History and Background of FIAT

The foundation of FIAT

On July 11th, 1899 few Italian aristocrats founded the “Società Anonima Fabbrica di Automobili – Torino – F.I.A.T” that means translated in English language “Anonymous Society Automotive Factory – Turin”.

Giovanni Agnelli was one of the co-owner of the company, he was elected Operational Secretary, but later on he became the most influent figure in the F.I.A.T company with the biggest shared owned. In the following years, thanks to Giovanni Agnelli, F.I.A.T. became profitable and it was listed on the stock exchange.

In 1906 F.I.A.T. proceed with acquisition of others Italian industrial firms that permitted the creation of a new company named FIAT, without any dot. In the new company, Giovanni Agnelli could possess a bigger share than in the previous one, getting a dominant position within the firm.

History and Background of FIAT

The FIAT design and industrial capabilities were concentrated in the production of engines in the first period. Starting from this strength, the company started the first attempt to diversify its activities. Doing so, Giovanni Agnelli was able to follow his strategy, extending the production, diversifying the business and implementing a new organizational structure. The production was now based on the American assembly line that he discovered travelling in the U.S., allowing the plant to produce a higher number of vehicles based on applying the Henry Ford theories.

The perception of the quality of the new cars built by FIAT plants was measured by national and international races, the reliability of the cars in the competitions was important to increase the market share and the potential customers. Participating at the car races, people saw the FIAT victories and the feature of the car, reliable and fast.

The foreign market was increasing as well as the Italian market, thus FIAT started with the exportation of its cars abroad but the number of car produced was not enough to cover the international demand.

In the years just before the War, FIAT started the production at Lingotto factory, the innovative plant built in Turin that was at that time the largest factory in Europe. The new factory was built with the aim of increasing the production of cars and decreasing the cost of manufacture to offer cheaper vehicles for the middle class.

After World War I FIAT had to challenge the issue of turning the production from war equipment to civil manufacture. The conversion of the production was not the only problem that Fiat had to deal with, in fact the Italian company had to face the frequent workers strikes according to their willingness of reducing the working hours and increasing the salary.

FIAT was already considered as one of the most influent company in the industrial sector, and one of the few in the Italian automotive industry to have an enormous capacity of car production as some of the other companies were acquired by FIAT or they dismissed the production, while only two firm were able to survive to the strong competition imposed by FIAT and these were Alfa Romeo and Lancia.

The Fascist Period

In 1923, Giovanni Agnelli was elected Senator of the Reign of Italy as an acknowledgment of his success and his pioneering.

During the Fascist period, FIAT continued its exponential growth, even though it suffered from the Crisis of 1929, the Italian company was able with the help of Mussolini to struggle against the crisis and improve the quality and the quantity produced. Mussolini enforced customs duties for the vehicles imported from other countries that helped the internal production, and it decreased the importation of foreign cars, especially the ones produced by Ford industries in the U.S. Though, the solution was not adequate to solve the company’ situation, in fact the value of the FIAT share decreased nearly 70%.

In that period, Mussolini was preparing the war in Ethiopia, and FIAT was one of the factory that had to produce the war equipment and it allowed FIAT to maintain the employees and sustain the high production. The production of the war equipment was due in the perfect period, the stagnation of the demand in the automotive market was deep, allowing FIAT to involve more resources in the preparation of the equipment for the war. FIAT gained an increase in revenues, profit and new resources to invest. It was the starting point for a new project, the expansion of the production by building a new factory.

The Situation after the Second World War and the Marshall Plan

The damages on the infrastructures were substantial, the bombardments in Turin were multiple and targeted directly to the plants, destroying the places where fascist could get new vehicles, then within those also FIAT factories.

During the war, FIAT reduced strongly the production of civil vehicles due to the increase in manufacturing trucks, airplane, marine engines and tanks.

The important change in the post war was not only in the production, from war production to civil one, but also in the management of the company. Giovanni Agnelli died in 1945 and the vice-chairman took his place, Vittorio Valletta.

Valletta had to face the over employment and the procurement of the raw material that was problematic due to the problem in the Italian transportation system that at that time could not be used.

The fundamental economic and monetary help came directly from the USA strategy of reconstruction of the European industrial power, thanks to the Marshall Plan, the Italian economy and FIAT got funding to restart the production and the exportation’s.

The Italian Economic Miracle

Italy experiences a period of economic boom and the car industry is one of the main drivers of intense growth: one car for every 96 inhabitants in 1949 becomes one for every 28 inhabitants in 1958 and one for every 11 inhabitants in 1963. The evidence shown from the FIAT history is representative not only for the automotive industry but also for the Italian economy, the number of cars sold, as it was still considered a luxury good at that time, was increasing that means the economy was growing and the living conditions were improving.

Relevant is the fact that between 1951 and 1963 the GDP growth of Italian economy on an average of 5.9% per year (reaching the peak of 8,3% in 1961).  This season that lasted for almost 15 years was named by the experts “The Italian Economic Miracle”.

The period was characterized by the increase of the number of vehicles produced by FIAT per year that reached more than 230.000 items in 1955. FIAT launched in these years the “New 500”, that was already a success but it was destined to be an icon in terms of design and usability. In 1966 Gianni Agnelli, the grandson of the founder, became chairman.

The Gianni Agnelli Era

Gianni Agnelli, after years of international relations particularly with the USA, became chairman of his family company only in 1966 when Vittorio Valletta resigned from his position recommending Gianni Agnelli as his successor. FIAT came to his hands just after the best period for successful growth in the company history.

The end of the 60s were characterized by the numerous worker strikers, especially from the employees that had just an operational function to control the production systems. The claim was about a better working condition, as the job was heavy in terms of type of work and working hours, and they were asking also a better salary, that was blocked from years before.

The social unrest and the long period of protest affected the production and the profitability of the company as the workers stopped the production for many hours and sometimes also for days.

Even though the period was not the best in FIAT history, the company continued to pursue its goal of growing and expanding, then FIAT acquired Lancia in 1969 with the aim of saving the successful Italian brand, known for elegance and high technologies.

In 1969 FIAT also signed the agreement with Enzo Ferrari, in which the founder of Scuderia Ferrari continued with the car competition while FIAT started the production of the vehicles with the famous brand from Maranello. The Ferrari brand was known worldwide for the luxury and for the performances of the cars, the brand was well-established and owning a Ferrari represented a dream for all the fans. Though, the company finances were not sustainable in the long-run and Enzo Ferrari had to leave the production to FIAT.

In 1974 a new CEO was hired by FIAT, Cesare Romiti started his work at FIAT and his main task was to improve the situation in which FIAT was operating and to solve all the issues that the company was facing.

It was the time for the change in the FIAT organization which was composed by 100 directors that were helping the CEO in his duties and decisions. Romiti proposed a new structure based on a holding company that manage and own the other holdings divided for their type of production, the most important were: Automobiles, Industrial Vehicles, Agricultural Tractors, Constructions Vehicles, Machine Tools, Components, Iron and Steel Sector, Rail sector.

All these so called sub-holdings were managed independently with their own budget and investment, while the head-holding, Fiat Spa, had few issues like setting the budget, checking the results and solving disputes within the company.

With the strategy adopted and the solution found with the labour unions, Romiti improved his position and the consideration of his work within the company.

With the legitimation of Romiti, Agnelli was able to dedicate more of his time to his hobbies and travels. He was known as a football expert, owning Juventus Football Club, one of the most important soccer club in Italy. He was also interested in car races, travelling with the Ferrari team during the Formula One season that became part of the FIAT holding.

Agnelli decided to buy one of the most important newspaper of the country “La Stampa”, that was part of his strategy to have a positive perception of himself and of the company within the Italian citizens.

Gianni Agnelli was elected as Lifetime Senator by the Italian Republic President in 1991, for his success and help given by him and his family to the State.

Going back to the activity of the holding, “Fiat Uno” and “Fiat Panda” were launched in the 80s becoming ones of the most sold car in the FIAT history and one of the most successful subcompact car in Europe.

The strategy of FIAT was clear from the beginning, the company wanted to be the leader of the Italian market, and to pursue their goal, FIAT decided to buy Alfa Romeo, the last automotive industry that was not part of the FIAT portfolio. Alfa Romeo, owned previously by a State company due to reasons of financial difficulties, was manufacturing middle size cars that were excelling in performances but it never sold well enough to be sustainable in the market.

Buying the shares of Alfa Romeo in 1986 and controlling it, FIAT started his monopoly over the Italian market as all the car industries were owned by the Agnelli family.

The crisis of the 90s

In the 90s FIAT suffered a strong crisis and the company was really close to bankruptcy, the crisis was prolonged to the first years of the new Millennium but the causes came from a huge mistake in strategies that have been taken in the previous years.

Nevertheless, other automotive companies suffered the crisis of the 90s but were able to react quickly to the new situation and the new competition.

Volkswagen suffered the same situation as Fiat, but the German company was able to solve the internal problems and to improve its market share and its brand awareness in the car industry.

The main objective of Fiat and of its CEO was to diversify the financial risk that the company could incur in case of a deep crisis in the automotive market, not seen stable nor profitable enough in the future from the Fiat Spa management. Therefore, Romiti decided not only to diversify the risk, acquiring shares of companies in different productive sectors, but also to outsource the most important part of the car production, including the outsourcing of the new vehicles design. This strategy was seen as a lack of  quality of the cars, as the FIAT cars were always designed in Italy by Italian engineers and as a representation of “made in Italy”. Doing so the brand lost its credibility and the image that it built in the previous year. Customers perceived the brand as not reliable enough that is crucial for selling cars.

FIAT had to face also the increasing costs of production and the excessive workforce, thus the management cut or replaced part of the employees by hiring workers benefiting by state subsidies.

Other two causes of the crisis were the changes in the market competition and in the feature of the cars.

The main change in the market competition was due to the extension of the borders between EEC members which enabled the free importation and exportation of goods between the State associate, thus it meant that all the companies based in one of these countries participating in the EEC agreement can export its goods in all the other countries without any type of fee or customs duties. The new market rule was not beneficial for FIAT as its business was based mostly on the Italian market and with the new agreement the German and the French companies could get part of the market share in the automotive industry also in Italy. The free market within the EEC members increased the competition in the automotive market decreasing the Fiat Spa customers and the number of the vehicles sold.

Regarding the changes in the feature of the cars, FIAT decided that huge investments were not needed even though the other car companies were changing them, especially regarding the innovations in the sector such as the use of the car electronics and the “ECU” (Electronic Control Unit). It was perceived as a lack in the quality of the car and in a stagnation of the composition of it.

To sum up all the causes of the Fiat Spa crisis in the 90s, the company had to deal with:

  • The management preference in diversification instead of increasing the investment in the car industry, in innovations and in Research and Development, symptom of lack of foresight;
  • The overall crisis within the country due to its high public debt and the activities that have been taken by the state in order to reach the requirements stated in the Maastricht Treaty;
  • The decision of outsourcing of the design and sometimes also the manufacture of the vehicles, without taking care of the quality of the cars;
  • The changes in the composition of the market and of its rules, through the entrance of new companies in the Italian market that previously were dissuaded by entry barriers that were held before the EU agreement.

All those causes decreased the value and the perception of the FIAT brand, as it was considered not in line with the competitors, producing cars that were not reliable enough to compete in the European market.

In 1998 Cesare Romiti resigned, and Paolo Fresco took his place.

The Fiat-GM Agreement

The main objective of the new CEO was settled by the chairman, he had to set a contract regarding the selling of part or the entire company due to the enormous debt that Fiat contracted in the period of the crisis. Agnelli had to take this decision grudgingly especially for the willingness of the founder, his grandfather, that was to maintain the company always within his family assets.

In March 2000, Paolo Fresco signed the alliance with GM, it was composed by 2 fundamental parts, an exchange of shares and the building of a joint venture.

On the financial side, GM will buy a 20% share in Fiat Auto, while Fiat SpA will receive in exchange 5.1% of GM’s shares (though there will be no exchange of board representatives). The Fiat group will become GM’s second- largest shareholder (the majority of the shares are in the hands of a US investment fund) and its leading industrial partner. The financial agreement provides also for the option, though not the obligation, of Fiat SpA offering – not sooner than three and half years, and not later than nine years from the signature of the agreement – the remaining 80% of its shares to GM, which will have a first option to purchase them.

The production and industrial alliance will take the form of two joint ventures (owned 50% by Fiat and 50% by GM): the first will conduct purchasing activities, while the second will produce engines and gear equipment. Cutting expenses will be the main policy as regards production.

The alliance between the two companies is the first attempt to become an internationally-recognized company that Fiat Spa always wanted to be but it was never successful in completing its dream. The alliance was signed due to financial problems that FIAT was suffering and in the beginning of the new millennium the best solution seemed to be the agreement with the largest auto maker in the world.

Sergio Marchionne

In 2003, Gianni Agnelli died and his brother, Umberto, took his position as chairman.

After a succession of 3 CEOs, Sergio Marchionne was hired in May 2004, he was already part of the Board of Directors of Fiat Group since 2003 but still he was not recognized as a figurehead or a leader with enough experience that was needed to improve the critical situation of the major Italian manufacturing company. Marchionne had his major experience abroad, he worked in Canada having also the citizenship there and in Switzerland, directing a multinational company that provides inspection services.

Marchionne started his work by ending up the agreement with GM according with his strategy to solve the situation with the Fiat own forces. Marchionne retracted the alliance signed by Paolo Fresco, solving it with the payment done by GM of around 2$ billions and ending the joint-venture.

One of the main successful result during his administration was the restarting of the manufacturing of the “500” in 2007, that was an icon in the past years but it resulted the real help in strengthening the assets and in supporting the whole company over the recession period. The FIAT 500 represents the image and the brand FIAT in the last decades, symbol of beauty, fashion and low consumption. It marked also the first attempt in entering the US market after few years without any exportation in the country.

In 2009, Marchionne supported by the Agnelli family decided to offer to the US government an agreement regarding the saving of the Chrysler group after the filling of the Chapter 11 by the authorities. The President Obama agreed for the alliance, starting first with a FIAT participation in the shares of Chrysler that can be increased by reaching certain objectives.

In January, 1st 2014 Fiat signed an agreement with VEBA and it bought the remaining shares of Chrysler. After a gradually increase in the shares, FIAT acquired the totality of Chrysler in 2014, and on October of the same year the new company was formed, formally called FCA N.V. as it is based in The Netherlands.

The FCA brands

With the agreement signed in 2009 Fiat acquired part of Chrysler automotive company, becoming one of the biggest automotive company in the world, with 16 different brands, and different vehicles that allow the new company created, FCA N.V, to offer a wide range of cars according with the needs of each market and of each customer.

The Italian department of FCA, known previously as Fiat Group or Fiat Automobiles, has its headquarters in Torino, Italy. Among the brands owned by the department, the FIAT brand remains the most important for number of vehicles sold and for the number of employees hired in the plants.

The brand portfolio of FCA Italy consists in: FIAT, Alfa Romeo, Lancia, Abarth, FIAT Professional and Maserati for the manufacture of vehicles. Moreover, it includes also less known brands that are related with the production of components: Teksid, Comau and Magneti Marelli.

The US department of FCA, known also as Chrysler Group or Chrysler Corporation, is based in Ann Arbor, Michigan.

The founder of the US department is the Chrysler company that represents also its main brand for the success that it had in the past and for becoming one of the big Three of Detroit, even though it is not the most representative brand in terms of car sold.

The brand portfolio is composed by: Jeep, Dodge, RAM, Chrysler and SRT. It also includes Mopar that produces parts and components for all the automotive plants.

FCA stated its strategy with the business plan of 2014, thus it decided all the activities to reach the goal of 7 million cars sold per year before 2018.

Even though the experts were sceptical, the FCA CEO considered it a realistic target that the company was able to reach without any problem and considering a huge increase in the European market.

After two years, FCA reached 4.72 million vehicles sold and the target seems far away from any forecast, but anyway the company is continuing with their main brand strategy that are: Expanding the FIAT brand through the 500 family and the fiat “Range”, building the Jeep global brand, re-shaping Alfa Romeo and the increasing of the Maserati sold worldwide.

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