Historic demerger leads to a tale of two Fiats

Fiat's non-car making assets are to be spun off, as investors vote for a two-way split.

by Andrew Saunders
Last Updated: 06 Nov 2012

Shareholders in Turin yesterday voted by a large margin to demerge Fiat’s car and engine division – which also includes Ferrari, Maserati, Lancia and Alfa Romeo - from its Iveco unit, which produces trucks, tractors and construction equipment. The new business will be known as Fiat Industrial.

It’s a major change in strategy for the 111-year old conglomerate, which is still Italy’s largest private employer - until now Fiat has always been diversified. Although anyone who owned an old Fiat back in the bad old days of the 70s (when they were known in the trade as Fix It Again Tony’s) will have been only too familiar with the possibility of its suddenly splitting in half after several years of apparent unity.

For Fiat chief exec Sergio Marchionne, the deal marks the fulfilment of a long held ambition to separate the fates of the two divisions. ‘It’s a beautiful day. We are free of an enormous weight, and that’s not just because of the size of the vehicles,’ he quipped after the vote.

Marchionne believes – and has evidently convinced shareholders too – that cars and trucks is literally a two speed business, and the best interests of neither are served by keeping them yoked to the same harness. And in a manufacturing world where overseas partnerships, alliances and JVs are increasingly the name of the game, he probably has a point. The demerger should allow both divisions greater freedom to pursue their own particular ends. What’s not to like?

Initial response from the markets has been encouraging, with analysts stating that the move will unlock the true value of Fiat Industrial, previously overshadowed by the car operation. Marchionne might have preferred it if they had waxed lyrical about the potential of the car business, which he is going to remain in charge of, but you can’t have everything.

Fiat of course remains a quasi-family firm, largely controlled by the descendants of the legendary Gianni Agnelli. In the 60s and 70s Agnelli was the most powerful man in Italy, nicknamed ‘Il Re’ (the King), and he transformed Fiat from a domestic carmaker to a global economic and political force to be reckoned with. And he still found time to set style trends, like wearing his watch over his shirt cuff. What a guy.

Canadian-Italian Marchionne is one of very few non-Agnelli family members to have acceded to the top job at Fiat, but he is seen as something of a chip off the old block all the same. Since taking over in 2004 he has been credited with turning round a very sickly Fiat, revamping models, streamlining the business and doing a very shrewd deal to acquire 20% of Chrysler which ‘Il Re’ would definitely have been proud of – even perhaps a little jealous.

Car sales have flagged a little since the end of scrappage schemes across Europe, but many industry watcher belive that Marchionne has his eyes on a bigger prize – the car-hungry US. It’s likely that his ultimate goal is to merge Fiat with Chrysler – a pretty smart idea, given that even America’s love of big gas guzzlers seems to be waning these days. Fiat has always made small cars with panache – injecting a little of the flair of models like the Punto and Cinquecento into a range of smaller Fiat/Chryslers could be just what Americans have been waiting for. 

But all that is a way off yet. For now he’s probably hoping that the financial performance of his unfettered car business will be as zippy as their on-road abilities.  

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