Fiat Gm: The Agnellis Face Reality

The deal signals a new era for Europe's industrial dynasties

It was almost like the dramatic final act of a play but without the main character. As the top brass of General Motors Corp. and Turin-based Fiat gathered in the Italian company's auditorium to announce their broad strategic alliance, the key player who signed off on the deal wasn't even there. Gianni Agnelli, the 79-year-old patriarch of Europe's most powerful industrial dynasty, was up in his fourth-floor office suite taping an interview for Italian television. He would leave it to others to announce the fate of the car company his grandfather and namesake had founded 101 years ago.

The deal itself may be just about cars. But the significance goes way beyond gear boxes, synergies, and joint marketing of automobiles. For Italy Inc. and the Agnelli dynasty that has dominated it for decades, the March afternoon in Turin marks the end of an era.

Once, Gianni Agnelli ruled mighty Fiat as he would a sovereign state--and Fiat lorded it over the Italian economy with a power unequaled by any other private-sector group in Europe. Now, Fiat, with $53 billion in sales, is an important diversified company but by no means the most profitable or valuable in Italy. Thanks to an ambitious privatization program, former state companies like oil and gas group ENI, electricity utility Enel, and Telecom Italia all rival Fiat on the Borsa Italiana. Just last February, a two-year-old telecom outfit and Net startup, Tiscali, swept past Fiat in market capitalization.

The deal with GM also marks the transformation of the Agnellis from an industrial dynasty to wealthy portfolio investors. It's a move that the families who determine the fate of players like France's Peugeot and Germany's BMW will be watching closely. The change in the Agnelli family is signaled by the ascent of Gianni's younger brother, 65-year-old Umberto. He has skillfully headed up the clan's investments in retailing, tourism, and banking--all much higher-margin businesses than cars. Within the secretive family, many members like Umberto had long looked askance at the slow-growth prospects of cars, while enviously considering their Swedish counterparts, the Wallenbergs. In 1989, the Wallenbergs sold 50% of loss-making Saab to General Motors, off-loading their remaining interest early this year.

Some Agnellis, who as a family own 30% of Fiat, pushed initially for a complete sale of the car business to DaimlerChrysler. Such a move would have made the Agnellis core shareholders of the German colossus. But by early this year, clan members rallied around Gianni, who promised that Fiat would remain Italian as long as he was alive. "An international alliance like this is something we've been waiting for very, very anxiously," says one prominent Agnelli family member who had originally lobbied for an outright sale. "What [Gianni] is saying is that this is the first step, and if anybody wants to take another step, it won't be him."

SLIPPING. It's not surprising that many Agnellis want out of Fiat Auto, which accounts for roughly half of Fiat's sales. The Fiat empire, anchored in Italy's old industrial economy, has been slipping. Early last year, Fiat took the losing side in the

$65 billion takeover battle for Telecom Italia. Then an ambitious Fiat-sponsored plan to construct a vast Italian banking group by merging Turin's San Paolo-IMI with Banca di Roma fizzled. And Fiat recently failed to place its candidate as head of the Italian employers' federation. Before, candidates could only succeed with a nod from Turin.

Still, all this is good news for Italy Inc., which seems to have graduated from its Turincentric capitalism. It's good news for Fiat, too. The carmaker needed a linkup with a deep-pocketed partner like GM. And it's good news for the Agnellis. There's still a fair amount of entrepreneurial spirit in the clan. Now that the Agnellis don't have to worry about Fiat's low-growth car business, expect new dealmaking to come out of Turin.

Before it's here, it's on the Bloomberg Terminal.