Fiat

Fiat founder Giovanni Agnelli, a former cavalry officer, decided just before the start of the 20th century to enter the new business of producing horseless carriages. In 1899 he joined with a group of aristocrats in Turin to form the Fabbrica Italiana di Automobili Torino. The company, which became known by its initials FIAT (and took that as its official name in 1906), got off to a good start in the car business and soon branched out to trucks, buses, and marine engines.

The close ties Agnelli developed with Italian politicians helped Fiat gain orders from the government for military vehicles and equipment. By the mid-1910s the roster of such politicians included Benito Mussolini, who received Fiat financial support for the founding of his propaganda newspaper Il Popolo d'Italia. The advent of the First World War was a boon for Fiat, which became one of the leading suppliers of vehicles, munitions, and other military items to the government. It also began to make airplanes. Protected by high tariffs, the company controlled virtually the entire Italian auto market, with the exception of luxury cars like Lancias and Alfa Romeos.

In the wake of the Bolshevik Revolution, Fiat was a prime target of worker unrest and in 1920 experienced factory occupations at its plants in Turin, by then the Italian counterpart of Detroit. Undeterred by the militancy, Agnelli began buying up other industrial companies as well as the leading Turin newspaper, La Stampa. With the help of a professor of banking, Vittorio Valletta, hired in 1921, Agnelli turned Fiat into a vertically integrated enterprise, producing its own steel, paint, and other materials for its cars. Other operations included the production of rail cars and tractors and a construction operation called Impresit. In 1927 the various Agnelli holdings were put under the umbrella of a holding company, Istituto Finanziario Industriale.

The influence of Agnelli, who became known as Il Senatore after Mussolini made him a senator for life in 1923, widened as the fascists rose to power. This is not to say that he was an ardent believer in Il Duce, but simply that he knew how to take advantage of the situation. When Mussolini's power began to wane about 1943, Agnelli started making contacts with the Allies. Agnelli died in 1945, shortly after the Second World War ended. His gestures may have played a role in the decision of the United States not only to allow Agnelli's protegé Vittorio Valletta to remain in charge of the company, but also to grant Fiat Marshall Plan funds to rebuild its war-damaged factories.

Valletta made full use of these resources to expand and modernize Fiat's operations in automaking as well as in steel, heavy equipment, marine engines, aircraft, and other industrial products. The company also began to expand its manufacturing operations abroad, and licensed its automobile technology to the Spanish government-owned carmaker SEAT. During the 1950s Fiat continued to benefit from trade policies that blocked foreign companies from gaining much of a position in the Italian car market.

These practices were finally challenged in 1961, when the European Economic Community pressured Italy to lower its tariffs and drop its import quotas. Fiat, never enamored of competition, kicked up a fuss, using La Stampa to campaign against imports. Fiat held onto its dominant position in the domestic market and continued to widen its influence abroad. An important step in the latter process was the mid-1960s agreement with the Soviet Union to construct an entirely new auto-producing complex on the Volga River. The facility, with a capacity of 600,000 cars a year, was located in a town renamed Togliattigrad, in honor of Palmiro Togliatti, one of the founders of the Italian Communist Party. Fiat also expanded in the developing world, building plants in countries such as India, Egypt, Morocco, and Argentina.

After running Fiat for more than two decades, Valletta retired in 1966 at the age of 82. He was succeeded as chairman by Giovanni Agnelli II, grandson of the founder. Known as Gianni or L'Avvocato (he received a degree in law but never practiced), Agnelli grew up in luxurious surroundings and was groomed as the heir to the Fiat empire. Yet when he reached adulthood he had no interest in such a responsibility. He gladly let Valletta control the company while he spent the next two decades leading the life of a playboy and bon vivant.

Agnelli took over the company at a time when the world auto industry was becoming more competitive. To deal with the challenges Agnelli brought his younger brother Umberto, who had been running the company's French operations, to headquarters as a co-managing director. In an attempt to overtake Volkswagen as the world's number three automaker (behind GM and Ford), Agnelli sought to acquire the ailing French company Citroën, but he only managed to gain a minority position. (The alliance ended in 1973). Fiat did, however, take over Italian luxury producer Lancia and 50 percent of sports car maker Ferrari in 1969 (a stake increased to 90 percent in 1988).

The oil crisis of the early 1970s and the resulting slump in the auto business took a heavy toll on Fiat. In an effort to turn the company around, the Agnellis brought in a well-respected young businessman named Carlo De Benedetti (who would later gain fame as the head of Olivetti) to take over the non-auto aspects of the company. At the same time Umberto Agnelli was chosen as a senator and devoted his time to politics. Neither of these changes worked out. Umberto did not receive the kind of respect he had hoped for as a politician, while De Benedetti's bold proposals clashed with the entrenched corporate bureaucracy at Fiat. He left the company within a matter of months, and Umberto returned. Shortly thereafter, Fiat announced that it had sold a nearly 10 percent of itself to the government of Libya for some $415 million.

The late 1970s was a difficult period for the company. Worker militancy escalated once again, and terrorist groups such as the Red Brigades targeted Fiat executives, more than two dozen of whom were wounded in ambushes. In 1979 Carlo Ghiglieno, a high-level executive in Fiat's auto operation, was shot and killed on a Turin street. The following year the Agnellis withdrew from day-to-day involvement, and managerial control of Fiat was handed over to Cesare Romiti, a no-nonsense executive who had come to Fiat in 1974. Romiti, dubbed Il Duro ("the tough one"), successfully took on the company's militant unions, expanded the use of robots in auto production, and embarked on a restructuring of Fiat's operations.

Both at home and abroad, the company abandoned unprofitable activities, including the ill-fated sales operation in North America. At the same time, Fiat expanded its military contracting operations, and introduced the Uno, a small car that was well-received in Europe.

All of this contributed to an impressive revival. Productivity soared, profits rose, and Fiat was once again the darling of the international investment community. The Agnellis were not very disappointed when merger talks with Ford Motor collapsed, but Fiat did combine its truck operations with Ford's in Europe. In 1986 Fiat acquired Alfa Romeo after using all of its political muscle to defeat a proposed sale of the loss-ridden, state-owned company to Ford. As a result Fiat ended up with a 60 percent domestic market share, and by the late 1980s had the highest market share in Europe.

In 1991 Fiat formed another alliance with Ford, when the two companies merged their farm and construction equipment operations into a venture called New Holland Geotech. (Fiat bought out Ford in 1993). Fiat also expanded its involvement in the former Soviet bloc. The company licensed a design for a new mini-car to the Polish state-owned automaker FSM. In 1991 the Polish government began the process of privatizing FSM, and Fiat agreed to purchase a 90 percent stake in the company.

In the early 1990s Fiat’s share of the auto market in Italy and the rest of Europe began sliding. The company responded by developing the Palio, which was designed to increase sales in Latin America and Asia. Fiat’s improving position in the world auto market came at a time when the company’s reputation was tainted by a corruption scandal that led to the departure of top executives such as Romiti, who was forced to resign a short time after he took over as chairman from the retiring Gianni Agnelli.

In 2000 the company announced a strategic cooperation deal with General Motors, a move that gave GM a 20 percent stake in Fiat’s auto operation while Fiat took a 5.1 percent stake in GM. This prompted a period of speculation that Fiat’s auto business would end up being taken over entirely by GM. Those expectations intensified in late 2002 when Fiat sold its stake in GM to meet debt obligations.

The takeover didn’t happen. Instead, Fiat embarked on a radical restructuring plan that involved cutting production costs while increasing research & development spending. It also sold off its Toro insurance business and its aerospace division. Yet rather than continuing to seek a path to survival as an independent car company, Fiat’s management decided it wanted to join with GM. In 2004 Fiat’s new chief executive Sergio Marchionne said he would invoke a provision in the 2000 cooperation deal that gave Fiat an option to sell its auto business to GM. The U.S. automaker was not interested in consummating that deal and taking on Fiat’s huge debt load, so in 2005 it instead agreed to pay Fiat $2 billion to go away.

Marchionne continued the restructuring process, which along with the introduction of many new models, boosted the company’s sales and market share. But he concluded that Fiat could not survive on its own and thus, in late 2008, began to seek a partner.

By January 2009 Fiat put itself forth as savior for U.S. automaker Chrysler, which was struggling after ending its marriage with Germany’s Daimler. In fact, the Obama administration made the completion of the partnership deal a precondition for additional federal bailout money for Chrysler, and then pushed Chrysler to file for bankruptcy to force the marriage. Fiat ended up with an initial stake of 20 percent with options to increase that to 51 percent after Chrysler pays off its loans from the federal government.

An emboldened Fiat also began maneuvering to purchase a majority stake in Opel and the rest of General Motors' European operations. Marchionne saw the combination of Fiat, Chrysler, and Opel as the basis for a new multinational auto giant. The Washington Post marveled that “almost overnight, Fiat Group has transformed itself from a bit player into a global titan in the auto industry.” Fiat’s status became somewhat less titanic after GM agreed to sell its European business to a group led by Magna International.

After some legal challenges were resolved, Fiat took control of Chrysler in June 2009.