Management, American Style At Hidebound Fiat

After all, new boss Paolo Fresco was Jack Welch's understudy

Shareholder value. Transparency. Customers coming first. They are commonplace concepts in Corporate America. And, true, they are starting to be heard in some European executive suites. But when Paolo Fresco, named as chairman of Italian auto maker Fiat on June 22, throws them around in his very first talk to shareholders, it's a sign that a bold new era just might be beginning at one of Europe's biggest companies.

Fresco's refreshing words reflect the lessons he learned at General Electric Co. In all, the 65-year-old Milan-born lawyer spent 36 years at GE, including the last six as deputy to Chairman and CEO John F. Welch Jr. "Fresco's experience from GE will be his main contribution to Fiat," says Paolo Cantarella, the Fiat CEO who stands to be Fresco's key ally. Some Welch-style decision-making could have far-reaching effects throughout the Turin-based giant, with sales of $54 billion. Fresco has a broad mandate from the Agnellis, who own 30% of Fiat. Look for him to dump marginal businesses, pump up the winners, and perhaps finally help find Fiat a merger partner.

Fresco's compensation package should please shareholders. While Fiat won't comment, his pay is thought to be linked to the company's share price. That would be remarkable in Italy, where clubby insider dealmaking often takes precedence over boosting share price. Fiat shares have risen 51% over the last 12 months, but that's less than half their level of 12 years ago.

Fresco's approach, say Fiat insiders, will be markedly different from that of predecessor Cesare Romiti. He was a brilliant manager, but his gruff style often antagonized labor and government officials as well as potential allies in Italy's business Establishment. In contrast, Fresco is known as a smooth global player.

Although Fresco doesn't officially start full-time until his GE duties wind down in October, the pressure is already uncomfortably high on Fiat. Hefty Italian government incentives on new-car purchases, which sent car sales soaring 40% last year, end on July 31, promising to deflate Fiat's most important single market. Fiat's profits are already being squeezed as it cuts prices to protect its Italian market share.

WORLD CAR. Even tougher times are ahead. Quotas on Japanese cars come off next year, a move that could hit Fiat's bread-and-butter small- and midsize-car business. And although adoption of the euro in January will be generally positive for business, it's likely to push down car prices as the market becomes more transparent.

Fiat under Cantarella, named by Romiti as CEO in early 1996, has already been getting into shape. A $2 billion bet to manufacture a "world car" in such countries as Brazil, Argentina, and Turkey is giving Fiat a headstart in high-growth markets of the future. And since 1995, Fiat has been steadily selling off noncore assets, from its Sestrieres ski resort in the Italian Alps to chemicals unit Snia. Insurance and aviation holdings could be next.

A leaner, more focused group will make it easier for Fresco to accomplish a key part of his agenda at Fiat: negotiating the right strategic alliance. Such a linkup has eluded Fiat, which in recent years has looked at merger opportunities with Chrylser Corp. and Ford Motor Co. The $40 billion planned merger of Daimler Benz and Chrysler has now put the spotlight again on Fiat, which may need to join forces with another carmaker to be a really muscular global force.

Fiat's new duo looks formidable, with international dealmaker Fresco eyeing strategic linkups while nuts-and-bolts car man Cantarella makes sure Fiat's new models are winners. Throw in a few concepts from the school of Chairman Welch like shareholder value, and Fiat's future could be surprisingly bright.