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Fiat S.P.A. Business Information, Profile, and History

company agnelli car italy

Corso Marconi 10-20
10125 Turin
Italy

History of Fiat S.P.A.

Fiat S.p.A., one of Europe's largest companies, is perhaps best known as a manufacturer of automobiles. However, the company also produces commercial vehicles, construction machinery, thermomechanics and telecommunications equipment, metallurgical products, engine components, railroad stock, tractors, and airplanes. Fiat has interests in bioengineering, transportation, and financial services companies and also owns one of Italy's leading newspapers, La Stampa.

Fiat was founded in 1899 by Giovanni Agnelli, an ex-cavalry officer, and a few other Turin businessmen. The city of Turin, often known as "Italy's Little Detroit," was developed with Fiat money; in the 1990s, half of its population, either directly or indirectly, remained dependent on Fiat for its livelihood.

The company began manufacturing automobiles and engine parts for the automotive industry very early in the twentieth century. With the advent of World War I, however, Fiat significantly expanded its production line, and as the years passed, the company became a conglomeration of various manufacturing enterprises. By the early postwar years, Fiat was manufacturing so many products that Agnelli felt it was time to improve central administration.

To help him in his reorganization efforts, Agnelli hired Vittorio Valletta, a university professor and former consulting engineer, in 1921. Their aim was to control all of the manufacturing processes as completely as possible, thus reducing their dependence on foreign suppliers. Soon, Fiat was pouring its own steel and producing its own plastics and paints. Thus, the company became even more diverse, and in a further reorganization, Agnelli formed a holding company, the IFI (Industrial Fiduciary Institute), in 1927. In the 1990s, IFI remained one of the wealthiest and most influential holding companies in Europe. It also remained a closed company, owned and operated by Agnelli's heirs.

In its first two decades, Fiat produced only two types of automobile: the basic, limited options model and the deluxe model. The company had little incentive to offer other models since it was protected by the Italian government's high tariff policy (known as "kept capitalism"); as a result, imported cars were far beyond the reach of the average Italian. Indeed, more than 80 percent of all the cars sold in Italy were Fiats, and much of the remaining 20 percent of the country's car sales consisted of expensive Italian-made Lancias and Alfa Romeos.

Finally sensitive to Italian complaints that Fiat's "cheap" car was too expensive, the company developed the Topolino, or "Little Mouse," a four-cylinder, 16 horsepower two-seater which averaged 47 miles per gallon. It was an immediate success and accounted for 60 percent of the Fiats sold in Italy up until the mid-1950s.

Fiat flourished in World War II as it had in World War I, and profits increased significantly under Mussolini's much heralded modernization program. But the company's production of planes, cars, trucks, and armored vehicles for the European and African campaigns of the Axis forces made its plants prime targets for Allied bombing raids.

Fiat faced the postwar era with war-torn plants and antiquated production facilities, and at the height of its disarray, in 1945, Giovanni Agnelli died. Valletta was named president and managing director and immediately set about reviving the company's fortunes, aided by Agnelli's grandson, Giovanni Agnelli II, who became a senior vice-president.

Once the Allied effort to rebuild postwar Europe was under way, Valletta applied to the U.S. government for a loan to renovate and modernize company facilities. He reasoned that Fiat was crucial to Italy's recovery and should therefore be entitled to special help. Well aware of the political benefits of a strong Italy, the Americans granted Fiat a $10 million, six-month revolving loan. Other loans soon followed, and the company was back in business, gearing up for full production ahead of most of its West European competitors. By 1948, Fiat's holdings represented six percent of Italy's industrial capital.

But fewer people were able to buy cars than before the war, and Fiat, like other car manufacturers, felt the effects of a smaller market. In response, to reduce its production costs substantially, Fiat built a plant for its 600 and 1300 models in Yugoslavia which was able to produce about 40,000 automobiles yearly. Other foreign expansion followed rapidly. Additionally, the company managed to secure a lucrative manufacturing contract from NATO.

Fiat's foreign forays were a mixed blessing; its Italian workers began to fear for their jobs and worker agitation became a severe problem. On a few occasions Valletta was held prisoner in communist-led worker uprisings in Turin. The political situation did not cease until the mid-1950s when the U.S. government tied an anti-communist clause to its $50 million offshore procurement contracts with Fiat. This resulted in the firing, relocation, and political reeducation of many Fiat employees, as well as improvements in the company's already elaborate (by U.S. standards) social welfare program. The Italian workers formed three unions, the largest of which cooperated closely with company management.

Valletta spent $800 million in expansion and modernization in the 15 years following World War II and built the most impressive steelworks in Italy. By 1959, Fiat sales reached $644 million, representing one third of its country's mechanical production and one tenth of its total industrial output. The price of Fiat's stock quintupled between 1958 and 1960; even so, Fiat did not reduce the relative price of its cars.

Still running the company in 1960 at the age of 76, Valletta was a keen supporter of Italy's membership of the European Economic Community. He was sure that Italian companies were strong enough to survive direct competition from the other five members. Fiat itself had the advantage of a highly trained staff, the swiftest production lines in Europe, and listed assets of $1.25 billion. But Italy's organization of manufacturers, Confindustria, opposed EEC membership, believing that France and Germany would quickly dominate the market. Nevertheless, by the end of the first year of membership, Italian companies made 283 deals with companies in other EEC countries; the only deal involving the giant Fiat was a sales arrangement with the French automaker Simca.

Valletta's confidence in his company's competitiveness within the EEC was seriously questioned when, in 1961, intra-community tariffs were lowered and import quotas were dropped. At the same time, American automakers such as General Motors, Ford, and Chrysler were significantly expanding their European operations. It quickly became apparent that Fiat had underestimated the potential sales of foreign-made cars in Italy. Unwilling to wait months for delivery of a Fiat, or simply tired of its models, Italians were more than ready to consider the increasing array of foreign vehicles. Moreover, Fiat misjudged its domestic market and failed to introduce a model that might appeal to the many Italians moving from the lower to the middle income bracket. In three years, from 1960 to 1963, Fiat's domestic sales dropped a massive 20 percent, from 83 to 63 percent.

The company filled the gap in its product line with its 850 sedan, and by 1965, Italian car imports had dropped to 11 percent. But part of the revival in Fiat's domestic sales was effected by less positive means: the company launched a vigorous campaign against car imports enlisting the aid of its newspaper, La Stampa. This campaign was aided and abetted by the Italian government which angered car exporting countries by imposing a supposedly non-discriminatory anti-inflation tax on automobiles.

Meanwhile, Fiat's exports improved and sales to underdeveloped nations flourished. In addition to its assembly plants in Germany and Austria, the company built plants in numerous other countries, including India, Morocco, Egypt, South Africa, Spain, and Argentina. Fiat also signed an agreement with the Soviet Union in 1965 for a facility capable of producing 600,000 units a year by 1970.

After running Fiat for 21 years, Vittorio Valletta was succeeded in 1966 by Giovanni Agnelli II, the founder's grandson. Under Agnelli's leadership, the company's annual sales came close to $2 billion by 1968, and for a short time Fiat edged out Volkswagen as the world's fourth largest automaker. At that time, Fiat's cooperative arrangement with the French car maker Citroen made it the world's sixth largest non-American firm; the company operated 30 plants and employed 150,000 workers. Agnelli candidly credited Fiat's success to the company's near monopoly of its domestic market for half a century, but he warned that more sophisticated production methods were required if Fiat was to survive in the international market. He imposed a schedule for new models of two years from drawing board to assembly line and standardized many car parts to allow more interchange between models.

Agnelli also sought further to diversify Fiat's products to lessen its dependence on autos and trucks which accounted for 86 percent of its revenue. At the same time, he set about improving the company's flagging sales performance in underdeveloped countries, and in 1969 he made two notable acquisitions. Fiat took full control of the Italian car manufacturer Lancia and announced a merger with Ferrari, the famous Italian racing car company. When Ferrari's problems had surfaced in 1962, owner Enzo Ferrari had turned down the Ford Motor Company but accepted financial backing from Fiat. Further losses forced Ferrari to sell, and his company was reconstructed as Fiat's racing car division.

While the Ferrari and Lancia acquisitions were good for Fiat's image both at home and abroad, its domestic situation worsened. The company had to contend with Italy's 7.3 percent inflation rate and a series of strikes; 1972 production fell short by 200,000 vehicles. For the first time in its history, Fiat failed to show a profit or pay an interim dividend. Fortunately, news from abroad was good. Agnelli's younger brother, Umberto, who had doubled sales at Fiat France in 1965--70 and constructed successful plants in Argentina and Poland, had gone on to direct American sales. The number of Fiats sold there doubled between 1970 and 1972 and Fiat cars became the fourth largest selling import in the U.S. Umberto returned to Italy as second-in-command to help his brother with the pressing problems at home.

However, Fiat's domestic fortunes deteriorated to the point where the company seemed a likely candidate for partial state ownership. In 1973, Fiat slipped $30 million into the red, and after a three-month strike in 1974, Italy's Socialist Labor Minister granted the union a monthly pay increase significantly higher than Fiat's final offer. Amidst Fiat's loud protests, the government also imposed ceilings on the prices the company could charge for its automobiles--and this at a time when sales were down 45 percent because of worldwide apprehension over the energy crisis. Finally, it seemed, the days of government protection for Fiat were over; the politicians were having to listen to their constituents, many of whom, at that time, viewed the industrial bosses as enemies of the people. Fiat's case was not helped by the Agnelli brothers' refusal to reveal the value of IFI, the family-owned holding company whose funds--in Swiss banks--were beyond Italian government scrutiny.

However, Fiat's foreign holdings continued to offset its severe troubles on the home front, and the company thrived in the less saturated markets of Eastern Europe, Turkey, and South America. Its largest overseas investment was an $86 million plant in Brazil, which became operational in 1976. Other foreign ventures included a project with the American Allis Chalmers company, an important manufacturer of earth-moving equipment with units in the United States, Italy, and Brazil, and under an arrangement with Colonel Khadafi in 1976, Libya acquired a ten percent interest in Fiat. This purchase cost Moammar Khadafi $415 million, and Fiat shares immediately rocketed on the Milan Exchange. Since Libya paid almost three times the market price, serious questions were raised about Khadafi's long-term motives. But Fiat had no such qualms; Khadafi's purchase eased its cash flow at a time when the company earned less than $200,000 on sales of about $4 million and had dipped into reserves in order to pay shareholders.

Meanwhile, the company's domestic woes continued. In 1974, with a heavy backlog of unsold cars to keep it going, Fiat fired all of its Italian workers with violent records. A year later, the company laid off a massive 15 percent of its Italian work force and was able to weather the ensuing strike.

Fiat's management was convinced that it could beat its powerful competitors by producing cars at the lowest possible price. Through its subsidiary Comau, a leader in the automation field, Fiat retooled and partially robotized its factories and standardized yet more Fiat car parts. The assembly robots provided the company with much greater flexibility on production lines, since the machines could easily be programmed to perform a variety of tasks on a variety of models. Further worker layoffs were justified by Fiat by the rise in production rates. Annual output per worker in 1979 was 14.8 units; in 1983 the output was up to 25 units per worker.

Fiat's bold and successful moves to modernize were matched by major changes abroad. The company entirely removed itself from the U.S. market, choosing not to compete against General Motors, Ford, Chrysler, and Japanese imports. In South America, the company closed operations in Uruguay, Chile, Colombia, and Argentina, retaining only its facility in Brazil. Fiat's international operations were also brought under the aegis of a new holding company, the Fiat Group.

Although it had retreated from several large international markets, conceding in part its role as an export-oriented company, Fiat had led the way in Europe toward factory automation during the early 1980s, a move that several of Europe's other volume car makers--Volkswagen, General Motors, Renault, Peugeot--copied. In 1986, Fiat purchased Alfa Romeo, paying state-owned Finmeccanica $1.75 billion to acquire the luxury car manufacturer. The following year, the first Alfa Romeo car, the 164, to appear under Fiat ownership made its debut, selling strongly in Italy but recording disappointing sales elsewhere. The dismal sales performance of the 164 was the first of many difficulties Fiat would experience with Alfa Romeo, as sales and production volume dipped throughout the remainder of the 1980s and into the early 1990s. By 1993, the number of cars manufactured under the Alfa Romeo name had slipped to slightly over 100,000, roughly the same number produced in 1970 and considerably less than the number of cars manufactured before Fiat's takeover.

In 1989, Fiat acquired part of another luxury car manufacturer, paying $120 million for a 49 percent interest in Maserati S.p.A., then four years later purchased the remaining 51 percent from De Tomaso Industries for $51.2 million. The addition of Alfa Romeo and Maserati to Fiat's automobile operations broadened the company's collection of automobile lines, bringing two luxury brand names to the company's established Ferrari, Innocenti, and Lancia-Autobianchi models. Despite the less than robust sales performance of Fiat's Alfa Romeo unit, annual sales grew prodigiously throughout the latter half of the 1980s, more than doubling between 1985, a year in which merger discussions with Ford Motor Company collapsed, and 1990. Fiat's ability to generate additional income from the increase in its revenues also met with considerable success, providing resounding evidence that the company had recovered from the financial malaise that characterized its operations during the early 1980s. In 1981, Fiat's income as a percentage of sales was a miserable 0.4 percent; by 1986 the company was realizing 7.2 percent of its annual sales as profit and its pioneering move into factory automation appeared to be paying dividends.

In 1990, however, Fiat's growth came to a stop. A global recession that crippled the economies of many countries hit the European car market particularly hard, exacerbating the traditional problems--high labor costs and industry overcapacity--that plagued European car makers. Fiat's profits plummeted 51 percent in 1990, and its income as a percentage of sales slipped to 2.8 percent. The recession continued to hamper sales throughout the early 1990s as Fiat struggled to withstand the debilitative effects of the dwindling demand for automobiles. By the mid-1990s, the European car market was showing some signs of recovery but continued to be stifled by depressed economic conditions, inhibiting Fiat's ability to reap the rewards that, under more favorable conditions, would be derived from its enviable share of the European car market. For the future, a return to more robust economic conditions in Europe and abroad prefigured Fiat's full recovery and its return to the highly profitable late 1980s.

Principal Subsidiaries: IHF S.A.; Iveco B.V.; Fiat-Allis B.V.; Bioengineering International B.V.; Fiat France S.A.; Deutsch Fiat GmbH.; Fiat do Brasil S.A.; Fiat Concord S.A.; Fiat USA; Fiat Financing Holding B.V.; Fiat Auto S.p.A.; Fiat Trattori S.p.A.; Teksid S.p.A.; Fiat Componenti S.p.A.; Comau Finanziaria S.p.A.; Fiatimpresit S.p.A.; Fiat Ferroviaria Savigliano S.p.A.; Fiat Aviazione S.p.A.; Fiat TTG S.p.A.; Telettra S.p.A.; Ventana S.p.A.; Itedi S.p.A.; Fidis S.p.A.

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