FIAT CASE: KM AND BUSINESS VISION

In 2004 FIAT, with over one hundred years of history in car making, was considered by analysts and the general public to be close to an unavoidable end. During the preceding five years the company had piled up losses of $12 billion and it seemed bound to be moving toward a crushing insolvency. For years the company had been losing market share to European and Japanese competitors, unable to compete on both pricing and overall quality of its cars. During the late 1980s and early 1990s top management had chosen to diversify its business into non car related investments, mainly banking and insurance, and the lack of a committed focus on research and development in the car business had begun to show its consequences. FIAT Panda, a small sized car kept basically unchanged in its design and key features for over 20 years, from 1985 through 2005, became a symbol of the stalling situation. Year after year it became clear that the money the company was losing on its car business was not balanced by the profits made by its diversified investments.

In 2004 the key shareholders realized that it was time to take control of the situation. They came to this decision after realizing that their latest attempt to sell the car business to General Motors was not going through. GM had bought 10% of FIAT stock in previous years, and also signed a put (buying) option that obliged the American company to buy the remaining 90% if FIAT wanted to sell. Now, GM (itself in serious financial trouble) was no longer in a position to execute its put option and FIAT had to find a way out of its trouble by itself. A new CEO was hired with the clear goal to bring back profitability to the car business in order to outline a path to a lasting financial recovery.