What's So Great About Fiat?

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THE STASH MARCH 31, 2009

What's So Great About Fiat?

Announcing his auto industry plan yesterday, President Obama had this to say about a possible Chrysler-Fiat merger:

Recently, Chrysler reached out and found what could be a potential partner -- the international car company Fiat, where the current management team has executed an impressive turnaround.  Fiat is prepared to transfer its cutting-edge technology to Chrysler and, after working closely with my team, has committed to build -- building new fuel-efficient cars and engines right here in the United States. 

Which made me wonder: What's up with this Fiat turnaround of which the president speaks?

Fortunately, The Wall Street Journal had an interesting piece about the man behind it, CEO Sergio Marchionne, back in January. Some highlights:

When Mr. Marchionne was brought in to run Fiat in June 2004, the company was on the brink of collapse, and Mr. Marchionne's qualifications for saving it looked slim. ... Mr. Marchionne had no experience in the auto industry beyond his brief stint as a Fiat board member. Since 2002, he had been running SGS SA, a Swiss company that inspects and certifies traded goods.

He also showed little interest in adapting to the global auto industry's clubby nature and conventional wisdom. For years, car makers had sought to reduce costs by cutting manufacturing jobs and closing factories.

Mr. Marchionne took the opposite approach: He pledged to keep Fiat's network of inefficient Italian factories open and fired 30% of the company's managers. The move won him praise among Italy's militant unions.

Mr. Marchionne also eschewed the practice of forging broad industrial alliances to gain economies of scale. Instead, he secured targeted joint ventures to produce single models with car makers including Tata Motors Ltd. of India and Ford Motor Co. of the U.S.

There appear to have been a handful of other critical moves, including negotiating the break-up of a partnership with GM on favorable terms, which isn't super replicable. 

Interestingly, Marchionne kind of highlights a point I made at a meeting yesterday with almost no evidence to back it up: When thinking through how to restructure GM and Chrysler, having zero auto industry experience may not necessarily be a bad thing. (A colleague had observed that very few members of Obama's auto team had much knowledge of the industry when they signed on, even though they're all prety impressive in other respects.) My thought was that the industry is so dysfunctional that, the more familiar you are with it, the more likely it is you've internalized some of its self-defeating biases and self-imposed limitations--that, in a nutshell, this may be one of those times when it helps to not know what you're talking about.

Good to see the point even extends to discussions about the value of auto industry experience.

--Noam Scheiber

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posted in: the stash, chrysler, fiat, merger, person career, sergio marchionne

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