Roberto Testore, CEO of Fiat Auto, predicts Fiat will post profits this year, despite rising prices of raw materials and the soft euro.
He was interviewed by Staff Reporter Luca Ciferri in Turin, Italy, on Nov. 3.
On the cost side, Fiat Auto has its ongoing efficiency program and incoming synergies from the joint ventures with GM. Can you give some numbers?
Our plan to cut Fiat Auto's overhead costs 20 percent in two years is proceeding well. We cut e250 million in 1999 and we are on track to save the same amount this year. We are currently setting the next target for 2001.
You have identified some areas where quick savings can be made (in the second half of 2000). Can you give a couple of examples?
They were mainly investments that were already planned, but were no longer necessary as the partner already had or is planning something similar at a lower cost.
From the Fiat side, I can say we canceled our plans to make a new family of V-6 gasoline engines and a small-displacement two-cylinder unit. For V-6s, we will have access to the vast GM-Opel range, while GM's 1.0-liter, three-cylinder Ecotec could be used instead of a brand new two-cylinder. We also halted planned developments to our 1.6-liter Torque engine in favor of GM's Family 1 unit.
Last year you predicted Fiat Auto would return to a net profit in 2000, after losing e293 million in 1998 and e506 million in 1999.
We will end this year with just a small operating profit as we faced a number of unexpected difficulties. Firstly, we continue to pay twice for the increasing cost of raw materials. We pay twice because the weakening of the euro adds costs as raw materials are generally traded in U.S. dollars. This is further compounded by the continuing uncompetitiveness of Italy's industrial system.
Secondly, the price war in the European market has worsened and there are no signs that it will even stabilize. Thirdly, Argentina was much worse than expected given the country's dollar parity economic policy. The market in India stalled. In Poland a drastic budget law depressed sales by 40 percent in the third quarter.
What about India?
We are still convinced India has a great potential for growth. When this growth materializes, our greenfield Ranjangaon plant could be completed. For the moment, we will continue with the Fiat India Automobiles Ltd. plant at Kurla, where we are making the Uno, the Siena sedan and station wagon, covering about 2 percent of the Indian market. We plan to grow from mid-2001, when we will add production of the restyled version of the Palio hatchback, just launched in Brazil.
What are your forecasts for Fiat Auto's total worldwide sales for 2000 and 2001?
This year we will sell 2.5 million passenger cars and light commercial vehicles, up over 6 percent on the 2.35 million of 1999. For next year, we expect to sell 2.7 million units, but our real growth will come from 2002, when the replacement for Fiat Bravo and Brava will be on stream.
In Italy, I think we are capable of 40 percent. Currently we are at 36.8 percent, up from 34.1 percent in the first nine months of 1999. We could reach 40 percent, but it will be quite expensive in terms of incentives and, not being obsessed with market share, we prefer to pursue the quality of our sales.
For Europe as whole, we are aiming for 11 percent (from the 9.3 percent of the January-September 2000 period), and that means achieving 7 percent outside Italy. Currently we are at 4.8 percent from 4.3 percent a year ago.
Running Fiat Auto is more complicated than it used to be. How do you divide your time?
Daewoo is by no means an operative item yet. Fiat and GM are continuing preliminary due diligence to evaluate assets and related businesses of Daewoo Motor Co.
With GM, we started in March with a memorandum of understanding, which called for the creation of two upstream industrial collaborations: partners in costs, competitors in the marketplace. Nine months later, I can say we have come a long way. We began by getting to know each other, which for me meant developing close relationships with more than 50 people inside GM, in particular people in Europe and Latin America. We established rules on how to create, run and interface the powertrain and purchasing joint ventures together, and decided on the management teams for these ventures. I have been spending at least a couple of days a week with GM people, but soon it will reduce as the two joint ventures are operative with their own management boards, on which I sit.
The integration committee responsible for the working teams has been meeting twice a month, alternating between face-to-face meetings in Europe and South America, and conference calls. (But now the two joint ventures are operative) the meetings will, I think, become monthly next year.
The six steering committee members have been meeting every two months. Next year it should become quarterly.