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July 19, 1999 01:00 AM

HOW FIAT EXTENDED ITS INFLUENCE BEYOND ITALY

Luca Ciferri
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    TURIN - Fabbrica Italiana Automobili Torino, which was founded here on 11 July 1899, could have gone out of business within a few years, just like the city's many other small, artisan carmakers. In its first full year of production, just 24 cars were built.

    No one could have foreseen the future. Except maybe Giovanni Agnelli, who as secretary to the board was just a minor figure in Fiat when the company was founded. The chairman was Ludovico Scarfiotti and Emanuele Cacherano di Bricherasio was vice chairman.

    Most of the company's founders saw Fiat as just one of their many business interests. But Agnelli, a former cavalry officer, had a different vision. After becoming managing director in 1902, he became convinced that the company not only needed to make cars, it needed to create an image for itself. One of his early promotional ideas - a tour of Italy by automobile - finished at the popular Milan Fair.

    He also promoted a product diversification that led Fiat to branch out from cars into light commercial vehicles, heavy trucks, buses, tram cars, trains, airplanes and big diesel engines for ships. At the same time, Agnelli wanted international diversification, not only through exports but also by building new plants abroad.

    The first attempt to build cars under license in the USA, in 1909, was not very successful. The plant in Poughkeepsie, New York, closed in 1918.

    But Fiat created the automotive industry in Poland, starting in 1921 with FSO (now owned by Daewoo) in Warsaw and later with FSM, now Fiat Auto Poland. It also launched auto manufacturing in Turkey, the former Yugoslavia, Egypt, and even Spain. But Fiat's greatest international adventure was at AutoVAZ in Togliattigrad, Russia - one of the biggest technology transfers in industrial history. Not only was a complete car plant, capable of 660,000 units a year, installed by Fiat, but also an entire network of suppliers producing everything from sheet metal coils to tires.

    As an example of vertical integration, Togliattigrad's only rival was Ford Motor Co.'s Rouge plant in Dearborn, Michigan, USA.

    The contract for Togliattigrad, signed in 1966 in the middle of the Cold War, was the diplomatic masterpiece of Vittorio Valletta, a tiny man who had been the right hand of Giovanni Agnelli from 1921 until the cofounder's death in 1945.

    It was the capstone of Valletta's career. While Valletta served as chairman and managing director from 1945 until his retirement in 1966 aged 82, Fiat grew to become Italy's biggest industrial conglomerate.

    Today, Fiat represents 4.4 percent of the country's gross national product and 3.1 percent of the work force.

    The Agnelli family had always been Fiat's controlling shareholder, but was never deeply involved in day-to-day operations. The only male son of Giovanni Agnelli, Edoardo, died on 14 July 1935 at age 43 in a airplane accident. Gianni Agnelli, Edoardo's eldest son, then joined the board at age 21. He was to remain on the board for 53 years, serving as chairman for 30.

    Shortly after Gianni Agnelli announced plans to retire in 1996, he recommended that Giovanni Alberto, the eldest son of his younger brother Umberto, take over as chairman. But the heir apparent was discovered to have cancer. He died in 1997 at 33.

    Cesare Romiti, Fiat Group's managing director since 1976, was named chairman in 1996. He retired in June 1998, leaving the post to another outsider, Paolo Fresco, who came from General Electric Corp.

    The Fiat Group that is entering its second century is closer to the company that Giovanni Agnelli and Vittorio Valletta shaped: an automotive industrial conglomerate. Many of the diversified activities bought in the 1970s and 1980s, during Romiti's tenure, have been sold to concentrate on the core business. Recent acquisitions have positioned agricultural equipment subsidiary New Holland and machine tool maker Comau among the world leaders in their respective sectors. And Fiat says it has $10 billion ready for acquisitions to strengthen its two biggest subsidiaries: Fiat Auto and Iveco.

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