Fiat and Marchionni: a turnaround story

23 May 2009

Italy's Fiat SpA, the once struggling car maker in a country notorious for strikes and political disruptions, has certainly woken up the industry and the media with its acquisition of Chrysler LLC. As it eyes the European operations of General Motors Inc, the other ailing US auto giant, to become the world's second largest car maker, all eyes are on Sergio Marchionne, Fiat's chief executive who will also head Chrysler operations.

Not so long ago, the Turin-based company was one of the world's sickest car manufacturers, with its bankers debating how to keep it afloat. In 2005, GM actually backed out of a deal to buy Fiat that it had signed earlier, saying that Fiat was in too hopeless a condition. GM paid Fiat $2 billion to get out of the deal. Ironically, it is now Fiat that is likely to buy at least a part of GM.

The man who agreed to let GM out of the deal was Marchionne. A financial expert, he had taken the helm of Fiat in 2004, when it was on the verge of bankruptcy.

Marchionne had never even worked at an auto company, let alone run one.

By 2007, just two years after GM walked away, Fiat was profitable. Now Marchionne is not only taking over Chrysler, but looking at buying GM's Opel division as well, which would make it second only to Japan's Toyota in terms of volume. Till recently deemed completely worthless, Fiat now has a market value of about $12 billion.

Italian Prime Minister Silvio Berlusconi has said that Fiat's dealing is "a dream ... for all Italians." But few Americans have given Fiat much thought since at least the 1980s, when the Italian automaker last did business in North America before pulling up its stakes and returning to Italy, its reputation for quality in tatters, giving fresh life to the joke that Fiat stood for 'Fix it again, Tony'.