Once-Struggling Fiat Could Become No. 3 World Automaker With GM, Chrysler Deals

Chief executive Sergio Marchionne is credited with engineering Fiat's comeback. U.S. and Italian officials are pinning their hopes on him.
Chief executive Sergio Marchionne is credited with engineering Fiat's comeback. U.S. and Italian officials are pinning their hopes on him. (By Giuseppe Aresu -- Bloomberg News)
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By Craig Whitlock and Steven Mufson
Washington Post Foreign Service
Sunday, May 17, 2009

TURIN, Italy -- Almost overnight, Fiat Group has transformed itself from a bit player into a global titan in the auto industry, effectively taking over Chrysler and possibly a big chunk of General Motors. And nobody is more surprised than the Italians.

"If you had asked me four years ago whether I could imagine that Fiat would be able to restore itself and become a hunter, instead of the hunted, I would have said you were crazy," said Sergio Chiamparino, the mayor of Turin, the northern Italian city that Fiat has called home for more than a century. "Practically speaking, it was a badly run company."

In 2005, Fiat was struggling to overcome chronic losses and recover from the death of its legendary chairman, Gianni Agnelli, who had ruled for decades with a feudal lord's touch. The company's future was so dim that it couldn't give itself away. General Motors, afraid it might get stuck with an Italian basket case, paid Fiat $2 billion to abandon a partnership.

Today, the tables have turned. Under a chief executive with no prior experience in the car business, Fiat has stabilized its finances and is pursuing an ambition that most Italians would have laughed at only a few months ago: to become the third-largest manufacturer of automobiles in the world, behind only Toyota and Volkswagen and ahead of a fading GM.

Without spending a dime of its own money, Fiat has cut a deal to take over management of Chrysler, the bankrupt U.S. automaker. It is expected to acquire a 20 percent equity stake that could lead to majority ownership in a few years.

Fiat is also negotiating with ailing General Motors to absorb GM's European and Latin American operations. If successful, Fiat will oversee a new company with the capacity to build almost 6 million cars a year -- triple what Fiat produced last year.

That prospect has led to a surge in national pride in Italy, where many people remain awestruck that the White House has pinned its hopes on little Fiat to save Chrysler. Italians are also dazzled by the idea that Turin, a city with a population of 1 million and the Alps as a backdrop, could reverse Italy's steady economic decline and host a global industrial power.

At the same time, anxieties are growing over the potential downside. If Fiat takes over GM's European operations, it could cut up to 18,000 assembly-line jobs in an effort to restore profitability. Worse, Fiat's basic strategy could fail, given the inherent difficulty of combining three money-losing companies in a star-crossed industry.

"We're worried that Fiat will internationalize itself and leave Italy in the dust," said Giorgio Airaudo, the regional general secretary of the Italian metalworkers union, which represents thousands of Fiat workers in Turin. "The big questions we ask are: What role will Italy play? What role will our factories play? What will we produce?"

Doubts also linger over one of Fiat's main assumptions: that a quarter-century after abandoning the North American market, it will succeed at selling its small, fuel-efficient cars to U.S. consumers.

"I hope that Americans will want to drive around in Alfas and Cinquecentos," Airaudo said, referring to Fiat's stylish, if tiny, sedans. "But I'm not so sure."

Miracle Worker

Fiat's workers and shareholders, as well as U.S. and Italian government officials, are pinning their hopes on Sergio Marchionne, 56, an accountant who was named Fiat's chief executive five years ago.

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