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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"Fiat Auto is a catastrophe and the group as a whole lacks strategic direction and is again becoming too complex to manage effectively."

- Jurgen Pieper, Motor Analyst, Metzler Bank (Frankfurt), in April 2002.

Facing Rough Weather

In May 2002, Fiat Auto (FA), the flagship division of the Fiat group (Fiat), Italy, reported a loss of €429 million1 for the first quarter of 2002. This loss, one of the biggest ever in the history of the Italian corporate world, was just one of the many problems that the Fiat group was facing. Meanwhile, the company's latest car Stilo, which Fiat hoped would revive its car business, failed to garner the expected sales, and FA's market share in the European market came down to just 7.9% in May 2002 from 14% in 1990.

Fiat's diversification drive during the late 1990s had left the group with huge debts as some of the investments and acquisitions proved to be disappointing. While the group, in 2001, had revealed plans to reduce its net debt to €3 billion from €6 billion by end of 2002, the net debt further increased to €6.6 billion by mid 2002. Fiat's mounting debt and disappointing financial performance had an adverse affect on its share price, which declined sharply during early 2002 (Refer Exhibit I and II for Fiat's financials and share price movements). Paola Cantarella (Cantarella), the CEO of the Fiat group, was blamed by many industry observers for the crisis the group was in. He was accused of not giving sufficient attention to the group's flagship division, and letting competitors eat into its market share.

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Cantarella met Gianni Agnelli, Fiat's honorary Chairman (and the head of the Agnelli family which owned a major part of the Fiat group), on June 1st, 2002 to discuss the crisis. Realizing that Cantarella had come to be seen as a symbol of the group's misfortunes and that his departure could be beneficial for Fiat, it was decided that he would step down from his position. On June 10th, 2002, Cantarella announced his resignation and Paolo Fresco (Fresco), the chairman of the Fiat group, became the interim CEO. Cantarell's decision to resign was viewed with suspicion by company watchers who commented that there was more to it than the group's dismal performance.

According to reports, the differences in opinion between Umberto Agnelli (Umberto), the head of the Agnelli family after Gianni Agnelli, and Cantarella played a major part in the latter's decision to resign. It was even reported that Umberto was inclined to remove Fresco from the group as well. While Fiat's diversification moves had often been looked at disapprovingly, it was FA's decline that attracted the most attention. Once a strong player in the global passenger car market, FA had become a company known for lackluster brands and fading brand equity; it was losing cash faster than Fiat could infuse fresh capital in it. As these problems continued, industry observers expressed regret about the sorry state of affairs of one of Italy's most popular, global brands.

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1] April 2003 exchange rate: $ 1.08569 = 1€.

 

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