At the urging of the Italian government, Fiat said today that it is willing to shift production of Pandas from Poland to the Pomigliano plant in Naples and invest “hundreds and hundreds of millions” in order to bring its Italian production to over 800k units per year. But, he warns, the Italian government must extend domestic consumer credits in order to sop up the increased capacity or face a rapid market contraction. As part of the deal, the government would allow Fiat to shut a terminally unproductive plant in Sicily, for as Sergio says, “the number of cars produced per worker [in Italy] is totally out of proportion” compared with plants in Brazil or Poland. “It doesn’t correspond with any industrial logic.” He’s right, of course, but you have to admit that it’s strange to see the man who took American taxpayers for a savage ride by snagging a bailed-out Chrysler without putting a penny down, suddenly bankrolling the oblivious nationalism of the Italian government.
After all, Sergio himself tells Automotive News [sub] that “we need an act of courage right now to take the weak points out of the system and concentrate on the strong ones.” But the current Panda/500 plant in Tychy produces 600,000 units per year, or about 50k less than all five of its Italian plants put together. Sure, if you eliminate the worst plant in Italy (by selling it to the Indians?) you’d improve the comparison a little, but there’s still nothing in this equation to suggest that moving production from Tychy (by all accounts, one of Fiat’s best plants) to any of the Italian factories would “take the weak points out of the system and concentrate on the strong ones.” An Italian analyst even tells Reuters “it would make more industrial sense for Fiat to move its Polish production to the Mirafiori plant, near Turin, in Italy’s richer north.”
Sergio is forever praising the capacity reductions which took place in the US auto industry bailout, and damning Europe’s overcapacity as unfinished business. But as soon as the Italian government asks nicely, he has $11b to spend to increase capacity in Europe? The guy who celebrates “industrial logic” and dismisses incentive-dependence in his own business is concentrating production in an insignificant corner of a shrinking market because the government might keep consumer incentives around for another few years? Or is it so hard to get even one Sicilian plant closed that Marchionne is willing to throw his rhetorical hobbyhorses out the window to solve a tiny part of the larger European overcapacity problem?
Marchionne has refused from day one to put a penny into Chrysler, an undeniably common-sense decision. But where the Italian government somehow has clout to part Sergio from hundreds of millions of dollars for job creation, American elected and unelected officials actually paid billions to gut Chrysler’s bloated capacity, lay off workers and otherwise reanimate the zombie automaker before handing it over to Marchionne. Are Marchionne’s principles mere window dressing for convenience, or was the Presidential task force simply some of the worst negotiators ever? Likely more than a little of both. Meanwhile, whatever happened to the European Union’s rules forbidding national governments from buying jobs out from under fellow member states?
You mean production of 800k units per year, right? If Fiat is making almost a billion cars in Italy, well, it ain’t the Chinese the rest of the auto industry has to worry about.
To begin, the financial operations of both companies are separate. Wasn’t it just a few days ago the Chrysler announced millions for the Dundee Engine Plant which was criticized here also? What gives?
https://www.thetruthaboutcars.com/marchionne-equity-beats-strategy/
Wasn’t it just a few days ago the Chrysler announced millions for the Dundee Engine Plant which was criticized here also? What gives?
Both cases involve Marchionne making (potentially making, in this case) questionable strategic moves because of government entanglement. Fiat got Chrysler for free because Sergio gave the impression of having a master plan, but why should anyone have faith in his vaunted “industrial logic” if it is subordinate to the desire of the Italian government to see local production increase?
Marchionne is playing a dangerous game (what with Fiat’s debt climbing towards $10b) and it’s clear that if things go wrong, Chrysler will be the first back in the soup. Or, more precisely, back in the laps of the UAW and taxpayers. My moral hazard warning light is on.
I believe the “m” in 800m is short for for “mille” – Italian for “thousand”.
EU rules? What EU rules? EU rules don’t apply to the big states (France, Germany, the UK and Italy).
And he’s catering to the national government that’s saved the company’s bacon more than a couple of times…This isn’t business, it’s politics and it makes perfect sense in the real world.
Really? Then why was “sticking to the rules” so important to prevent an “aid race” in the Opel restructuring? I’m just guessing that this was not what Poland had in mind when it joined the EU.
But then the alternative to some form of inter-EU competition for jobs in the GM Europe restructuring is to let GM’s American tax money pick up the cost, so maybe I should just let the EU rules thing go.
FromBrazil has it pretty much right. When has the EU ever stopped France, Germany, the UK or Italy from doing as they please in the end? Just because a Swedish minister talked tough doesn’t mean the playing field is level. As far as Poland, I suspect that they are willing to swallow a bit of pride from time to time in order to enjoy the benefits to their formerly impoverished nation. The EU certainly treats Poland far better than the USSR ever did. But, push come to shove, Poland doesn’t have the clout enjoyed by their more prosperous fellow EU members.
UK, Italy or Germany might be able to bully its wa through opposition, but Italy is not at the same level. If you want a practical example of the EU disallowing Italian government state aid, take a look at the Alitalia case (now part-owned by Air France-KLM).
Mr. Edward Niedermeyer:
In the case of Opel there’s a lot going on backstage that we can’t even imagine (VW as pointed out by Mr. Bertel Schmitt, IIRC, would not be unhappy to see Opel go). In this case there’s just one maker left in the land so the government backing it is much more straight foward. Plus the fact that if everybody plays by the rules Germany, being the big economic elephant it is in the Eurozone, has more of an incentive to “stick to the rules” because it probably makes more money that way. Again, if IIRC, wasn’t the French cash-for-clunkers reviled on this website for being designed in such a way as to favor the locals?
I don’t disagree with you. In fact, I agree with you. It’s wrong and somewhere someone will pick up the tab for its clear inefficiency. But in the “real” world that won’t matter ’cause the politicos and their cash rich friends will have gotten what they want. I was merely pointing that out and was not making a value judgment.
Fiat got a minority interest in Chrysler in return for sweat equity. There is nothing terrifically unusual about that.
If the moving of production of the Panda doesn’t result in any job losses in Poland then the EU rules don’t apply.
The new Ford Ka (a sub-sub compact smaller than the Fiesta) is now also built at the Polish Fiat plant, as it is based on the 500. It is Ford’s third best seller, so maybe projections for that keep the Polish workers in jobs.
The only country EU rules don’t apply is in France – the UK and Germany have both had industrial plans scuppered by EU rules, although they are overriden ‘in times of crisis’ – for example the UK government/taxpayer now owns the two biggest retail banks.
One thing I have learned working for an American company taken over by Fiat: Any issue that requires a balance of benefit for either Italy or the US will definitely be decided in favor of Italy.
How, exactly, did Sergio take “American taxpayers on a savage ride’? I’ll tell you what would have been a savage ride for American taxpayers, and that is if Chrysler (and GM too) had been liquidated. This country would surely have gone into a Depression (if we aren’t already in one) and the American taxpayer would be footing the bill for all of those uneployment checks.
Fiat’s deal for Chrysler never involved Fiat putting up any capital for Chrysler, their reward for their management expertise is an equity stake in the company. It is in Fiat’s best interest to make a go of Chrysler. Your criticism of Fiat’s investment in Italy would be warranted if Fiat took funds earmarked for Chrysler and transferred them to Italy instead (Daimler anyone?).
The bigger worry for the EU is the very very large national debt that Italy is carrying. Better to bend job rules than to allow a key member state to (effectively) go bankrupt.