Fiat Auto: The Italian Giant in Trouble|Business Strategy|Case Study|Case Studies

Fiat Auto: The Italian Giant in Trouble

            
 
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Case Details:

Case Code : BSTR050
Case Length : 15 Pages
Period : 1990 - 2003
Organization : Fiat Auto
Pub Date : 2003
Teaching Note :Not Available
Countries : Italy
Industry : Automobiles & Automotive

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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EXCERPTS

The Fall of Fiat: Detailing the Problems

According to analysts, Fiat's problems, especially the crisis at FA, were mostly of its own creation. FA had failed to keep abreast of changing trends in the car market during the mid-1990s.

After the Italian economy was opened to foreign players, foreign car companies relied on price cuts, improvement of quality and new and innovative designs to gain market share. Fiat failed to react to changing market dynamics, even as Renault and Volkswagen restructured their operations and focused on R&D to compete globally. During 1995-2001, while Renault and Mercedes invested more than $9 billion in R&D and Volkswagen spent $20 billion, FA spent only $4.5 billion. As a result, there were huge gaps in FA's product lines. Fiat's competitors constantly launched new models in the market during the late 1990s and slashed prices causing severe erosion in FA's market share and revenues. Analysts criticized Fiat for being a one-trick pony as FA depended heavily on individual models for a long period to retain its market leadership...

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Setting Things Right

Faced with all these problems, Fiat announced a restructuring exercise aimed at reducing debt and costs in December 2001. In a statement issued to this effect, Fiat also said that the group was expecting a net loss for fiscal 2001.

Following this announcement, the company's shares fell sharply on the stock market. According to reports, the restructuring at Fiat was the largest restructuring exercise ever undertaken by any Italian company. The restructuring exercise, which cost the group €6 billion, included measures to increase capital, reorganize business operations, and sell off of non-strategic business units. To increase capital, Fiat issued new shares worth € 1 billion through a rights issue in January 2002. In February 2002, it also launched a bond issue worth € 2.5 billion, backed by its 5.7% stake in GM. As a part of restructuring its business operations, Fiat announced that it would lay-off 6,000 employees, mostly in plants outside Italy. Fiat sources said that this was necessitated by the revamp of 18 factories (16 outside Italy) between 2002 and 2004...

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