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Fiat's Right Turn

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In nearly two decades as chief executive of auto giant Fiat, Cesare Romiti has earned a reputation as Italy's toughest boss. But neither Romiti's legendary fights with Fiat's feisty unions nor his marketplace brawls with such rivals as Volkswagen and Peugeot could have prepared him for what associates say has been the most difficult decision of his long career: going before Italian magistrates in Milan on Apr. 21 to detail illegal payments made by Fiat to leading Italian politicians and their parties.

In fact, the 69-year-old Roman executive had little choice. Just as Fiat is locked in a desperate struggle to stay competitive, it was being sucked deeper and deeper into the anticorruption investigation that is reshaping the political and economic face of Italy. By testifying, Romiti, who is not under investigation, hopes to contain the damage and free his managers to concentrate on solving the business problems dogging Italy's largest company.

OUT OF TOWN. To date, nine of Fiat's top executives have been implicated in alleged bribes, and the company says five have admitted wrongdoing. The scandal started a year ago, when the head of a Fiat construction subsidiary was jailed on charges of paying bribes for work on Milan's public transportation system. In February, two more executives, including the group's chief financial officer, were arrested on corruption charges, and carabinieri raided the executive suites of Fiat's Turin headquarters. Then, on Apr. 7, magistrates issued an arrest warrant for chief operating officer Giorgio Garuzzo, who is out of the country.

That, insiders say, forced Fiat--which had staunchly denied wrongdoing--to change its tune. On Apr. 17, Chairman Gianni Agnelli confessed before a Venice meeting of top industrialists and politicians. "We have all made mistakes," the 71-year-old told the hushed crowd. "Even in Fiat, some episodes have been verified of illegal collusion with the political system."

Given the other troubles it faces, Fiat needs to get the scandal behind it as quickly as possible. Delicate negotiations to bring in France's Renault as a strategic partner in Fiat's auto division are now said to be on hold. Meanwhile, the European car market is in a tailspin: Industry sales plunged more than 17% in the first quarter. Fiat, with an aging model lineup, is shutting down production as its share of the key Italian market has slumped to a record low of 44%.

To fight back, the company is implementing a huge investment program to modernize and churn out new models. This year, investments are pegged at $4 billion. A lot is riding on how quickly Fiat can win acceptance for its sleekly styled new compact, scheduled to be unveiled at next September's Frankfurt Auto Show.

But finding the right people to run Fiat could be the group's biggest challenge. The succession scenario planned for mid-1994, when both Romiti and Agnelli were due to retire, will probably need to be reworked. Under the plan, Garuzzo was to have succeeded Romiti as CEO, while 58-year-old Vice-Chairman Umberto Agnelli would replace brother Gianni.

Now, say Fiat insiders, changes at the top could accelerate. One plan under consideration is said to involve bringing in as CEO an outsider--possibly Romano Prodi, the former head of state holding company IRI. Or Umberto Agnelli may take over both as chairman and CEO.

Surprisingly, the markets are cheering the prospects of change at Fiat. Its shares, already up 50% this year, jumped an additional 5% when the company said it would cooperate with prosecutors. And with 82% of Italians voting to reform the country's outmoded electoral system in a key national referendum on Apr. 20, optimism seems to be returning to Italy as a whole. Both the country and its most important company look as if they're serious about cleaning house.John Rossant in Rome

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