Posted by: Gail Edmondson on January 13, 2006
After five years of heavy losses topping $14 billion, Italian automaker Fiat may finally be nearing a turnaround. That would be the ultimate irony after last year’s divorce with General Motors which cost GM Chairman Richard Wagoner $2 billion. General Motors took a 20% stake in Fiat for $2.4 billion in 2000 but as Fiat losses mounted, Wagoner got into an acrimonious dispute with Fiat management over the five-year put option Fiat negotiated as part of the deal. With Fiat burning $1.9 billion a year in cash, GM was desperate to avoid being stuck with the Italian automaker. So on the eve of Valentine’s Day in February 2005 GM ponied up $2 billion to cancel the put and end the foreign engagement.
Now, eleven months later, it’s GM with the big cash burn and things are suddenly looking up for Fiat. Chief Executive Sergio Marchionne says Fiat Auto will reach breakeven this year. The new Grande Punto compact is selling well — as it must for Fiat to meet Marchionne’s target. Orders have hit 100,000 since the car’s October 1 launch. Fiat forecasts Grande Punto sales of 350,000 for 2006.
Another telling sign of improvement is Fiat’s gleeming new crash test record. Fiat announced today that its Alfa Romeo 159 sedan has received a top five-star safety rating from Europe’s NCAP. Make it three in a row. Fiat also has won a five-star rating for the Grande Punto and the Fiat Croma. Quality and safety were never a Fiat strength, so it’s impressive to see the excellent ratings piling up. Superlative crash-test ratings were a key element in French automaker Renault’s turnaround in the 1990s. Fiat’s new cars reflect a design renaissance too. Now Fiat just needs to make a couple of convincing scores on reliability over time, as management continues hammering down costs. A rejuvinated Fiat, would say a lot about GM’s management. If Fiat with all its problems can earn a profit again, GM has no excuse.