Behind Fiat's headquarters building is the shell of its former Lingotto factory, once derelict but now beautifully renovated to include a hotel, exhibition halls and conference center.
Just across the Via Nizza are apartments built by Fiat for workers who once walked daily across the road to build Lingotto's cars and trucks. Around the city, dozens of factories belong to Fiat and to the suppliers that serve it.
This summer, one might have expected the executives on the fourth floor to be engrossed in the coming introduction of the Stilo, a compact car intended to lessen Fiat's dependence on unprofitable minicars. Instead, they were wholly absorbed by a proposal to join a takeover bid for Montedison S.p.A., an Italian conglomerate active in energy, agriculture and chemicals.
Fiat thinks Montedison's business is a logical extension of Fiat's energy activities. Methane-fueled turbines built by FiatAvio power Fiat's 23 factories in Italy. Fiat created a company, Italenergia, to take over Montedison, which specializes in power generation and waste management.
The big idea
The takeover bid reveals an uncomfortable truth: The Italian conglomerate no longer is betting on the auto industry for the bulk of its future growth. Instead, the company is making big investments in such industries as farm machinery, energy production and financial services. Even within Fiat Auto, old-fashioned metal bending is not as profitable as providing services to customers who buy Fiat's cars and trucks.
Fiat's alliance with General Motors - with its prospects for shared platforms and cost cutting - has not substantially changed that assumption.
Fiat hinted at its new strategy last year when it formed a division called Business Solutions. This operation offers customers Fiat's expertise in personnel, payroll management, information technology and electronic purchasing. With revenues of $1 billion last year, it generated 2 percent of Fiat Group sales.
That will change radically. Cantarella says the combination of Business Solutions and Toro, the insurance subsidiary that accounted for 7 percent of Fiat's group revenue last year, will amount to 40 percent of sales by mid-decade. A fundamental shift by any standards, it would make Business Solutions as significant within the group as Fiat Auto, which last year contributed 41 percent of revenues.
The two Paolos
The responsibility for this momentous shift falls to Cantarella, a mechanical engineer, and Paolo Fresco, the company's chairman. Between them, they have embarked on a mission to reshape Fiat. The news has occasional stories about friction between Fresco and Cantarella. Yet, the experience and training of the two would appear to make them perfect complementary colleagues: the technocrat and the international businessman.
Fresco, 68, is a lawyer born in Genoa, Italy, who practiced in Rome before joining General Electric in 1962. By the time he retired from General Electric Co. in 1998, Fresco was vice chairman under the legendary Jack Welch, himself a member of Fiat's board of directors.
Welch's Fiat connection is significant. Fiat was desperate for a chairman to replace Cesare Romiti, who was about to retire. Giovanni Alberto Agnelli, the 33-year-old son of Umberto and nephew of Giovanni, was groomed for the job but died in 1997 of a rare form of cancer.
Despite Fresco's retirement, an invitation to run the country's largest industrial group was impossible for any Italian to turn down. Fresco packed his bags for Turin. When he joined Fiat in 1998, he was only its fifth chairman.
He joined Cantarella, 56, who had been appointed CEO two years earlier. Cantarella's credentials are impeccable. Born near Novara, Italy, he trained as an engineer at Turin Polytechnic and worked briefly in the components sector before joining Fiat in 1977. His promotions seemed to come effortlessly. At age 39, he was put in charge of Comau, the production systems division. Seven years later, he was named managing director of Fiat Auto.
At Fiat, Cantarella soon won the respect of Giovanni Agnelli, the Fiat patriarch whose family controls more than 30 percent of the group's stock. He did so by creating some great small cars and by reviving Alfa Romeo.
Cantarella was responsible for the successful Cinquecento, Punto and Alfa Romeo models of the early 1990s. These vehicles were part of a $25 billion product development campaign launched in 1992.
But Cantarella has had less success with Fiat's big cars. The Bravo and Brava do not generate sales equal to such rivals as the Volkswagen Golf, Ford Focus or Renault Megane. The Fiat Marea cannot compete with the Volkswagen Passat or Ford Mondeo. The Lancia brand is popular only in Italy. And Fiat still does not have a high-volume compact minivan.
Cantarella takes chances. He took a personal interest in one of Fiat's most controversial cars, the Multipla. Introduced in 1998, the unconventional six-seater sometimes is compared with an Italian coffee grinder. Its innovative space frame could allow Fiat an opportunity to produce low-cost derivative models. But the Multipla's sales remain modest.
Despite Fiat's mixed record in Europe, it has successfully expanded overseas. In the 1990s, Cantarella launched the Palio, Fiat's $2 billion world car that has gained customers in Brazil, Turkey, Argentina, Poland and other emerging markets. The Palio was designed by I.De.A. Institute and engineered by Italdesign, both based on Turin.
A car guy
The man who re-energized Fiat is practical, with a sense of humor. But Cantarella can be a demanding boss. When he was named chairman of ACEA, the European automakers' trade organization, some expected him to treat it as an honorary post. Instead, Cantarella forced a couple of senior executives to quit, then launched a bid to form a racing circuit as a rival to Formula One.
Cantarella also has developed a reputation as a car guy, someone who takes delight in high-performance cars. He owns a red 1958 Alfa Romeo Giulia Spider, although he usually is chauffeured in an armor-plated Alfa Romeo 166. The armored car comes from the days when Red Brigade terrorists targeted Italian business executives.
Cantarella enjoys opera and golf. When he has time, he cheers the local Torino soccer team. He likes spicy Indian food, and seeks the best restaurants wherever he goes. He prefers to sleep in his own bed whenever possible, so that he can have breakfast with his wife. That often requires a late-night flight back to Turin, to the consternation of Fiat executives who travel with him.
Although Cantarella loves cars, his duties at Fiat S.p.A. leave day-to-day decisions to Roberto Testore, managing director of Fiat Auto. Testore, 48, is Cantarella's protege. Their backgrounds are similar - both studied mechanical engineering at Turin Polytechnic. When Cantarella joined Fiat Auto, Testore took his place at Comau. And when Cantarella got his current job, Testore moved in at Fiat Auto. Skeptics sometimes scoffed at the tight relations between the two men. At Fiat's annual meeting, one irritated small shareholder claimed Testore was 'Cantarella's poodle.'
At group level, Cantarella and Fresco are reorganizing Fiat around seven main business sectors: cars, trucks, farm machinery and earth-moving equipment, production systems, foundries, airplane engines and Business Solutions. Their philosophy appears to be from Welch's General Electric handbook - be number one or number two in a field, or get out.
With its alliance with General Motors, Fiat Auto can claim a number one ranking of sorts. Fiat also dominates the market in farm machinery, construction equipment, foundries and factory automation equipment. To establish that dominance, Fiat spent $8 billion on acquisitions over the last two years. Meanwhile, the company sold non-core businesses. Two years ago, Fiat sold its lubricants business, and last year it sold its railroad car division. Now, Fiat is selling pieces of Magneti Marelli, its automotive components maker.
Fiat also is focusing on leasing and other services, which are more profitable than metal bending. The reason for the shift becomes clear when one considers the profits of the Iveco commercial trucks division.
According to division chief Giancarlo Boschetti, Iveco earned 5.7 percent on sales, one of the best results among the various Fiat companies. But Boschetti says profits for services such as its French truck-leasing business approach 14 percent. 'Some companies achieve 18 percent,' Boschetti adds.
With its emphasis on services and its smaller, more concentrated portfolio of businesses, Fiat S.p.A. hopes to reduce debt to $3.1 billion by year end, down from $5.9 billion today. And it hopes to achieve a group operating income this year of $1 billion.
Thanks to Cantarella and Fresco, Fiat today is not as broadly based as it was, but it remains diversified in comparison with practically all of its automotive rivals. Neither is Fiat as dependent on Italy as it once was. More than two-thirds of group revenues last year were from outside Italy, compared with less than half in 1990.
Fiat doubled its annual revenues over the 1990s mainly as a result of expansion into South America, central Europe and North America.
That overseas shift will continue. For Cantarella and Fresco, G7 refers to a group of seven emerging nations that display the potential for long-term growth. It is no coincidence that Fiat's G7 - Argentina, Brazil, China, India, Poland, Russia and Turkey - all are markets for the Project 178 world car launched in 1996. The company thinks that putting an auto assembly plant in a country attracts other Fiat industries and services.
Fiat is not just a local car company and never has been. Trains, planes and trucks have, over the years, been complemented by publishing, construction, insurance and retailing. Fiat coordinated the expansion of its overseas businesses long before any ambitious South Korean chaebol offered to throw in a car plant if the country bought one of its power stations.
Few outside Fiat understand the structure of the Italian industrial group. A Kansas farmer wants a New Holland tractor, not a Fiat. Until the public links Iveco, Comau and Teksid to Fiat, investors will judge Fiat as a carmaker. It was quite a while before the world understood that General Electric was more than just a manufacturer of aircraft engines. Cantarella and Fresco are creating something similar: a company with its roots in industry and its branches in services.
E-mail writer Richard Feast at RichardFeast@cs.com