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Fiat Runs Out of Petrol

4 minute read

Down here in the poor south, the industrial formula is all too familiar: a northern business magnate learns to leverage his economic power to make the wheels in Rome turn in his favor. And with the government providing a shield — from both competitors and economic downturns — the richest in the land grow ever richer. Silvio Berlusconi comes first to most minds, having multiplied his real-estate earnings into unprecedented wealth in the 1980s after a sweet government deal helped him launch his private media empire. Sixteen months after he moved into the Prime Minister’s office, Berlusconi quietly remains Italy’s wealthiest man.

But long before Berlusconi joined the political fray, Giovanni Agnelli, the patriarch of the Fiat car dynasty, was a subtler symbol of Italy’s unique brand of state-stewarded capitalism. Praised around the world as the man who brought Italian industry into the big leagues in the 1960s and 1970s with mass production of simple but stylish automobiles, Agnelli, now 81, has also been known at home to push through special legislation for Fiat — and to be more than willing to ask for (and get) public financial help when times get tough.

And times don’t get much tougher than right now. Fiat Auto, which employs more than 30,000 workers in Italy, lost $808 million in the first half of 2002. Having overbuilt capacity just in time for the falloff in demand, the company’s gross debt has climbed to some $32 million. Fiat last week announced 8,100 layoffs and asked the government to declare a state of crisis, the first step to public aid for its workers and factories.

It is a request that people in Cassino, 70 km north of Naples, say must be heeded to save the city from economic disaster. Even more than Turin, the northern city where Fiat was founded by Agnelli’s grandfather in 1899, places like Cassino are utterly dependent company towns. Since they were built to extend the company’s reach and wealth to the south, Fiat factories and nearby parts providers offer the only real job opportunities in a region where unemployment is already above 20%. Giuseppe Lecce, who joined the car company four years after the Cassino plant opened in 1972, was part of a four-hour nationwide strike Friday of all Fiat plants. As a steady drizzle fell, Lecce, 52, gave a quick lesson in local economic history in front of the gate to the plant that produces the company’s most popular new model — the Stilo, a hatchback starting at about €14,000 — and is slated for up to 1,200 layoffs. “Agriculture died here a long time ago,” Lecce said. “Without Fiat, there’s nowhere to find work.”

Deciding whether the carmaker should get a time-honored public sector handout now falls to Berlusconi. It’s a difficult task for a politician who rode to office pledging to liberate Italy’s free market — and still considers himself a product of open competition from his days in the cutthroat real-estate business. But inside Italian business circles, the question is even trickier. Berlusconi has relied on the crucial support of the powerful employers’ association Confindustria, which is committed to serious market reforms but also counts Fiat as its biggest member. Francesco Bellotti, Confindustria’s vice president, sent the government a mixed message. With the car industry’s key position in the nation’s economy, Bellotti said, Italy must “defend” Fiat. But he also said the typical bailout plans that include long-term government support for laid-off workers “come from the past and are not practical if trying to maintain a certain coherence.” Confindustria had already questioned that same “coherence” earlier this month, lashing out at Berlusconi’s 2003 budget for being business unfriendly in the developing south, and far too timid in enacting the promised market reforms.

The latest troubles come as talk is growing that the Agnelli family is set to walk away from the car business altogether. Fiat could force General Motors, which already owns 20% of the Italian company, to buy the balance beginning in 2004. Fiat chairman Paolo Fresco indicated to the Wall Street Journal that the sale now appears more likely. That would be bad news for Berlusconi, though it might make good business sense. Fiat share prices, in fact, jumped nearly 9.6% after Fresco’s comment. “If you’re really for the free market, you just sell it,” said one government economist. “But from the point of view of image, it’s like Italy selling the family jewels.” Such choices are not easy, even with the best connections money can buy.

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