was in conflict with the necessity to

satisfy local needs. As a result, the standardization of car components was radically reduced.

This situation has lots of implications on the FIAT crisis that occurs in the period 2000-2004.

FIAT tries to implement economies of scale on the model of the big US manufacturers but it has

not the financial power to sustain them. This leads to concentrate investments in volumes rather

than in innovation and the consequence is lower quality. This can be observed in the FIAT models

that are mainly sold among the lowest customer segments.

Another manufacturing issue is represented by the overproduction in cars for high and medium

segments. The consequences are high inventories and high stock inventory costs.

At this point, we assert that FIAT tries to implement economies of scale and focuses on

volumes. This logically deprives quality from investments and makes innovation more difficult to

develop. This inevitably leads to car models characterized by a low quality and not competitive. In

addition, many have underlined that FIAT quality-price ratio is perceived as too high and this, joint

with the problem of overproduction, makes the inventory increase with high costs due to the stock.

��Marketing

�� FIAT value chain. As many analysts have pointed out,

Marketing is not considered as a way to improve products by understanding customers’ needs, but

rather as a way to convince people to buy something which is far from their expectations. This trend

can only bring the customer far from the FIAT product. There is no partnership between

Marketing and Engineering and what is of huge concern is that the “supremacy” of Engineering

over Marketing is very strong. As we have previously asserted, FIAT is not able to use Marketing as

an important source in order to understand market trends. The result is the FIAT’s attempt to build

something which is perfect from an Engineering perspective but absolutely far from customers’

needs and tastes.

An important evidence of what we have stated is FIAT’s advertising. FIAT’s advertising seldom

focuses on the product (on the car) it is “offering” to the customer. It always concentrates its

message on discounts, promotions, accessories, zero-kilometre-cars, and on everything that can give

FIAT the chance to sell one more car. This leads FIAT to sell many cars and models off.

At this point, we can assert that this behaviour reflects the short-run view that characterizes

FIAT during these years. This is intended to do little profit in the short term but not oriented to be

profitable in the long-run. In addition, this can be considered as evidence of the fact that FIAT is

not customer-oriented.

Another consequence of this kind of Marketing strategy is that the brand is constantly loosing

its identity and people do not know what the brand stands for.


19

��Dealers and Service

�� dealers of FIAT present both positive and negative aspects.

An important aspect to remark is the presence of a great number of dealers and retailers which

are organised in a dense network. This aspect is positive because the presence of FIAT is guaranteed

and this ensures the customers to find FIAT cars easily and to have assistance when they need.

Another positive factor related to this part of the value chain is the insurance company, Toro.

This one belongs to the FIAT group and it guarantees to the company a higher presence on the

market through loans, leasing, and other financial services. This is an important evidence of FIAT

being present in many different fields.

On the other hand, there is an aspect that causes concern: the lack of customer orientation. In

many circumstances, FIAT has shown a culture which is far from customers and dealers and this is a

serious issue because dealers represent FIAT and are the channels in order to reach the market. They

are the lens through which the client looks at FIAT.

An attempt to meet customers’ needs is represented by the Configure-to-order policy.

��3 S.W.O.T. Analysis

3.3.1 Strengths

S1�� A brand with a strong historical value�

S2�� Evocative power��FIAT golden years (50s and 60s).

Some models, such as 500, are evocative of the glorious age of the Italian style.

S3 - Made in Italy. Great names and designers, such as Giorgetto Giugiaro.

S4�� new top management� ��-minded

than the previous era of the Agnelli brothers.

S5 - The �� plants abroad.

S6�� Alfa Romeo and Lancia��

S7 - Good at producing ��

S8�� Qualified people�� has qualified personnel in its research centres.

S9�� vironmental commitment� also on a European level).

S10�� expertise��CRF��Style Centre��

��Weaknesses

W1� � �� !�s too seriously the concept of “mature

market” and so focuses on services, assistance and price cuts (through promotions) more than on innovation and

brand asset management. The inefficiency of the management is underlined by its inability to give the FIAT a

serious position on the market. What people perceive is a high ratio quality-price and this is an important

evidence and result of an inefficient management.

�� !��

W3�� Lack of sensitivity��"��ave noticed that FIAT seems not to be able to understand what happens around. The

problem is the lack of the important ability of understanding the symptoms that anticipate problems. The

consequence is the abrupt and disastrous reaction of the company that tries to survive the crisis by firing people,

selling off, projecting reductions of costs, and so forth. Another important consequence is that this kind of


20

behaviour leads FIAT to be always out of step if compared with its competitors and makes FIAT blind in front of

the huge changes that are taking place all around.

�� The “supremacy” of Engineering.��

be perfect from an engineering perspective. In so doing, FIAT reveals to be ��-oriented.

�� Marketing is weak.��arketing is not considered a relevant source in order to understand customers’ needs and

market trends. It is considered as a way through which sell something which is far from customers’ expectations.

A weak brand identity: nobody knows what FIAT stands for.

�� - �� tries to implement economies of scale, although it has not the financial power to

sustain them. In addition, this brings the company to focus on quantity rather than quality and innovation.

�� - �� of manufacturers on suppliers,

the lack of integration between them, the lack of cooperation and commitment to achieve the same goals, the

lack of recognition in the brand, and so forth…have negative implications. First, the impoverishment of the

internal know-how and competencies; second, lower quality; third, no long-run savings.

�� No defined segments �

W9 � �� !� �� " �� #�

FIAT be recognizable. This is of huge concern because it means that FIAT is not able to “exploit” in the right

way the great potentials that are offered by the Centro Stile.

��

�� No demand advantage in the ��

��$�� through which customers recognize manufacturers. We have to underline that there is a

strong affiliation of French and German car buyers towards brands that originate in their respective home

market. This suggests an atmosphere of trust into cars that are domestically built and designed. For the Italian

brands, and above all for of FIAT, this link is weaker. Italian car buyers are less focused on the domestic brand

but keep a strong interest in other European brands.

��3 Opportunities

O1�� %�� ce, most lack of air-conditioning).

Thus, they require much less money.

�� %�� $�

BMW and New Beatle by VW).

O3 - Opening up to the ��ntries ��&��$��

� - From Vertical Integration to Virtual Integration�%'��'��()��

in the design, manufacture and marketing of cars has historically been defined by the efficiency and internal

capabilities of vertically integrated Original Equipment Manufactures (OEMs) and a few key suppliers.

Automotive companies made huge investments automating and re-engineering design, manufacturing, and

marketing processes in pursuit of lower costs and greater efficiency. The strategy: Implementing a collaborative

commerce strategy requires more than linking data and synchronizing information. Companies need to be

prepared to first define the overall approach to collaborative commerce and ensure it align to strategic objectives.

The strategy should guide the prioritization of the portfolio of initiatives and roadmaps. Everything is based on

creating value through collaboration, while maintaining flexibility for future growth and requirements.�

� - The ��. The Chinese automotive market is growing very rapidly. Market size, terms of investments

and an improving infrastructure provide the basis for foreign automotive companies. The potential of the

Chinese market attracts not only manufacturers but also the whole supplier industry.

� - Trend towards free trade. As the world trade organisation expands its membership and activities are under way

for a new round of trade liberalisation, Europe as a major player in automotive trade should be among the prime

beneficiaries from the �� and the strengthening of existing relationships.

� - The ��. As a major player in international

markets, Europe has established stable channels that constitute a competitive advantage. �


21

�� - The attention and �� New technologies and fuels. The technology of fuel cells presents

new opportunities for business and environment. Due to the dominant part of motor vehicles in air pollution,

manufacturers must develop products which could reduce CO2 emission and energy consumption. In addition,

European automotive firms are leading in some fuel technologies which can become profitable before the fuel

technology is ripe for the mass market. Since the security of fuel supply is an issue for many markets, the large

experience of European manufacturers with different types of fuels can be of crucial importance for the future.

�� New EU Member States. New chances and possibilities stem from the � ��process of the EU��

members offer interesting and profitable production circumstances based, for instance, on their labour cost.

��4 Threats

T1�� bility. While changes in taste and technology require constant re-

configurations in the automotive value chain, the regulatory framework may make this task more difficult and

costly.

�� Overcapacities. In recent years European, North America and Japanese markets see a sluggish development in

demand. On the other hand, a rapid capacity build-up in emerging Asian markets and Eastern European markets

is taking place. Both developments may induce world over-capacity and stimulate price competition. Due to high

labour costs and lagging labour productivity EU producers are not very well equipped for price competition in

the standard car segment. This may induce additional pressures for consolidation of the industry e.g. via mergers.

�� in Europe��

demand for automotive products. Producers have largely stimulated demand through extensive sales tactics (e.g.

rebates). Still, a prolonged economic downturn at home would threaten the global competitiveness of European

automotive industry.

�� - Groundbreaking innovations challenge existing excellence in production��

distinguish themselves with an excellent position in different markets. However, the threat of missing

groundbreaking innovations is still on the agenda. Success can breed failure, as manufacturers are in danger of

being locked in traditional products and technologies and often ignore revolutionising developments outside

their traditional fields of expertise. Some of those major breakthroughs are on the horizon in the automotive

sector. They have potential to make conventional value chain configurations obsolete and subsequently open up

opportunities for new competitors.

�� Major innovation competition from Japanese producers.��

competitive position in global vehicle production and they are strong competitors of European and American

companies. In some fields like the hybrid engine they lead the market significantly ahead of other manufacturers.

�

3.4 Drivers for Strategic Solutions

�� FIAT has to focus on. In the

following section, we want to highlight what are the main aspects that the company has to take into

account in order to develop an efficient strategy to overcome the crisis during the period 2000-

2004. This will be done on the base of our analysis.

Revaluation of the brand equity �� d on the

evocative power of the FIAT golden years (50s-60s)�� FIAT must “exploit” the

evocative brands of Alfa Romeo and Lancia which are focused brands and well recognizable: the

first one is a well defined sports car model��Lancia��s synonymous of elegance.��



��

important aspect is the made in Italy which is highly recognized

abroad. On the base of these strengths, FIAT can overcome many

different weaknesses by making its models recognizable.

Firstly, FIAT can �� the problem��

the domestic competitive advantage� ��

who owned a FIAT car in the golden years. This is important to

regain a good reputation and then start a process to develop loyalty

and gain new customers.

Secondly, FIAT must �� all the potentials of the Style Centre

which is characterised by the presence of great designers. This behaviour can help FIAT, not only in

the domestic market, but also abroad where the �� FIAT can

also follow the current competitors’ trend aimed at offering to the market historical models with a

completely renewed style, as VW with New Beatle and BMW with Mini did. The ��

models ��l and evocative value they still have. All this helps to create an

Italian product that is instantly recognisable as FIAT.

To achieve these goals, other two related issues must be taken into account: the “supremacy” of

Engineering and the low �� given to Marketing�� FIAT must match the

competencies and know-how of the Engineering and the Style Centre. That is, promoting an

efficient and balanced interaction between the team of designers and that of engineers ��

�� This balanced interaction is aimed at comparing the model’s design and the

engineering problems in order to solve and pre-empt problems. If this relationship is well balanced

and not characterized by the “supremacy” of the engineers’ instructions, it will lead to a final model

with a very high level of quality, providing precise data for any changes that need to be made.

However, high quality is perceived by customers on the base of what they need. How better

understand customers’ needs rather than using in an appropriate way the Marketing competencies?

Marketing has always been used by FIAT in the wrong way. Promotions, discounts, special

editions (often aimed at selling usually unasked accessories) and so forth have always come before

the whole car, that is the model the company was selling. As a consequence, what immediately

passed through advertising to the customer was a “fragmented” perception of the car, to the extent

that nobody knows what FIAT stands for. Thus, a turn of the screw is needed! �� must

implement customer-orientation.��FIAT to understand what the real needs of customers

are and leave the idea that what is perfect from an engineering perspective must be what the

customer wants. Marketing plays a fundamental role in achieving this goal because it is one of the

most relevant sources of information about the customer and the market trends.

��5 – The Historical

value of the Italian Brand


23

FIAT needs to�� FIAT is

the inability to understand what happens all around and this makes FIAT unable to comprehend

the symptoms of huge crisis. FIAT has often shown the inability of reacting environmental and

internal changes and this is a huge problem if we consider the fact that the automotive industry is

deeply unstable und competitive. Marketing can be an important way to monitor competitors and

the whole environment but it is not enough. Many analysts have highlighted the negative impact of

an “outdated” top management. The solution is to be found in an “updated”� top management,

made up of relatively younger people that benefit from both experience and an “updated” corporate

education�(which centres on educating people on learning how to be able to react to changes and

pre-empt problems). FIAT can only �� m this new top management� ��

flexible, reactive and able to understand the needs of market segments.

Another issue that we have considered is the wrong choice of implementing economies of scale

which is mainly due to the presence of FIAT plants abroad. According to our analysis, this kind of

strategy has not been profitable for FIAT. Thus, this must be replaced by the implementation of

economies of scope that enable to produce some components that fit different models. In the case

of FIAT, for instance, the production of the same chassis on which assemble different car models, is

fundamental in order to obtain lower costs. As a consequence, these cost savings must be invested

in innovation and quality. These economies of scope are important because they allow the

company to offer both basic models to the emerging countries’ customers (and this is also enhanced

by the fact that the FIAT brand focuses on smaller cars) that do not ask for e.g. air conditioning,

and more accessorized cars for the developed ones. In addition, the implementation of economies

of scope solves the problem related to high stock inventories which cause high costs.

The FIAT main offering of utility cars is a strength that must be exploited not only in the

emerging countries��do not have to forget the segment of the price

sensitive people, such as the younger generations.

The �� outsourcing� �� FIAT must regain control over the value

��

commerce” or “virtual integration”� �� network of suppliers� ��

belonging directly to FIAT, behave as if they were. This strategy is based on two important aspects:

collaboration and flexibility.

Finally, we want to stress the important commitment of FIAT in the research and development

of environmental-friendly vehicles. The role of FIAT is recognized, not only on a national level,

but also on a European one. FIAT must continue in investing in these innovative technologies

because the future is oriented in this way.



��

4. Recent adjusting actions in FIAT house

��is section, we want to show if our analysis matches or not with the previous actions done

by FIAT and the decisive 2005 strategy that the company has implemented.

4.1 “La grande auto torna a parlare italiano”

“The great car company speaks Italian again.” These words sound like an admission of guilty

and a promise at the same time: “We was negligent about our product, but… we want to remedy”.

This is one of the last statements communicated by FIAT to the customers. And the promise is

supported by other initiatives which are completely new for the company: the launch of the Grande

Punto and the New Croma on the UK market trough Harrods’ windows and the trendy

merchandising and gadgets with the historical brand lettering. This is strongly promoted by the

young Marketing manager and Agnelli’s successor, Lapo Elkan.

Since 1999, FIAT understood that one of the drivers for its rebirth could

be the redesign of the Logo. The previous logo was evocative of the 80’s, (period

in which “FIAT” was “Mirafiori” plant) it was “gray” and characterized by four

rhombs; this one was replaced by the actual circular logo which was the revival of

the original art nouveau acronym FIAT (Fabbrica Italiana Automobili Torino).

The color blue became more present in order to communicate the idea of the

Italian country and it referred to another big passion of Italians: the national

football team which is able to unify and make the “Italian pride” emerge.

This feeling of nationalism, which is often “sleeping” in Italy, became the leitmotif of a multi-

subject advertising campaign that shows Japanese, German and French people that say “Thanks

Italians!”, a message with a never used tone of voice that shocked the public opinion.

4.2 The turnaround year: 2005

In 2005, FIAT seems to understand that a drastic change is needed in order to overcome the

crisis. Changes can be noticed.

Firstly, FIAT concentrates on new engineering and design organization. Innovation is

focused on applications and market requirements.� �� FIAT

acknowledgement that the needs of emerging countries’ customers may be different and, as a

consequence, can not be met by the �� FIAT has �� -

Italian R&D centres focusing on local requirements without loosing the Italian typical heritage

and style.� �� Marketing,

Engineering and Style and this is fundamental in order to offer the customer what he/she wants.

��6 – The revival

of old logo


25

FIAT ��

scope economies.� ��ic components, internally ��

��same platform for different models��

this way, FIAT aims at decreasing product costs by 10 percent. In addition, this strategy enables the

company both to obtain substantial reduction in engineering, development costs and to reach

flexibility to retain brand differentiation. In order to achieve scope economies advantages, FIAT

signed alliances which were based on projects focused on products. One of these alliances is with

Ford. FIAT and Ford will produce the Trepiùno that is the revival of the 500 and they will share

plants in Poland. This will result in benefits deriving from economies of scope.

The aspects on which FIAT focuses are simplicity and symbolism which is aimed at

rediscovering brand awareness. All this is accompanied by the commitment of offering cars which

are able to give the customer surprising feeling. As we have shown in the SWOT analysis, the FIAT

of 2000-2004 was far from the customer and in 2005 we can observe an important change that

can be summarised in only one word: customer orientation. �

�

�� seems to understand the need to �� on precise segments. Families and people with a

middle/high education and income levels are the segments that FIAT wants to reach with the 2005

strategy. On the one hand, this is a step forward because FIAT understands the necessity to

identify specific customers with the same tastes;� ��

��lower and medium segments and less on the higher ones��

forget that FIAT has been always good at producing small cars. FIAT should concentrate on this

strength and try to make this one become a real competitive advantage.

As far as ��

between our analysis and the 2005 implemented strategy. The company decides to reposition the

brand on the base of two variables: Affordability and Modernity. According to our analysis, if this

point is not accurately communicated, this will turn to be another FIAT mistake. We have found

that FIAT should focus on Distinctiveness that must be based on a Hi-tech care for the product,

but at the same time on a Hi-Fidelity to Tradition. We believe that the link with the glorious years

of FIAT is fundamental to regain brand awareness and reputation. In this case, the FIAT golden

past can become a source of real competitive advantage.

FIAT seems to recognize the problem related to dealers. The 2005 aim is to reinvigorate

distribution capabilities to support production. Improve dealer economics, adopt flexible tactical

approach to cleanse and fire up network, increase speed and spend in network development are the

key aspects of dealer field improvement. We believe that much must be invested in increasing the

dealers’ awareness of the brand and the feeling they belong to the FIAT family. This must be

achieved trough training and more attention and confidence in this part of the value chain.


26

Epilogue

«Fiat posts profit on asset sale, turnaround at auto unit Italian industrial giant Fiat SpA posted a fourth-quarter profit and said it

had a full-year net profit for the first time since 2000, offering another

sign that the restructuring plan of its chief executive, Sergio

Marchionne, is gaining traction, at least in the short term.

In a reversal of fortunes, Fiat’s ailing auto unit, which not long ago was

considered to be an albatross around the neck of former partner

General Motors Corp., returned to operating profit – at a time when

GM is deep in the red. »�

By Gabriel Kahn in Rome and Kenneth Maxwell in Detroit,

The Wall Street Journal, Feb 14, 2005�

�

��

�� rgio

Marchionne, the restructuring plan is gaining traction. Fiat reported a fourth-quarter net profit as

well as its first full-year profit since 2000. What is surprising is that Fiat’s ailing auto unit, which

not long ago was considered to be a burden for the former partner GM, returned to operating

profit, at a time when Gm is deep in the red.

A key factor that allowed FIAT to overcome the crisis in the period 2000-2004 was the

acknowledgement of the need for a long-term strategy that was concentrated in doing profit

immediately. As a consequence, we can assert that FIAT has used the disastrous relationship with

GM in a therapeutical way that helped the company to change direction.


27

Bibliography

��Annual Report, Consolidated and Statutory Financial Statements, at December 31, 2004 - 99TH Fiscal Year. Torino, June 2005 Humphrey, J. & Memedovic, O. (2003). The Global Automotive Industry Value Chain: What Prospects for Upgrading by Developing Countries. Vienna: UNIDO - United Nations Industrial Development Organization. European Commission (2005). EUROPA - Enterprise & Industry - European competitiveness report 2004 - Automotive Industry - extract from the Commission staff working document SEC(2004)1397, Bruxelles : EU Deloitte Research, (2002). C ollaborative Commerce in the Automotive Industry. Detroit: Deloitte & Touche LLP Galgano, A. (2005). Toyota, Perchè l’industria Italiana non progredisce, Abbiategrasso (MI): Guerini Associati Kahn, G. & Hawkins, L. “GM to Pay FIAT $1.99 Billion To Settle Dispute Over Alliance” - The Wall Street Journal, Feb 14, 2005, NY:WSJ Kahn, G. & Kenneth, M. “Fiat posts profit on asset sales, turnaround auto unit” - The Wall Street Journal, Jan 31, 2006, NY:WSJ “Fiat-Ford, insieme per le piccole. Così nascerà la nuova 500” – La Repubblica.it, Nov 7, 2005 Roma: L’Espresso Casaroli, C. FIAT: Avanti tutta, senza esitazioni. http://www.omniauto.it/magazine June 21st, 2004 - OmniAuto.it Lojacono, S. La grande auto torna a parlare italiano… http://www.omniauto.it/magazine May 29th, 2005 - OmniAuto.it Berta, G. & Ciravegna, L. Una nuova configurazione. Il sistema mondiale dell’auto. http://www.torino-internazionale.org Jan, 2005 – Torino Internazionale Berta, G. & Ciravegna, L. Una nuova configurazione. Il sistema mondiale dell’auto. http://www.torino-internazionale.org Jan, 2005 – Torino Internazionale FIAT www.fiat.com Jan, 2006 FIAT Group www.fiatgroup.com Jan, 2006

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