A Fiat Heir's Bold Breakup Plan

"His appointment will make Fiat's governance similar to Ford's"

For almost a century, the Agnelli family has been a symbol of Italy's wealth and industrial prowess. Yet in recent years, the top job at the family-controlled Fiat unit had been held by an outsider. No longer. On Apr. 20, Fiat named Agnelli heir and board member John Elkann to become chairman of Italy's biggest carmaker, replacing Luca Cordero di Montezemolo, who is retiring.

The 34-year-old scion assumes leadership at the Turin-based company, whose auto holdings include Fiat, Alfa Romeo, and Lancia, at a critical time. On Apr. 21, Fiat said it will break out its truck, tractor, and other industrial operations into a new unit, leaving its carmaking and car parts businesses in Fiat. The idea is to give the auto unit, run by CEO Sergio Marchionne, an independent identity that will make it easier for investors to value the company—and for the car company to raise capital and expand. Last June, Marchionne acquired 20% of Chrysler and became its CEO.

Fiat's new chairman, who's equally at ease in yachting whites and boardroom pinstripes, is expected to move more forcefully to expand the company's auto unit now that he's firmly in control. The Agnellis own 59% of Exor, a publicly listed investment company that in turns owns a controlling stake in the Fiat group. Elkann, the grandson of former Chairman Giovanni Agnelli II, has run the family holding company since Agnelli's death in 2003.

"Fiat ended a generational transition and the owners [have] come back to head the company," said Luigi Angeletti, head of the Italy's Union of Labor (UIL). Adds former Italian Prime Minister Romano Prodi: "Experience isn't his biggest strength. But he's a wise and intelligent guy."

Elkann backs the ambitions of Marchionne, who has said only the largest carmakers will survive in the long term, to turn Fiat into a larger global player through acquisitions. Although he bagged a stake in Chrysler, he unsuccessfully bid last year to buy General Motors' Opel unit in Germany.

By separating industrial operations from carmaking activities, which accounted for 56% of its 2009 sales, Marchionne may be able to move more quickly to sell shares and use the cash to pursue acquisitions and car industry alliances. "The spin-off is very positive for Fiat as it helps to bring out the value from the Italian carmaker," says Karim Bertoni, who helps manage $18.5 billion at Geneva-based Banque Syz.

Just how much Elkann will assert himself in his new role is unknown. Marchionne has been used to a large amount of management freedom, and few expect Elkann to change that. Predicts Prodi: "His appointment will make Fiat's governance similar to Ford's (F), in which the management role is covered by businessmen, while the family covers only an institutional role."

The bottom line: A freed Fiat auto unit under Marchionne's control will be in a very acquisitive mood if it can raise the capital it needs.

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