Fiat drives ahead with £13m plan

Italian car giant tries to kick-start fortunes with dramatic overhaul

The shroud hanging over Turin these past few years showed signs of lifting yesterday when Fiat Group's new chief executive officer, Giuseppe Morchio, appointed in February, announced a re-launch of the ailing Italian car giant that aims to bring it to operating breakeven in 2004, and back to profitability in 2006.

In the process the company plans to shed 12,300 jobs, 2,800 in Italy. Fiat employs 168,000 people worldwide including 90,000 in Italy. A company spokesman pointed out that the Italian workers would be shed over the next four years, making the losses only marginally more than those caused by normal retirement.

Italy's Welfare Minister, Roberto Maroni, said: "It seems that the impact on employment will not be as grave as some people feared."

The company also plans to take on 5,400 new employees during the implementation of the plan, 1,600 of them in Italy. Fiat has been in desperate trouble for several years, as the energies of its charismatic but ageing chief, heir of the family firm, Gianni Agnelli, finally began to wane. The huge Italian car market, over which it had a virtual monopoly for decades, was gradually prised open by competitors from abroad; the company diversified into areas as different as telecoms and insurance to the expense, some argue, of the core business of cars, lorries and tractors.

Gradually, meanwhile, the all-important car model range grew stale and aged in comparison with hard-driving European competitors such as VW and Peugeot. And the new cars launched had an unfortunate habit of going down like lead balloons: the Multipla, for example, loved, it is said, by many owners for its roominess and huge windows, but a strong contender for the ugliest car on the planet; and the Stilo, another nice car to drive but with the looks of an overgrown Transformer toy.

As foreign cars crowded on to the Italian highways that Gianni Agnelli had twisted the arms of successive Italian prime ministers to build, his own grim assessment - "I fear that Fiat is too big for Italy and too small for the world" - began to look prescient.

Was Fiat finally, ineluctably, going the way of British Leyland? With Gianni Agnelli's death earlier this year, the crisis began to look as terminal as the prostate cancer that finally did for the old man. In 2002 alone Fiat lost €1.2 billion, and the first quarter net consolidated loss this year was €699m, even worse than the corresponding 2002 figure of €663m.

With market share in Italy continuing its slow but relentless slide and now down to the low 30 percentage points, and with disastrously unlucky adventures in Poland and Brazil bringing nothing but financial grief, the only hope seemed to be a sell-out to General Motors.

In 2000, when both firms looked rosier, Fiat sold a 20 per cent share to GM and gained the right to oblige the American giant to buy the company outright at any time after 1st January 2004. Yesterday, however, announcing the group's relaunch, Mr Morchio worked hard to give the impression that a sell-out was now the last thing on the Fiat board's mind. Instead he announced a €19.5bn financial package to revitalise Fiat's product line, funded entirely from internally generated resources, and a rights issue for about €1.8bn underwritten by a syndicate of banks.

The new investment will go into new products, R&D and a revamped distribution network. By 2006, when the group intends to have returned to profit with a return on sales of 4 per cent by the end of that year, Fiat plans once again to be offering serious competition to its European and Asian rivals.

Clearly accepting the argument that the main problem over the past few years has been a line of cars that people don't want to buy, Mr Morchio put the main stress on turning the product range round. This week saw the launch of the new Lancia Ypsilon in Italy, which one local Fiat expert described enthusiastically as a return to form and to the values for which Lancia was long famous, and the arrival of serious competition for BMW's British made Mini Cooper.

Other models launched or due to be launched this year include the new Punto, to be built at the Termini Imerese plant in Sicily which last year was threatened with closure; the workforce there are now being trained to build it.

Also coming are two new Alfa Romeos, the GT Coupe and the 156 FL, with which the group hopes to spearhead its attack on the American sports luxury market, a new Ferrari and two new Maseratis. Gianni Agnelli ought to be purring in his grave.

Italians, for many of whom Fiat is as patriotic an icon as the great old English marques were before they went the way of the dodo, were inclined to give the new chief executive, an engineer to his fingertips, the benefit of the doubt.

Salvatore Troppea, auto correspondent of La Repubblica, said: "It's a very realistic plan, very cautious, without illusions or grand pretensions... It marks the return of Fiat to its core business of manufacturing cars, from which it became distracted in recent years... I'm impressed by Morchio, he seems very punctilious, he's gone into every detail. I've been taken aback by the enormity of the disaster that has befallen Fiat in recent years, but now they are going back to their roots, back to what they are good at. The new Ypsilon has all the characteristics of a classic Lancia. I believe Italian drivers will once again take Fiat to their hearts."

Mr Morchio's plan is deliberately conservative, envisaging a gain of 5.5 per cent in return on sales between 2002 and the end of 2006, "even if demand remains relatively weak.... The prediction is based on conservative market assumptions, despite the fact that the group plans to introduce a number of new products." For now, in the rosy glow of Fiat's anticipated rebirth, no-one is talking about Fiat exercising its "put" option on GM.

Instead, Fiat hopes to build on understandings reached earlier in the year with GM, creating an "industrial alliance" with GM involving the use of common platforms, greater integration in procurement and the sharing of components.

THE RISE AND FALL OF AN ICON

1899 Fabbrica Italiana Automobili Torino (Fiat) founded in Turin by former cavalry officer Giovanni Agnelli

1908 Fiat builds its first aircraft engine, goes on to make jet fighters

1922 The Lingotti factory in Turin, famous for its rooftop test track, goes into production

1936 Production begins of Fiat's most famous model, the Fiat 500 or Topolino. Half a million built in next 20 years

1939 Fiat increases production capacity with opening of Mirafiori plant

1945 Giovanni Agnelli dies

1966 Giovanni Agnelli, grandson of Fiat's founder, becomes chairman and begins international expansion of group. Pininfarina-designed Fiat Spider launched

1969 Fiat buys Lancia and Ferrari

1983 Fiat launches the Fiat Uno

1986 Fiat acquires Alfa Romeo. Fiat and Ford merge European truck operations

1991 Fiat and Ford merge their tractor businesses to create New Holland

1993 Fiat launches the Punto. Buys sports car maker Maserati

1999 New Holland buys US manufacturer Case for $4.3bn

1996 Giovanni Agnelli steps down as chairman

1997 Agnelli's successor Cesare Romiti convicted of falsifying records and illegally financing political parties and forced out of Fiat

2000 Fiat and General Motors agree share swap. GM acquires 20 per cent of Fiat Auto and Fiat gains right to sell remaining 80 per cent to GM from 2004. Fiat sells train buildier Fiat Ferrovia to Alstom and starts selling off components arm Magneti Marelli.

2003 Gianni Agnelli, now Fiat's honorary chairman, dies aged 81 after long fight against cancer