AM Online

Floundering Fiat cuts jobs in bid to stay independent

Fiat Auto is looking increasingly vulnerable in its bid to remain independent. The Italian manufacturer is rumoured to be preparing another round of production cuts and redundancies in its battle to return to profitability, and to stave off a takeover by General Motors.

Reports suggest around 2,000 more Italian workers will be laid off in October, on top of the 2,400 job losses announced in May.

And last week Fiat said it would shake up top management for the second time in three months, ousting its chief financial officer, Damien Clermont, and handing responsibility for financial targets to Ferruccio Luppi, who worked at Fiat's Agnelli family holding arm.

Clermont's departure from Fiat's inner circle comes almost three months after Paolo Cantarella was ousted as chief executive. As Fiat Auto sales continue to fall in the vital Italian market, creditors are pushing to force the sale of the company before 2004, when its option to sell the remaining 80 per cent stake to GM comes into force.

Fiat has admitted to shareholders it must increase sales in October, November and December if it is to meet its targets. In the six months to June 30, Fiat Auto lost 823m Euros - thanks to factors like poor home-market sales and disappointing demand for the Stilo.

Since then, Fiat Auto's UK boss Jim Blades has left the company, and prices have been rejigged to stimulate sales. This strategy - which has seen prices return to 1992 levels - has started to pay dividends in the UK.

But Fiat needs to see a big sales upturn across all its major markets. At an extraordinary shareholders' meeting in Turin earlier this month, shareholders approved an emergency 3bn Euros bank loan to Fiat, which can be converted into Fiat shares if the group misses its targets. GM currently holds 20 per cent of Fiat Auto.

If Fiat is taken over by GM in the near future, it's likely efforts to cut costs will accelerate. The purchasing and engineering joint ventures will be stepped up, and GM will seek to cut distribution costs. There are no plans to merge dealer networks, or any customer-facing aspects of GM's and Fiat's businesses.

Fiat has promised its creditors to cut net debt from 5.8bn Euros at the end of June to 3bn Euros by the time its board approves 2002 results, probably in March 2003.



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