For the remainder of this year, Fiat Auto CEO Giancarlo Boschetti is dramatically slashing spending on new products, marketing and manufacturing in hopes of holding losses to no more than the big loss of 2001.
Critical future-product programs are being cut or delayed for the short-term fix. Only Fiat Auto's Alfa Romeo will maintain its planned new introduction schedule.
Boschetti told financial analysts Friday that Fiat Auto should return to profitability by 2004.
But even that is a challenge for a company whose market share is falling fast in its home market of Italy. And Boschetti said he expects total Italian sales to drop 15.6 percent this year, much steeper than previously predicted.
The new CEO's 'back to basics' plan to save Fiat Auto includes cutting E566 million on the investment and cost side by year's end.
Boschetti emphasized a number of problems at Fiat Auto, whose situation 'is damn difficult':
* Weak plant capacity utilization, just 70 percent at the end of 2001, and now 79 percent since the closing of the Rivalta plant
* Warranty costs '50 percent over the ones of our competitors' and that exceed E1 billion a year
* Too many unprofitable sales to maintain an artificially inflated market share in Italy and in Western Europe
* Excessive working capital for maintaining almost two months of vehicle inventory.
Boschetti said Fiat Auto does not intend to close more plants in western Europe, but will close some production lines. The Mirafiori plant in Turin (Fiat Punto, Marea, Multipla and Panda, and final assembly of the Alfa Romeo 166, and Lancia Lybra) will close three of its seven current production lines, reducing.capacity by 200,000 units.
Fiat Auto also said last week that it will lay off 1,800 workers, plus 600 in external service companies, cutting its Italian work force by 7 percent.
Fiat Auto plans to reduce its defects by 30 percent, which would reduce warranty costs by 15 percent.
Boschetti is attacking Fiat's weak and unprofitable sales mix. He said he wants to increase Fiat's percentage of retail sales from 64 percent in 2001 to 75 percent by 2003-2004. Meanwhile, he hopes to expand fleet sales from the current 15 percent to 20 percent. The company will dedicate a Europe-wide fleet sales force of 200 people.
Meanwhile, unprofitable rental-car sales accounted for 6 percent of Fiat Auto's sales in western Europe in 2001. Another 15 percent of sales were demo cars and self registrations, made to inflate market share. Boschetti hopes to cut those three areas into a combined 5 percent of sales by 2003-2004.
Fiat Auto failed to execute its plan to reduce its European manufacturer and dealer inventory from 361,000 units at the end of 2000 to 272,000 units by the end of 2001. The company ended the year at 339,000. Boschetti said Fiat Auto must reduce its inventory from 1.9 months of sales to 1.2. That would reduce the working capital of E700 million.
Boschetti promised to end 2002 with an operating loss in line with Fiat Auto's E549 million lost in 2001. Adding depreciation and amortization, Fiat Auto would end the year with a E1 billion negative cash flow.
But in the company's disastrous first quarter, Fiat Auto already lost E429 million on an operating basis. Boschetti's 'immediate action plan' calls for 'containing cash absorption by E1 billion.' The cuts include E170.8 million from advertising. In 2000, Fiat Auto spent E990 million, according to adageglobal.com
Boschetti told analysts that he intends to increase investment on new product in both 2003 and 2004, spending E2.4 billion each year.
He vowed to achieve longer term savings from the joint-vehicle projects with General Motors, which owns 20 percent of Fiat Auto. By 2005-2006, half of Fiat vehicles will be based on platforms common with GM.
Boschetti said the partnership with GM will cut at least 5 percent from the production costs.
But to save 2002, Boschetti is making cuts in marketing and product spending, which could make future sales even more difficult.