Monday 19 February 2018

'New Fiat' faces up to the threat of tech revolution

The giant we once knew as Fiat is at the centre of this challenge. But the company is no longer the fabled mainstay of Turin.
The giant we once knew as Fiat is at the centre of this challenge. But the company is no longer the fabled mainstay of Turin.

The phrase convulsive change underestimates the events that have taken place in the world of business over the past decade.

The global crash saw impregnable commercial fortresses tumble and fall at a bewildering pace. Many of us were often so busy looking after personal and parochial business that we need reminding that the business/economic world suddenly became a different place; even the names changed.

The state of the world motor industry is a classic case in point. The biggest and best needed the billion dollar bailing bucket to give them any chance of survival and legendary players have surrendered any chance of a return to their 'old' normality. On top of this, the industry faces unprecedented technology challenges - including electric cars.

The giant we once knew as Fiat is at the centre of this challenge. But the company is no longer the fabled mainstay of Turin. Today it is the globally focused owner of the once proud Chrysler group and is now called FCA. It is incorporated, for tax purposes, in the Netherlands, has its HQ in London and enjoys a market value of €15bn.

The metamorphosis at Fiat happened eight years ago when Chrysler was rescued by Barack Obama's government and the Italian group agreed to acquire it in a complicated deal.

The accepted view is that the deal helps both companies. Fiat was handed access to the US car market and Chrysler was in a position to benefit from the Italian firm's small, fuel-efficient vehicles. Both opportunities, their sharing of technology and components and the consequent cost reductions, were needed to compete with the bigger global players.

Naturally, not everyone saw the deal as positive. The powerful Italian trade unions muttered about the future and needed assurance about Italian jobs. Some US commentators worried that the task of combining two smallish debt-laden (€24bn) car companies from two separate continents into a single global entity can be achieved.

Some analysts also worried that new product development, which is very expensive, would require another car producer to share the cost. A Chinese car concern has been mentioned. US President Donald Trump may yet be tweeting about this too.

A major benefit for Fiat is that the Chrysler name is identified by most Americans. Founded by Walter Chrysler in 1925, over the years the company has been no stranger to near-death experiences. It traded as the Chrysler Corporation up to 1998 but in market and financial terms it always trailed GM and Ford. It had an unsuccessful tie-up with Daimler Benz for almost a decade ending in the early 2000s. Today, as an integral part of FCA, it has 36 manufacturing facilities - 23 in the US, six in Canada, seven in Mexico - with brands like Dodge, Chrysler, Jeep and RAM Trucks.

Fiat, founded 118 years ago, has always been the quintessential Italian multinational with a finger in everything mechanical. But it recognised the need to refocus in the late 1990s and offloaded its rail, military equipment, toll roads, office equipment and insurance business. Later it floated its construction equipment, Iveco Trucks and its marine business on the Milan Stock Exchange. It also brought the icon of Italian style, Ferrari, to the market. Today, the slim-down Fiat as part of FCA produces and sells Fiat, Maserati, Abart, Alfa Romeo and commercial vehicles Ducato, Doblo and Scudo, but it plans to phase out the Lancia brand.

I find it hard to make a firm and fast judgment of the investment potential of motor stocks these days. The FCA stock has value and today, at €9.60 a share, is almost double that of a year ago. There is no doubt that it has capable leadership in the CEO Sergio Marchionne but the group's debt and the threats coming down the line from the Silicon Valley giants Tesla and Google are of concern. But then Fiat and the fabled Italian business family the Agnellis, which own a lot of shares, are survivors.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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