For Fiat's chief, it was war on the factory floor. BLOODSHED AND RED INK

WHEN Vittorio Ghidella took control of Italy's Fiat auto company in 1979, terrorist gangs and organized prostitution rings flourished on the factory floors. For years, terrorist groups had intimidated company management by gunning down Fiat executives on the street - four dead, 27 wounded. Absenteeism at the plants was running at 25 percent, productivity was in a slump, quality was by all counts abysmal, models were outdated, and people weren't buying. The company was sinking.

``When we decided to be again in command of the situation, we had to fight against terrorists - get help from the government and police to clean our plants and get rid of the nucleus of terrorism,'' said Ghidella (pronounced Gee-DAY-lah) in an interview.

It was a task that would have daunted even the resourceful Chrysler chairman, Lee Iacocca, to whom the dark-featured and dapper Ghidella has been compared.

``He has that same bit of Italian brio that Iacocca has,'' says James P. Womack, who teaches auto industry issues at the Massachusetts Institute of Technology.

Under Ghidella's unabashedly Western-style management and leadership, however, Fiat staged a comeback that Chrysler would envy: The company is now the No. 1 seller of cars in Europe, with a financial turnaround from $60 million in red ink in 1979 to a $350 million profit last year; a 75 percent productivity rise, from 16.5 cars per worker in 1980 to 29 last year; innovative styling; vastly improved quality; and consumer satisfaction second only to top Japanese manufacturers.

Yet Ghidella has not spent a lot of time trying to ape the Japanese auto industry. Instead, Ghidella spends much of his time promoting leadership, individualism, and innovation - words that have seemed out of step in an industry trying to get more in sync with Japanese methods for success. He likes to give an individual manager responsibility and then let him run with it.

``The Japanese belong to a different culture, and it's very difficult to transplant the Japanese techniques to the Western world,'' Ghidella says. ``We can use the strong point of the Western culture and make it competitive with the Japanese. ... You can strive to use the capability of our people, their thinking and inventiveness.''

It's the kind of tough, individualistic, confident talk that has made Ghidella a public hero of the Iacocca mold. But that's where the easy comparisons between the two men end.

What Ghidella inherited in 1979 was not just a company in financial trouble, but one that mirrored his country's highly unstable social and political climate.

``I remember going into the Fiat headquarters back then; it had bulletproof and bombproof glass all over the place. It was essentially a siege mentality,'' says Martin Anderson, an industrial consultant with the MAC Group in Cambridge, Mass. Mr. Anderson, an expert on Japanese manufacturing and management techniques, studied Fiat's operation in 1979 and advised the company.

Despite the threat of violence, one of Ghidella's first moves was to fire 61 employees who were suspected terrorists - half of whom were later proved to have terrorist affiliations. He then laid off 23,000 of the more than 140,000 workers - an unheard-of move, since at the time, labor unions were sacrosanct and few workers were ever fired. The union countered by going on strike.

Yet, Ghidella's radical move struck at the right time. Italy was tired of a decade of labor strife and it was only a few weeks before 40,000 Fiat workers rallied in the streets of Turin, demanding to go back to work.

Ghidella ``made a number of quiet pitches to them. He had worked in smaller groups in the community,'' Anderson says. ``That may have been one of the key ingredients - that he was approachable. He did not exhibit fear. He did not exhibit arrogance.

``There was a climate of fear. If you were an executive you could be shot, there was no question about it. [And shootings did continue for a time after Ghidella took over.] I think that his style, that direct style, may have paid off. He and his younger generation of managers exhibited confidence and won the people's trust.''

After the strike, absenteeism dropped to 5 percent, and a new union contract followed that eliminated featherbedding and overly strict work rules. To untangle the company's Byzantine bureaucracy, Ghidella slashed layers of white-collar management jobs, along with blue-collar positions. Today the company employs about 100,000 people.

Since Ghidella took control, Fiat has moved swiftly from flabby to flexible. The company plowed $6 billion into automation, and Comau, Fiat's robotics subsidiary, is highly respected around the world.

But the changeover didn't come swiftly enough to satisfy customers in the intensely competitive United States auto market. Fiat was losing money in America, and in 1983 it decided to stop selling cars here. A lot of people, including Fiat car owners themselves, still say the letters in ``Fiat'' really stand for ``Fix It Again, Tony.''

``They still have a horrendously bad reputation in this country that is no longer justified,'' says Antony Sheriff, a graduate student at MIT who has worked in the auto industry and studied Fiat.

Ghidella knows all about the little jokes, but he shrugs them off and goes on. Because of the image problem, he won't be shipping Fiats to the US. Instead he plans to continue selling the company's popular Ferrari sports cars in the US and to advertise more broadly the Fiat-owned and sporty Alfa Romeo brand name. The Fiat Uno was in 1983 named ``Car of the Year'' by European auto writers. It has continued to sell well abroad.

``In this global competition, quality is becoming more and more important,'' Ghidella says. ``Anybody can make a good finished car. The point is, how do you keep the quality going on, and make the customer happy for a long time.''

Crammed into the stuffy semidarkness of a windowless lecture hall, several hundred MIT students gathered early this month to hear Ghidella explain how he has brought Fiat to within a hair's breadth of beating out Nissan as the world's fifth-largest carmaker.

``We were using the common tools anybody has for management,'' Ghidella said. ``It was no wonder, no miracle, nothing exceptional - just hard work, a clear idea, and good, clear objectives.''

To those who know the details of Ghidella's rescue of the moribund Fiat, it wasn't as simple as his soft-spoken manner suggests.

MIT professor Womack says Ghidella may have created a unique, hybrid managerial style that combines a consumer product company's sensitivity to consumer tastes with a manufacturing company.

``I think the leadership style is an alternative to the Japanese,'' Anderson says. But it's basically just really good, clear management. He provides clarity and simplicity. He is honestly self-critical. He was not playing games. And that kind of honesty, I think, came across.''

Ghidella, who loves classical organ music, has tried to harmonize the concepts of teamwork, inspirational leadership, and integration of disparate business functions without compromising their individual integrity. A Fiat spokesman likens Ghidella's management approach to that of an orchestra conductor.

``Ghidella is unique,'' Mr. Sheriff says, ``because he is entirely aware of each step of the car production process from marketing to engineering to manufacturing.''

Ghidella's training as a mechanical engineer at the Polytechnic Institute of Turin has been complemented by stints in sales and marketing. His ability to take into consideration all areas at once has made him a company president who sends the right messages to his managers and his workers, auto analysts say.

``He is extremely knowledgeable about all of these areas that have to be integrated,'' Sheriff says. ``He knew their problems - what was good and what wasn't good. And it was that type of message that mattered.'' Says Anderson: ``What I saw Fiat do in the past six years is to work extremely well with both the people and the technology.''

Did Ghidella ever worry when he was firing terrorists and laying off thousands of irate unionists?

``Really, we were pinned to the wall,'' he says. ``We couldn't do anything else. I say, good with the workers, good with the rights of the workers, but also they have some duties. To me that seems obvious.''