Fiat revs up after GM divorce

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.

Reader Comments

Come on

January 30, 2006 11:32 PM

"February 2005 GM ponied up $2 billion"
"If Fiat with all its problems can earn a profit again, GM has no excuse."

Come on, GM just gave them $2billion AND Fiat doesn't have hundreds of thousands of employees for which to provide health care.

Nice attack on GM. To compare Fiat's situation to GM's is really ridiculous. Please learn to think a little.

sam

March 15, 2006 5:38 PM

alfa is the car for fiat to get sales going on in usa--
american market with new alfa will do well along with support from factory
alfa sports cars & high preformance sedans only--

mmmm

April 3, 2006 11:41 PM

Fiat doesn't have to worry about providing health care and neither do Nissan and Toyota because they have something that Detroit CEO's will never ask for...National/single payer Healthcare run by the government in their countries...wake up America and why not write about it...Business can do well when a National Health Care exists...

Pedro

December 3, 2006 6:12 PM

Actually a bussiness with a National Health Care can pony up as much as 20-30% of the employee salary before taxes. This is nowhere near the value for a good company health insurance, companies pay much more for national than for private.

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