Overview

Fix It Again Tony

popular U.S. pun on FIAT

In its heydays in the mid 1980s, FIAT produced close to 4 million cars, held a 60% share of the Italian car market, and as a group produced 5% of the GDP of Italy. With a 14% share of the EU's car market, it was Europe's largest car producer by volume, even ahead of Volkswagen. Its political influence until the early 1990s permitted import protection from Japanese and Korean competitors in the Italian market, the much delayed obligatory introduction of the catalytic converters, and plenty of public subsidies, including scrapping funds introduced by the government of Romano Prodi in 1997 (then inducing customers to buy new Fiats with catalysts). Not by accident La Stampa, the Fiat towned daily, had led the campaign to vote for Prodi's left of centre Ulivo list. When Giovanni Agnelli, Fiat's honorary chairman and capo famigli of the owning clan died in January 2003 at age 81, he was mourned in the streets of Turin by 200,000 people. Obituaries likened him to an "uncrowned King of Italy".

Yet by the time of his death Fiat Auto was hemorrhaging cash. Past policies to cut R&D had left the auto-maker without a competitive new model. The capital accumulated during good years had seen spent on a diffuse diversification binge.

Sitting on 50 billion of loans downgraded to junk bond status, Fiat's friendly Italian bankers were turning less friendly. As General Motors, Fiat's minority shareholder was unwilling...