“Fiat May Follow in Volvo’s Tracks”

When Volvo was purchased for $6.5 billion by Ford Motor Corporation, Fiat managers felt spurned. The reason is that they had offered double the price but their deal was rejected. As a result, Fiat felt that it was losing the last thread of hope to consolidate in an industry where consolidation is the name of the game.

Fiat cannot consolidate with another car maker from the European Union such as Renault because layoffs are very difficult, unpleasant and costly under the laws of the EU. At the same time, there are no other companies that Fiat can consolidate with.

Fiat is suffering a lot in its car making division. First of all, the company’s $52 billion in sales of 1998 have dropped by 50% in 1999. Secondly, even in Italy the market share has dropped seriously as a result of competition. Fiat has usually targeted the lower end of the market, but now it is facing serious competition from Korean companies such as Daewoo and Hyundai. Fiat’s major pain is that it is a middle-sized car maker that exists in a world where the medium manufacturers such as Renault are squeezed out of the market.


Fiat is suffering a lot in its car making division

What Fiat managers are planning for right now is to sell their car division since they will not be able to acquire another player, specifically one whose models do not compete with those of Fiat. The mission, however, sounds impossible, and Fiat’s awes may be far from over, especially that very few are actually interested in a car maker that is losing its market shares and that does not have any presence in major car markets such as North America or in the emerging markets.

Fiat’s problems are further increased by the losses in the agricultural vehicles division due to the downs in that sector. The year 1999 is even expected to be worse for Fiat especially that a possibility of change does not exist. The larger companies are not interested and the Japanese are unable to invest.

To be or not to be, this is the question of Fiat. It is a matter of survival now for the Italian medium sized player. The Volvo deal was the best and perhaps the only match and opportunity for Fiat to survive.

One reason is that Sweden is outside the European Union, and therefore, the merger would result in laying off thousands of employees without any complexities from the European Union labor and employment laws.

Secondly, both Volvo and Fiat are medium sized companies, and therefore their union could have turned the two companies into a serious power in the industry.

Thirdly, the vehicles of Volvo and Fiat do not compete against each other, and hence, the two companies could have joined and completed each other without any losses of market share to each other.

Fourthly, the deal between Volvo and Fiat would have provided Fiat with the markets in the US and Canada where Volvo is considered to be a favorable player.

The collapse of the Volvo deal was a really terrible blow for Fiat’s hopes for survival. Fiat cannot stay as a medium size player in the industry when every other company is joining some other company in a merger or an acquisition. Eventually, Fiat would be squeezed out of its markets just as the case is going on right now.

Secondly, Fiat cannot seek a merger with Renault or another company in the EU because this would be very costly given the inflexible labor and employment laws.

Thirdly, Fiat cannot seek Japanese car makers because these are already suffering terribly in their markets, and as a result, they need help themselves.

Other car makers are not interested, especially the German car makers who do not want to seek increased market shares at the lower ends of the market.

To worsen the situation of Fiat, there seems to be no other company interested in buying it. This means that eventually, the management might have to shut down the division altogether, but then, this would be a total disaster.

It seems that Fiat will be heading towards a very unpleasant, uncertain and even disastrous future, particularly that there are no outlooks for the future. This may not only be the end of one of the oldest and important car makers, but perhaps the end of the Italian car making industry altogether. The managers and owners of Fiat are now waiting for some miracle to save them, but really, none of them is sure that anything would happen at all. In fact, for Fiat, the case might no longer be “to be or not to be.” Many already believe that it is “not to be.”