Commentary: Mourn Gianni, Yes--but Not His Management Style

By Gail Edmondson

He was playboy-handsome, royally rich, larger than life. Italians found it easy to love Fiat Honorary Chairman Giovanni Agnelli, who died on Jan. 24 at the age of 81, and they mourn him now. Italians revered "L'Avoccato"--The Lawyer, as he was fondly known--for other reasons, too. Simply put, Agnelli was Italy's anchor. He presided over the nation's largest private company and top exporter, generating during the boom years of the 1980s about 5% of the country's gross domestic product. He hobnobbed with Presidents and Prime Ministers and wielded immense influence over economic policy. Generations of Italians were reared in the generous, paternalistic world of Fiat employment. By 1990, Gianni's diversified empire exceeded $50 billion in revenues, and through family holdings he wielded direct or indirect control over companies representing a quarter of the Italian stock exchange.

Now, the great man is gone. And while ordinary Italians grieve, the high and mighty are rushing to shore up Fiat's ailing $23 billion auto unit. Indeed, Fiat Auto's eroding competitiveness, huge losses, and mountainous debt have galvanized the country's political and business elite, from Prime Minister Silvio Berlusconi to the nation's top bankers and managers. All of them are shuttling urgently between Turin, Rome, and Milan, debating the best course of action to save Fiat, to save Italy, to perpetuate yesterday.

Such a nationalistic approach to fixing Fiat is nearsighted. Italians should use this cathartic moment to realize that not only Agnelli the man is gone, but the epoch of national champions that he epitomized has ended, too.

Agnelli came of age in the 1940s and lived and worked for the bulk of his life in a state-dominated economy. For decades, his strategy was to nurture Fiat in an environment where competition was weak and a magnate's pull in Rome counted for everything. Agnelli's lobbying skills and ability to win protection or state support for Fiat were legendary. As a result, the Turin auto maker held sway over more than 60% of the nation's car market.

It wasn't until Gianni was 71 years old, in 1992, that the Italian government finally started privatizing vast swaths of state-owned industry and prying open the economy. Thus, Fiat was sheltered from the first wave of global competition to hit the car industry in the late 1980s--the one that slammed the Americans, then the Europeans, and finally the Japanese. Even when Fiat skidded into a crisis in the early 1990s, Agnelli plied his political connections to secure state support for layoffs and massive subsidies for a new, high-tech assembly plant.

Slowly but steadily, however, the Italy in which Agnelli and Fiat Auto once thrived has changed. The institutions of the European Union opened Italy to competition, even in autos. Rival carmakers raced to slash costs, improve quality, and innovate in design. Fiat's European peers, such as France's Renault, restructured and acquired the critical mass to compete globally. Fiat lagged, and is expected to post a net loss of $2 billion for 2002. Its market share in Italy is down to 30%, while in Europe its share has fallen to 8.2%, from 14% in 1990.

Fiat management and shareholders must choose one of two paths. The one favored by politicians seeks to preserve Fiat Auto's status as a national icon, along with most of the company's 50,000 jobs. The other seeks to restore the carmaker's competitiveness, even if that means selling control of the company to General Motors Corp. or another rival, and reducing or ending the Agnelli clan's involvement in automobiles. The latter path is much more painful, but it's the right route. Nothing can bring back the old Fiat or the Italy that nurtured it. But a new course of action may yet yield a reinvented company.

Agnelli was staunchly opposed to the sale of Fiat Auto, the company his grandfather founded in 1899. But he also knew the global economy was changing the rules of the game and urged Italians to embrace the European Union and monetary union. He believed that only the discipline imposed by EU membership and the euro could force Italy to modernize its economy. Agnelli might have moved faster to kick-start that process at Fiat. Now, preparing Fiat and Italy for a more competitive global economy is the smartest way to honor this patriarch.

Edmondson has covered the Fiat saga for a number of years.

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