EurWORK European Observatory of Working Life
General Motors and Fiat SpA form alliance
In March 2000, the Italian automobile company, Fiat SpA, signed an agreement with the US-based General Motors, the world's largest car producer, which provides for an exchange of shares between the two companies and the creation of two joint ventures for the purchase and production of engines and gear equipment. This move - broadly welcomed by trade unions and other parties in Italy - suggests that the Italian model of "family-based capitalism" is moving towards a more "Anglo-Saxon" model (with a wider spread of shareholding and management power), in order to face up to the dangers and opportunities of globalisation.
The automobile sector of the US-based General Motors (GM) - with the Buick, Cadillac, Chevrolet, Gmc, Golden, Oldsmobile, Pontiac, Saturn, Opel Vauxhall and Saab trademarks - is the world largest automobile producer. In 1999, it produced 8,786,000 vehicles, with an annual turnover of ITL 350,000 billion (EUR 181 billion). It has more than 388,000 employees. GM has 11.5% of the European automobile market and 12.6% of the world market.
Fiat Auto is the world's sixth-largest automobile producer (with 5% of the global market) and the seventh largest at European level (with 9.2% of the market). In 1999, it had a turnover of ITL 93,000 billion (EUR 48 billion) and produced 2,770,000 vehicles. It has 221,000 employees. Fiat Auto trademarks include Fiat, Alfa Romeo, Lancia, Ferrari and Maserati.
GM is present on the European market with the Opel Vauxhall trademark, which was bought by GM in 1929 and which produces in particular medium- and low-powered cars. The German market, where its main rival is Volkswagen, represents a little under half of Opel's production. Opel recorded a notable fall in sales in 1998; 1999 saw a slow recovery but the situation still remained critical, and major job losses are foreseen by 2003.
Economic globalisation, world competition and the consequent necessity of expanding markets beyond national and continental borders, have driven and are still driving many companies towards mergers and alliances. Furthermore, the automobile sector is one of the sectors that appears in greatest need of streamlining: current world demand is for no more than 50 million vehicles a year, while more than 60 million are produced.
Many automobile sector analysts predict that during the next few years the so-called "niche producers" will not survive and that the high level of competitiveness in the sector will reduce enormously the number of companies, with only a few producers able to make tremendous effort of productive and technological reorganisation required.
The Fiat-GM alliance
Fiat Auto has a long history in Italy. Since its foundation in 1899, it has been linked to the Agnelli family and has specialised in particular in the production of medium- and low-powered cars with low energy-consumption levels. It has always had a dominant position in the Italian market and in part of the European market. In 1998, Giovanni Agnelli left the presidency of Fiat and was replaced by Paolo Fresco, previously vice-president of the US-owned General Electric. This was the first sign that so-called "family-based capitalism", which has long marked the major Italian manufacturing firms, is shifting towards a more "Anglo-Saxon" capitalism characterised by a wider spread of shareholding and management power.
After many months of talks, which also considered the idea of a possible merger with the German/US Daimler-Chrysler or with GM itself, on 13 March 2000 Fiat SpA signed an agreement with General Motors. The agreement has a financial aspect and a production/industrial aspect.
On the financial side, GM will buy a 20% share in Fiat Auto, while Fiat SpA will receive in exchange 5.1% of GM's shares (though there will be no exchange of board representatives). The Fiat group will become GM's second-largest shareholder (the majority of the shares are in the hands of a US investment fund) and its leading industrial partner. The financial agreement provides also for the option, though not the obligation, of Fiat SpA offering - not sooner than three and half years, and not later than nine years from the signature of the agreement - the remaining 80% of its shares to GM, which will have a first option to purchase them.
The production and industrial alliance will take the form of two joint ventures (owned 50% by Fiat and 50% by GM): the first will conduct purchasing activities, while the second will produce engines and gear equipment. Cutting expenses will be the main policy as regards production. The future joint production of engines and gears will employ 35,000-45,000 workers and produce about 5 million components per year, with a turnover of ITL 20,000 billion (EUR 10.3 billion). The two groups will remain competitors in all other sectors. According to the projections of the companies' management, the new "synergies" between Fiat and GM will lead to savings in the purchase of other components of USD 1.2 billion per year starting from the third year and USD 2 billion from the fifth year.
The consequences of the agreement for the production systems and employees of the two groups are still uncertain, especially as regards Fiat's local subcontracting companies, which in the Piedmont region alone account more then 66,000 workers and production worth ITL 18,000 billion (EUR 9.3 billion) a year.
The signatories of the agreement, the presidents and the managing directors of Fiat and GM - Paolo Fresco and Paolo Cantarella for Fiat and John F Smith and G Richard Wagoner for GM - said that this alliance gives more certainties for the workers. Giovanni Agnelli, honorary president of Fiat, underlined that Fiat has retained a large margin of autonomy thanks to the agreement and that this alliance will not jeorpardise any jobs. Sergio Dosio, director of the Turin employers' association, Unione degli Industriali di Torino, said that the area's "automobile-producing district has very few competitors in the world. The technological capacities of our companies are not easy to find and they are an important guarantee for our future".
Politicians, industrialists and trade unionists have made positive comments on the Fiat-GM alliance. The stock exchange, by contrast, reacted negatively, with Fiat shares falling by 10% on the day after the signature of the agreement. Both Fiat managers and independent commentators attributed this downward move to the disappointment of many investors who had expected a complete sale of Fiat to GM, which would have meant a remarkable increase in the value of Fiat shares.
Giorgio Fossa, the outgoing president of the Confindustria employers' confederation, underlined that the agreement permits collaboration, while "respecting the characteristics and the history of the two companies and of the countries where they have operated".
The Prime Minister, Massimo D'Alema, commented positively on the agreement, saying that "this agreement opens many perspectives not only for Fiat but for the Italian economy too - important productive perspectives for our country and for employment". The leader of the opposition, Silvio Berlusconi, also underlined the importance of this kind of alliance in a global market.
Sergio Cofferati, secretary general of the Cgil trade union confederation, stated that "Fiat needed a strategic alliance in order to make a better impact on the global market". As regards employment, he said that everything will depend upon the formulation and the implementation of the agreement. The secretaries general of the Cisl and Uil confederations, Sergio D'Antoni and Pietro Larizza, were positive about the alliance, provided that it means a genuine collaboration. Mr D'Antoni has nevertheless criticised the lack of economic democracy involved in the initiative, stating that "it is not tolerable that Fiat workers are not called on to express their opinions when such important changes are taking place."
All observers believe that Fiat Auto had to enter into a strategic alliance with a major producer in order to keep operating on international markets. Many agreements with various European producers had been mooted, but all of them failed. There were two key reasons behind this failure, which seem to have been overcome with the GM agreement. The first concerns Fiat's position on the European market: an agreement with a major European competitor would have led to an important reorganisation of the two parties' productive capacity, with serious impacts on employment and on the economic importance of Fiat. The second concerns the role of the Agnelli family and of the Italian management in managing the company, which would have been reduced by an alliance with a European producer.
The GM solution, by contrast, should allow for the development of synergies between the two groups on the European market, where the productive alliance in engines and components should bring benefits to both contractors and improve their market shares to the detriment of competitors. Furthermore, the clauses on Fiat's autonomy in the agreement allow the Agnelli family the necessary time to wait for a new generation to play an important role within the company. Gianni Agnelli himself said that "the family will play within the company the role it will be able to play." The alliance allows the Italian management to control the implementation of the agreement on the European market.
The two companies will be able to develop their synergies in the emerging markets of South America (Brazil and Argentina) and in Russia, where Fiat already has a definite advantage over its European and world competitors.
These evaluations, largely shared by Italian "opinion-formers", explain the positive and unanimous judgments expressed by the social partners on the Fiat-GM agreement. This alliance has also highlighted the issue of workers' participation in companies' strategic decisions, a subject which is at present subject to intense debate between social and political actors.