Fiat CEO Marchionne Has Led an Unlikely Turnaround
By Michelle Krebs January 21, 2009By Dale Buss
Sergio Marchionne has been predicting an epic consolidation of the global automotive business for several months now. And by striking a perhaps slyly sensible new partnership with Chrysler, Fiat's determined CEO already has taken the industry's biggest and boldest step toward fulfilling his scenario.
The 56-year-old Italian is credited with Fiat's financial turnaround since 2004 but also much more: He's increasingly seen as a visionary who has the guts to shape the industry's future rather than just react to it.
"This initiative represents a key milestone in the rapidly changing landscape of the automotive sector and confirms Fiat and Chrysler commitment and determination to continue to play a significant role in this global process," Marchionne said in a statement on the deal by Turin-based Fiat Tuesday.
In December, Marchionne predicted that, in the wake of the global recession, only six carmakers may survive. "We're going to end up with one American house, one German of size; one French-Japanese, maybe with an extension ion the U.S.; one in Japan; one in China and one other potential European player," he told Automotive News Europe. The capacity threshold for survival, he said, is at least 5.5 million cars a year.
But clearly, Marchionne sees a Fiat-Chrysler combination -- as a would-be survivor as well.
Unconventional Measures
The reason for his confidence is that, uncommonly among the world's automotive CEOs, Marchionne has a successful recent track record. "He's been able to garner respect for Fiat again after its down years and reestablish it as a business leader," said David Johnston, CEO of Strategic Vision, an Atlanta-based marketing agency whose clients include Chrysler, Ford and the OEMs' dealers.
Marchionne returned Fiat to profitability in 2006 for the first time since 2000, after less than two years at its helm. The stock price doubled in one year. And while sales were down by more than 10 percent in the Italian home market in 2008, Fiat gained market share because of its dominance of the small-car segment.
Marchionne became a member of Fiat's board in 2003. Then, as the controlling family struggled to manage the company that the legendary Gianni Agnelli had built, Marchionne became its CEO, coming over from Switzerland's SGS, the world's largest goods-inspection company. At the time, it seemed all he might be able to do was to preside over the company's dissolution.
Fiat Automobiles' share of the Italian market had slipped to below 28 percent, from more than 52 percent at the beginning of the '90s. Inadvisably, Fiat had diversified into sidelights such as insurance, banking and energy -- to the neglect of its car business. Capital investments were low, and the management culture -- matching the economic mood of Italy -- lethargic.
So, the new CEO surprised everyone by stripping away layers of management, including 10 percent of the roughly 20,000 white-collar workers in and around Turin. He rejected the idea of closing plants to match falling sales -- instead, he pushed to sell as many Fiat engines and other parts as the company could, even to rivals.
At the same time, also spurning another standard response to downturns, Marchionne refused to offer steep discounts on Fiat cars, as a way of staunching losses and to prevent further erosion of the brand. He trimmed about six months off the company's design-to-market process. Marchionne hatched ambitious plans to introduce 23 new vehicles between late 2007 and the end of next year.
"This is one of the few times when an auto company has hired talent from outside, and Marchionne maintains that his unconventional approach has revolutionized the culture in a way that will keep the company competitive in the long term, even against Asian competitors," wrote Billie Blair, president and CEO of Change Strategists Inc., in his book, All the Moving Parts: Organizational Change Management.
Bean-Counter Extraordinaire
And along the way, Marchionne managed to burnish his fast-growing legend by totaling his Ferrari 599 GTB Fiorano in late 2007 in a collision with a Renalult on the Swiss A1 highway near the city of Basel. Marchionne's car ended up spectacularly perched on the protective rail. But he and the other driver were unhurt, and police told the local papers that Marchionne had been traveling only about 60 mph and simply couldn't avoid the abruptly braking car in front of him.
Actually, for all his jazz-loving panache, Marchionne's background bespeaks his focus on financial fundamentals rather than some Iacocca-esque flair. He was raised in Toronto and began his professional career as a tax specialist for Deloitte and Touche. After moving into industry, he rose to become CEO of Algroup of Zurich in 1997. By 2002, he had become CEO and managing director of SGS. Along the way, he became a member of the board of UBS and then non-executive vice chairman.
Lately, Marchionne has said that he believes Fiat can weather the slowdown in Europe better than some competitors because buyers are seeking smaller, cheaper models such as those already in Fiat's pipeline. He also plans to introduce a low-cost new brand as early as next year, he told Bloomberg News at the Bologna auto show in December.
In fact, Marchionne wants Fiat to take the lead in the economy-car segment, he told Bloomberg, similar to how Wal-Mart Stores Inc. is the bellwether of the discount global retailing industry.
And, of course, Marchionne wants to use the new Fiat-Chrysler alliance as the vehicle for staking a bigger claim in the bleaker future he foresees for the industry.
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