Fiat Moves to Invest Its Way Out of Financial Doldrums
WHILE automakers all across Europe are moaning about slumping demand, Italian car manufacturers are justified in their complaints.
In the first nine months of 1993, the Italian car market dropped 22.3 percent. Italians are reluctant to buy big-ticket items while their country's political and economic situation remains uncertain.
``There has been a huge drop in consumption,'' says Sirio Tardella, head of research at UNRAE, the foreign automaker's lobby in Rome. ``The Italians have discovered they're not as rich as they thought they were.''
Fiat, Italy's leading automaker and one of its best-known companies, is passing through difficult waters, with losses of $604 million in the first half of this year against pre-tax profits of $409 million in 1992. Debt stands at $4.4 billion.
To make a comeback, the company is embarking on an ambitious capital investment program. Efforts to finance the plan by selling off Fiat holdings, such as the Rinascente department store, failed because of Italy's recession. So as part of an agreement to bring in new investments, company head Gianni Agnelli has abandoned plans to retire next year and will remain at his post.
Fiat's market share has declined in Europe and Italy since the late 1980s. Europewide it has continued to slip, from 12 percent in the first eight months of 1992 to 11.1 percent in the same period this year.
Automakers everywhere are experiencing a bad year, says Gualberto Ranieri, a Fiat spokesman. ``Everybody is suffering,'' he says.
To reverse Fiat's fortunes, Mr. Agnelli is pouring his energies into a complete renovation of the car line, including the introduction of a new quality subcompact called the Punto. It will go head-to-head in Europe against the Ford Fiesta (known as the Festiva in the United States), the Opel Corsa, the Renault Clio, and the Peugeot 205.
Fiat is spending $3.4 billion on the Punto as part of its larger five-year, $25 billion capital-investment program, which aims at increasing the automaker's competitiveness. From 1992 to 1996, Fiat will introduce 18 new models; at the end of 1996, the oldest Fiat automobiles will be the Fiat 500 and the Alfa Romeo 155, both introduced last year.
More than half the money will be spent on manufacturing investments, including a new auto plant near Melfi and an engine factory at Pratola Serra, outside Naples. Both plants are located in southern Italy, where labor is cheaper than in the north.
At the beginning of next year, the Melfi plant will begin manufacturing the Punto and by the end of the year will be producing 800 cars a day. Melfi is a so-called greenfield factory, at which all operations have been looked at with fresh eyes: As a result, productivity per employee each year is expected to be nearly twice that of other Fiat plants. Ranieri also stresses that 22 parts suppliers are installing facilities in the Melfi area.
``No other carmaker has so many suppliers literally around the corner,'' he says, ``and that is quite important.''