Thomas White Global Investing
Global Players

Global Players

March 2010

Sergio Marchionne, CEO, Fiat

Sergio Marchionne

Image Credit: Ricardo Stuckert through a Creative Commons license

“I have absolutely no intention of failing”

— Marchionne speaking to the Financial Times, 2010

Turning the fortunes of one company around is an achievement. But saving two, and possibly, three companies? First Sergio Marchionne altered the destiny of Swiss firm SGS for the better, and then he wielded his magic on the fortunes of Fiat. Since then, he has become something of an iconic savior in the automotive industry. With ailing Chrysler limping in June 2009, all eyes focused on the CEO of Fiat in anticipation of a miraculous rescue again.

Marchionne’s early management skills were honed at SGS, a Swiss goods-inspection company controlled by the Agnelli family, Fiat’s founders. There he returned the troubled company to profits by trimming costs and bureaucratic roadblocks. This caught the attention of the Agnelli family, who needed a similar turnaround for their sinking auto business.

At Fiat, Marchionne’s business acumen worked to the fullest. When he stepped into the role of CEO of Fiat in 2004, the company was in shambles. Between 2000 and 2004, Italy’s most esteemed automotive manufacturer had been bleeding losses to the tune of $10.4 billion. As the chain smoking Marchionne described to The Guardian, “When I took over, there was a smell of death here.”

But Marchionne, who holds degrees in accountancy, law and management, turned a lemon into lemonade. Due to Fiat’s deplorable financial condition, Marchionne was able to sever the company’s merger agreement with General Motors (GM) in 2005. GM gladly dumped the then loss-making company, and Fiat netted a $2 billion contract windfall. By the end of 2005, the vehicle manufacturer managed to ring up profits by trimming its workforce, freshening production strategies and restructuring management. It was not uncommon for the hands-on CEO to show up at production plants unannounced to “kick the tires”. This was Marchionne’s way of inspecting and improving the working of the plants. He also revamped the product line-up and introduced new models.

While at Fiat, the 57-year old Marchionne’s trump card was the introduction of the chic retro Cinquecento, simply known as the Fiat 500. As the little car became an instant rage in Europe, Fiat steadied itself on its feet, enough to earn $2.2 billion by 2008. Known for his adoration of Steve Jobs’ Apple, Marchionne boasted “We are now the Apple of carmakers; the new 500 is our iPod.”

But Marchionne was not content to settle on the laurels of his achievements. As U.S. automotive giant Chrysler floundered, his ambitious eyes sensed an opportunity. Talks between Fiat and Chrysler had sprung up in the summer of 2008, when the Italian automaker bought a Chrysler engine plant in Brazil. Since then, Chrysler had progressively become feeble by sagging sales and a mounting recession.

With an eye on the prize, Marchionne began negotiations with Chrysler in March 2009, backed by the U.S. government’s $9 billion emergency loan. The number three American automaker was finally forced into reorganization in April 2009, salvaged through a Fiat-Chrysler union that spared thousand-fold American jobs. Two months later, the takeover was completed with the U.S government retaining an 8% slice of Chrysler, and Fiat gaining a 20% interest, together with the promise of an increase to a 35% stake, if performance targets were achieved. And if all of Chrysler’s government loans are paid up by 2016, the Italian auto group would be rewarded with a 51% stake. Fiat’s Marchionne, now also the CEO of Chrysler, had engineered yet another mutually beneficial alliance.

But crucially, Fiat’s contribution to the union was not in cash, but in kind, namely technology and small engines. Through Fiat, Chrysler would gain the much-needed exposure to international markets and its line-up would soon include small and sporty cars built on Fiat platforms, an addition that it badly needed. In return, Chrysler’s current portfolio, made up mostly of big and brawny vehicles like the Durango, would serve to fill up Fiat’s, currently sparse, large-size segment. There would be another important perk: Thanks to Chrysler’s vast network, Fiat would be able to re-enter the American auto scene, a market it had departed in 1984.

To ramp up Chrysler’s image, industry watchers expect the jazz loving CEO to stick to the successful strategies that pulled Fiat back from the brink. As soon as Fiat closed the deal, Marchionne announced a retooling of the organization, among other measures. He has already installed a young and dynamic set of managers to handle Chrysler’s key brands. As a Fiat employee explained to TIME, “that’s a mirror image of what he did at Fiat.”

Marchionne’s methods seem to work. Already in November 2009, just months after the takeover, Chrysler reported a 6% jump in its October sales. And now, the ever-ambitious Marchionne has inked a deal with Russian vehicle manufacturer Sollers, and Guangzhou Automobile Group Co. Ltd. in China, to gain entry into crucial BRIC markets.

With Fiat’s stupendous volte-face, Marchionne’s name has become synonymous with the phrase ‘turnaround artist.’ But Marchionne, a citizen of both Canada and Italy, foresees tougher times ahead. “In returning Fiat to health, Marchionne succeeded in doing something that seemed nothing short of impossible, but saving Chrysler might be even a bigger challenge,” Sergio Pigoli, chairman of Pigoli Consulenza, a financial consulting firm, commented to the New York Times.

Marchionne, who seems to savor steering the futures of entire companies, appears unshaken. “There is no doubt in my mind that we will get the job done,” he quipped in a memo to his employees, notes Reuters. With such unwavering confidence, who knows, Fiat and Chrysler just might be pushed to pole positions on the global racetrack.





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