After dissolving its troubled five-year alliance with General Motors on February 13, Fiat group CEO Sergio Marchionne said Fiat Auto wasn't looking for another equity partner.
Instead, said Marchionne, Fiat would seek joint ventures and other business arrangements.
Since February, Marchionne has:
Long term, Marchionne is looking for strong and structured industrial alliances with Tata Motors of India and Shanghai Automotive Industrial Corporation (SAIC) of China for all sectors in the Fiat group.
Marchionne was appointed Fiat group CEO on June 1, 2004 after the abrupt resignation of Giuseppe Morchio. Two months later, he announced a restructuring plan that should take Fiat group to a e1.4-1.8 billion net profit in 2007. Last year Fiat group made a e1.95 billion net loss.
Marchionne spoke with Automotive News Europe Luca Ciferri at Fiat group headquarters in Turin, on November 28.
Critics say: "Marchionne is a great poker player. He extracted money from the contracts that Paolo Fresco (Fiat group chairman who resigned February 2003) left him with General Motors and Italenergia, and from the mandatory convertible loan with creditor banks. But now the gambling phase is over and it is time to be an industrialist." How do you respond?
Good contracts are just an important starting point but then you have to play your cards properly. Closing any of these three deals was not a walk in the park.
For one, the separation from Fiat Auto was painful for General Motors. Then, our creditor banks had to convert the mandatory convertible loan at a premium, while, on the other hand, continue to support the Fiat group in its restructuring. And Electricite de France had to complete the transaction to buy our Italenergia stake.
On the industrial side, we announced in July 2004 a number of goals for the coming years. We will return into the black this year at Fiat group level thanks to extraordinary items. Beginning in 2006, our net profit will be generated by industrial activities. By 2007, the net income should be between e1.4 and 1.8 billion.
Quarter by quarter, we are delivering on our commitments and maintaining all our targets. We are no way at the end of the Fiat group restructuring process, but we are definitively in better shape than we were 19 months ago when many were betting Fiat group was not going be around for long.
On a scale of 0 to 100 percent, where are you in fixing the Fiat group?
At a group level, 20 percent. I mean, 20 percent done, 80 percent to be done.
The level of implementation differs from sector to sector and we are still at the beginning: 10 percent done at CNH (Case New Holland - Fiat group's agricultural and construction equipment division), which we have just restructured from a geographical organization into a brand organization, and 6 percent at Iveco heavy trucks. The Magneti Marelli component arm is at about 20-25 percent, and Comau production systems at 30 percent.
On the strategic front, we are trying to find the right role for a component supplier and for a robot maker within the Fiat group.
Will Fiat sell Magneti Marelli or Comau?
Absolutely not. We are working to develop these businesses. The engine and gearbox management systems by Magneti Marelli are strategic for the future development of our Fiat Powertrain Technologies unit.
At the same time, Automotive Lighting (a Magneti Marelli subsidiary) is a state-of-the-art lighting supplier with global reach, crucial for creating new appealing designs for our cars.
But I have still to find a similar link in the strategic development of the group for other sectors such as vehicle suspensions, exhaust systems and dashboards.
Where does Fiat Auto stand on the fixing scale?
At Fiat Auto we have done much more than it seems, but a lot has still to be done. On the structural side, I think we are at 80 percent. I am pretty confident we have now put in place a totally market-oriented organization in a company that traditionally was not market-oriented at all.
But Fiat Auto also has a legacy of some rather large faulty decisions that were made in the past - the half billion euros invested in the Lancia Thesis, just to mention one.
Today, we would have approved a totally different model range. But this is the product range we have and our daily battle is to extract as much value and sales as possible from our existing models.
Why have you reshuffled top management so often?
I never hesitate to make changes if they improve the quality of the team. I look for dedication, rigor and discipline. The issue of leadership is complex and crucial to any industrial organization, and especially for Fiat in its current state.
The complexity reduces to one simple set of traits that we look for in Fiat leaders, (called) the 4Ds - drive, develop, decide and deliver.
With so many changes, is there not a risk that inexperienced managers take over important positions?
There is a risk, but I rather prefer to position leadership over knowledge. You can build your knowledge, as I am personally doing, step by step, in the auto business. But you cannot acquire leadership as a skill.
What does it mean to be 'Italian' for a company like Fiat Auto?
The design of our products should look Italian. The entire management that faces the market - the sales and marketing team, or the soft factors - is primarily Italian. Everything behind the product - engineering, manufacturing and quality - is managed by leaders who have been trained for the most part by our German competitors. They have the right level of discipline and rigor to properly run the hard factors in this industry.
How long do you think you will need to remain Fiat Auto CEO?
I do not have fixed a date. The priority is to make Fiat Auto profitable next year. When the time comes for a hand-over, I will pass on a healthy Fiat Auto.
You have two jobs so how many hours are you working?
I sleep four and half to five hours a night and the rest of the time I work. My working week goes from Monday to Saturday night.
Do you have any complaints?
No. It comes with the territory.
What went wrong under Fiat Auto's former CEO, Herbert Demel?
Demel is a first-class engineer with an astonishing knowledge of the auto business.
I highly respect him both as an engineer and as a person.
Nevertheless, in running an auto company, you should also look at the sales and marketing side of the business, not just the technical and industrial sides. And when a business is losing e820 million a year like Fiat Auto did in 2004, you have to tackle these problems at the speed of light. This is what I began doing in February. Fiat Auto was - and is - Fiat group's biggest issue. I think it is almost a given that a group CEO has to take direct charge of the biggest single problem his group is facing.
Will Fiat Auto achieve your target of a e317 million trading loss for 2005, compared with Fiat Auto's e820 million trading loss last year.
The e317 million trading loss for the full year remains our target.
The fourth quarter is crucial for Fiat Auto, as we are introducing key models such as the Fiat Grande Punto and the Alfa 159. Right now we have seen the October numbers, which are promising, but we must not forget that we are reading a fourth quarter that last year was not too bad compared to Fiat Auto's past history.
Fiat Auto usually shows a good financial improvement in the fourth quarter, followed by heavy losses in the first quarter the following year. Will this happen again?
No, it was a bad habit that has stopped. If we don't perform well in the first quarter next year it will be because we are not able to compete.
What's happening between Fiat and Tata Motors?
We are talking with Tata about an alliance not only for cars, but also in our other sectors such as engines and components. We are offering Tata access to our entire automotive knowledge and are looking to Tata for its knowledge of the southeast Asian market.
Sometimes European companies have an approach to these markets that is somewhat arrogant, (telling them) "we are bringing you our best technologies." They don't care what the local marketplace wants. Tata should help us to read properly the needs of the southeast Asian market.
Should we expect Fiat to build vehicles in India in cooperation with Tata Motors for the southeast Asian markets and for export?
Last December you began talks with SAIC to cooperate in the heavy truck business in China. Could SAIC become your No 1. Chinese alliance partner also in passenger cars?
With SAIC we are looking for a wide-ranging cooperation for everything except Fiat passenger cars, for which we have a partnership in China with Nanjing Automobile.
What if SAIC takes over Nanjing Automobile?
For Fiat, it would be fine to have a single ally in China.
Did you also talk to First Auto Works?
No, we don't know FAW very well. We just supply them with our Magneti Marelli components and Comau production systems.
Long term, does Fiat need a third global partner in addition to Tata Motors and SAIC?
In general, we are open to talking with everyone on all subjects. For Fiat Auto, these two strategic cooperations would be enough, as we have - and will have - other industrial cooperations on single models and projects.
I am looking at a 15-20-year perspective. By that time I am convinced that both Tata and SAIC will be serious players in the global auto industry. I am amazed both by their determination and by their discipline in reaching the targets they have set.
Will there be an exchange of equity with Tata Motors and SAIC?
I do not think so. Strong and structured industrial alliances are enough.
You were quoted as saying the Grande Punto's operating margin is over e1,000 per unit. Considering Fiat Auto will get about e10,000 revenue for each Grande Punto sold (net of dealer margin and bonuses) that would be over 10 percent. Isn't that too good to be true?
I never heard of an automotive CEO confirming operating margins on a specific model. I do not want to be the first in breaking such a tradition.
Production of the Grande Punto starts in the Mirafiori plant in northern Italy early next year. You have already started Grande Punto production in Melfi in southern Italy. Will the Mirafiori production be in addition to the 360,000 units a year planned for Melfi in 2006?
We have a capacity to make 360,000 Grande Puntos a year between Melfi and Mirafiori. If the market requires more, we could easily reach 420,000 units.
Our target is to sell 360,000 Grande Puntos next year.
What is really important to us is that Fiat Auto eventually will be able to reach its sales targets. Unfortunately, this was quite rare in the past years.
Right now we are seeing an encouraging number of orders not only for the Grande Punto - 30,000 from September to October - but also for the old Punto, which we are confident will sell some 60,000 units next year.
By making the next 500 with the Ford Ka replacement, will Fiat save e200 million over the vehicle's life cycle, as press reports suggest?
Luckily not. In the entire life cycle, we hope it will be more.
Reports suggest you have lost confidence in Alfa Romeo. What are Alfa's problems - and possible solutions?
The Alfa issue is complicated and simple at the same time.
Alfa is a great, world-renowned brand, but it is selling fewer cars than planned. To address the problem, we recently announced a change of leadership.
Karl Heinz Kalbfell will concentrate on Maserati and on the future strategic development of the industrial and commercial alliance between Alfa Romeo and Maserati - the "polo sportivo" (sporting cars division) of Fiat group.
Antonio Baravalle, who has done a great job at Lancia, will take over the day-to-day running of Alfa with his great commercial and marketing skills.
Sales of the 156 are fading and the 147 is not living up to expectations. Why?
The 147 suffers from the belief that the BMW 1 series its the most significant competitor. It did not take into account other competitors like the VW Golf (pricier versions of the Golf compete with entry-level versions of the 147). We forgot about the Golf and did not pay attention to what they have done in the marketplace. I think we need to respond effectively to the competitive pressure of Volkswagen.
We have learned the lesson and I think we need to be a lot more cautious and a lot more humble about Alfa's aspirations. I think we need to fight where we need to fight. It's less of an issue, I think, for the new products that are coming - the 159 and the Brera - which certainly have a right to select the premium marketplace within which to fight.
The 939 project was born as a joint project with Saab, but after Saab's withdrawal the premium platform turned out to be exclusive to Alfa. Can the Alfa 159 and Brera range be profitable with combined volume of about 150,000 units if the platform is not used for another model?
We have invested in the premium platform - which, by the way, is an excellent platform - and now we have to find a broader application within the group. The (front-wheel drive/all-wheel drive) premium platform is an excellent basis for cooperation between Alfa Romeo and Maserati.
The current 147 is based on a shortened platform of the larger 156. Can we expect the 147 successor, dubbed 149, to come out of a shortened premium platform?
This is an option we are considering. On one side, the premium platform is much more expensive than the 156 platform so it would be much harder to make a profitable smaller car out of it. At the same time, if Alfa wants to really compete in the premium portion of the C-segment, it would need such a platform.
Over the past 5 years there has been talk about Alfa returning to the US?What is the current position?
We are still working on that, but it won't be next year.
Does the current plan remain to begin Alfa sales with the Brera coupe and Spider sold by Maserati US dealers?
This is the most likely scenario.
Does Alfa really need a four-door sedan at the top of its range or would it be better to offer a crossover because the 159 sedan has grown and is nearly the same size as the current flagship, the 166?
In my view, a large crossover would be the best choice.
All premium carmakers have moved downmarket. Alfa, though, has always ended up killing projects to make a sporty small car, even the latest one, based on the project 199 (Grande Punto), which only required a limited amount of investment. Why?
Maybe Alfa is changing its mind on this topic, but it is still too soon to elaborate further.
For many years, neither the Fiat group nor Fiat Auto CEOs believed Lancia had a strong future. But you have approved three additional new models for Lancia. What has driven you to bet on an almost domestic brand in an increasingly global industry?
Lancia is a unique brand, truly Italian, stylish, a bit arrogant. It has a great past - it will be 100 years old next year - and no heavy legacy to deal with. Consequently, it is a perfect base for a new growth period.
I agree that in terms of sales, Lancia is currently too Italian, but, step by step, this will change. We aggressively attacked the French market this year and in 2006 we will approach Germany and Spain.
In term of investments, it is a sustainable bet because Lancia's investments are incremental to the new models we are developing for the Fiat brand.
Some analysts say Lancia's positioning is near premium. Do you agree?
Absolutely. It is above a volume brand like Fiat, but under the German premium brands. This is a unique position. No other Latin carmaker has a brand that could be truly defined as near premium.
Maserati had been the most over-promised and under-delivered champion within the Fiat group. Every 5 years, the 10,000 units a year target is postponed for another 5 years. The latest target is now 2010. How will Maserati get there?
First, by strengthening its current product range. The Maserati Quattroporte is an excellent car, but it needs to be produced, for example, with a true automatic gearbox for the US market.
The Quattroporte platform also will be the basis of a new, top of the range coupe.
At the same time, Maserati is too small to have its own platforms so it needs synergies with other brands. I think the industrial cooperation with Alfa Romeo on the premium platform is the proper answer.
What about the Kubang GT wagon, which would be Maserati's first crossover?
Nothing is decided yet, but I can say that a Kubang for Maserati makes sense only if Alfa cooperates on the project by making its own large crossover. These two vehicles could be the first fruit of the industrial cooperation between Alfa and Maserati.
A Ferrari IPO has been on and off for three years now. What does the owner of a 56 percent stake of Ferrari say?
When Mediobanca bought a 34 percent stake of Ferrari in June 2002, it said it was not going to keep it as a strategic investment. When Mediobanca decides to sell its Ferrari stake, the Fiat group will help it as much as possible. It could be an IPO or a private placement like the 5 percent bought in July 2005 by Mubadala Development Company of Abu Dhabi. Anyway, Mediobanca is a shareholder of both the Fiat group and Ferrari and we are pleased about that.
Ferrari is about to decide on its new entry-level model, dubbed the new Dino. Does Ferrari take its own investment decisions or does the Fiat group CEO have the final word?
The Fiat group only sets the financial targets for Ferrari. All the product decisions are taken by Ferrari itself, which is run by Fiat group chairman Luca Cordero di Montezemolo. Personally, I do not even know Ferrari's product planning. Ferrari hasn't made a product mistake in the past 10 years, so they are pretty good in running their own business.
In just a few weeks, you will be elected president of ACEA, the European car makers association, for 2006 and 2007. As ACEA president, what will you put at the top of your agenda?
There is not a single item to put at top of the agenda, but the entire competitiveness of the European automotive sector. I will work hard to implement the CARS 21 initiative, which has the objective of building a competitive automotive regulatory system for the 21st Century.
This objective is ambitious, but absolutely necessary, if we are to tackle the major challenges facing the European automotive sector today.
We also have to consider that the European automotive industry is not profitable enough in its home market. This is slowing down the uptake of more advanced technologies necessary to compete effectively at the global level, and by the same token challenging its potential for investment in both capital and human resources.
Will ACEA address the lack of global emission and homologation standards, which add to carmakers' costs and do not represent any value for the consumer.
I would love to get to a world emission and homologation standard soon, but unfortunately I think it will take much longer than my two-year term at ACEA.
At ACEA, you inherit a controversial topic - Toyota's request for admission.On a personal basis, do you think ACEA should be open to any company doing business in Europe?
On a purely personal level, I think we should talk and involve Toyota on as many issues as possible, but ACEA structurally is an association of European manufacturers. Toyota's proper membership is something that has to be discussed at ACEA board level.
If Fiat won e500 million in a lottery, how would you invest it?
I would buy Fiat shares. There currently isn't a better investment than this.