Contents Page

1.0 - History of Fiat

2.0 - External Environment

2.1 - PESTLE Analysis

2.2 - Porters 5 Forces

2.3 - Opportunities and Threats

3.0 - Internal Environment

3.1 - Strengths and Weaknesses

3.2 - Value Chain Analysis

4.0 - Current Strategy

4.1 - Current Strategic Implementation

5.0 - Issues of Attention

6.0 - Conclusion

7.0 - References

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1.0 - History of Fiat

FIAT was founded in Italy in 1899. FIAT is an acronym for Fabbrica Italiana
Automobili Torino . In 1902, the company was appointed a director, namely, Giovanni
Agnelli. In 1908, the company branched out overseas to the United States where
production increased. Fiat then ventured into other industries such as steel,
electricity and public transport. During the First World War, all production was aimed
at munitions. During the reign of Mussolini, Fiat had to concentrate on the domestic
market. Technological developments were vast for commercial vehicles, aviation and
railway sectors. With the arrival o f the second world war, the production of cars
almost ceased as commercial vehicles had more of an impetus. 1958 marked the
beginning of the economic boom in Italy. Domestic production and that from FDI
increased as the automobile was the driving force of the Italian economy. From 1965
to 1977 production continued to increase along with exports but there was also a rise
in trade union conflicts resulting in 15 million hours of strikes in 1969 collectively.
1978 brought the dawn of robotic assembly equipment . In 1979, the auto sector was
established as an independent company called Fiat Auto S.p.A which incorporated
Fiat, Lancia, Autobianchi, Abarth and Ferrari. Alfa Romeo was acquired in 1984 and
Maserati 1993. Also in this era, other companies were set up. In addition to Fiat
Auto, Fiat Ferroviaria, Fiat Avio, Fiat Trattori, Fiat Engineering, Comau, Teksid and
Magneti Marelli were established, all under the Fiat brand. In the early 1990¶s, Fiat
expanded it product range to international markets which resulted in 60% of it¶s
turnover coming from outside of Italy. Innovation continued in the turn of the
millennium with the introduction of Multijet engines which increase d fuel economy.
More recently, in 2009, Fiat saved GM from collapse in a swift equity acquisition. GM
was hit hard with the credit crisis and now chief executive, Sergio Marchionne, has
the task of developing a strategy in order to help rehabilitate the damaged company
(Betts, 2009). President Obama has faith that the Fiat chief will be able to instil
stability back to the depleted f irm (Betts, 2009). Fiat also had its eyes set on the
acquisition of German giant Opel. It was bidding along with RHJ International and
Magna. Eventually, General Motors decided to pull out of the sale of its subsidiary,
Opel (Robinson, 2009). If this acquisition had been achieved it would have meant a
massive market share in Europe for Fiat and market dominance (Wiesmann, 2009).

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Due to the size of the Fiat group, this report will only focus on Fiat cars and the car
market.

2.0 - External Environment

2.1 ± PESTLE Analysis

Political

Ô Governments and institutions across the world are imposing sanctions on

companies in terms of their CO2 emissions. Two treaties; the European
Climate Change Programme and the 1997 Kyoto agreement have both been
set out in order to reduce emissions and slow global warming (Europa, 2009).
This means an increase in spending from companies on reducing their CO2
emissions with no additional return of capital employed.
Ô Because Fiat is a global company, there is a great deal of trade between
different countries all over the world. Although the EU and Japan have good
trade links, there are still significant tariffs in place that are being worked on
being reduced or abolished (European Union, 2008). There is the bonus of
free trade for Fiat between the EU 27 bloc where there are no trade tarif fs
which allows easy movement of goods.
Ô The Corporate Average Fuel Economy (CAFE) regulation is a piece of
legislation which requires all participating car -makers to manufacture
automobiles with a 27.5mpg average (NHTSA, 2007). For car manufacturers
who do not have the technology to or research and development capacity to
be able to make engines at this economy, it will require money and time to be
able to hit the targets.
Ô The recent expansion of the European Union (addition of Bulgaria and
Romania) means that there are more countries available for Fiat to trade with
within Europe without barriers.

Economic

Ô At present, the global economy is experiencing a downturn. This has meant

that businesses are experiencing loss of profit and downsizing issues. This

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 has been seen in Fiat's operating profit falling by almost a third from October
2008-09 (Financial Times, 2009).
Ô Volatile fluctuating exchange rates mean that for exporters, returns can be
hard to predict. Hedging can be applied but this costs money in the fo rm of
commission and can be a gamble if the exchange rates become more
advantageous (BBC, 2008).

Social

Ô Consumer tastes and preferences play a massive part in the car industr y and
supply is led by demand. Consumers can be so fickle. What is popular one
year or in one country will be ridiculed in the next. An example of this is
General Motors changing the rear lights on their Buick LaCrosse for the
Chinese market. They were changed to the shape of the numeral 8, a symbol
of wealth (Webb, 2006). Manufacturers need to assess the market thoroughly
in order to maximise sales and profits.
Ô There is evidence that consumers are becoming more aware of the power
that they hold over the market and are practicing negotiation skills more
frequently (Bonser et al., 2006). This behaviour can potentially decrease profit
margins for suppliers.

Technological

Ô Because of developments in information communications technology,

companies can readily check on their competitors' performance and
weaknesses (Bonser et al. 2006). These c an be capitalised on, making the
marketplace a much more fiercely competitive place.
Ô According to Millward (2008), there will be a major global oil shortage in the
future. Car manufacturers need to turn to alternate fuels in order to survive
through such shortage.

Legal

Ô The legal issues surrounding Fiat and the automotive industry include the
Kyoto agreement mentioned in other areas of the PESTLE .

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 Ô Government tariffs and legal requirements in countries can make it more
difficult for companies to invest overseas.

Environmental

Ô Global warming and pollution reduction are becoming ever more prominent on
the world stage. This ties in with the Kyoto agreement.
Ô Natural resources such as oil are thought to be running out, which means that
petrol prices are increasing. This opens a new market for fuel efficient and
alternative energy cars.

2.2 - Porters 5 Forces for Fiat

The model uses the 5 forces of competition as developed by Michael Porter and
is a tool that "helps managers evaluate industry competition" (Enz & Harrison,
2009, p.60).

Rivalry Within the Industry

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 Ô Because the competition is so fierce in the industry, Fiat has recognis ed this
and a large stake in the North American manufacturer, Chrysler, (Betts, 2009)
in order to broaden its scope and increase market share. Fiat also looked like
a promising bidder in the sale of GM's European subsidiary, Opel, but this did
not come to pass.

Barriers to Entry

Ô Due to closely placed competitors, there is little room for new entrants. Also
changes in consumer tastes and preferences mean that the incumbents are
constantly monitoring these and adapting appropriately. The only chance a
new entry would have is if it found an unfulfilled desire or a niche in the
market. This is similar to the SMART car, who emerged by developing really
small, economical city car but is owned by Mercedes Benz so had the capital
to create the company (R&D costs, marketing etc.).

Power of Buyers

Ô Due to the constant changes in consumer tastes and preferences, new

distribution channels have had to have been established in order to satisfy
these tastes. There is so much choice, that proximity is becoming more
important to the customer when buying.

Power of Suppliers

Ô Due to Fiat outsourcing more of its materials, this gives more power to
suppliers as there is not as strong a mutual respect between them. Fiat still
uses Magneti Marelli, a wholly owned and prolific Italian auto part
manufacturer. This also has political implications as i t is also an Italian
company and fuels the Italian economy.

Threat of Substitutes

Ô Because of the closeness of the rivalry and large number of incumbents

offering similar products, there is a greater need for Fiat to flaunt its Italian
passion and spirit which makes it unique against its competitors. This is
unique to the brand and cannot be copied.

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2.3 - Opportunities and Threats

Opportunities Threats
Ô Form alliances with companies Ô Exposure to exchange rate
such as PSA Peugeot Citroen, volatility due to the economic
who produce cars of similar price crisis.
and size and quality. Ô Strength of Korean and Japanese
Ô Potential to expand operations in car makers is increasing and
emerging markets such as India, becoming more prominent in the
and China. automotive market.
Ô There is an absence of market Ô Italians are less loyal to domestic
penetration in developed markets brands which undermines Fiats
such as the U.S. loyalty to domestic customers
Ô According to the IMF (cited in
Data Monitor, 2009), the global
economy will slow down sharply in
2010. This will cause a slow in
sales and revenue from all fiats
markets.

3.0 - Internal Analysis

3.1 - SWOT Analysis

Strengths Weaknesses
Ô Fiat has had a long experience of Ô Fiat could be seen to rely on the
the auto industry and aided the European market too much in
development of the industry (Fiat, terms sales and production with
2009). only one plant outside of the
Ô They have control over 5 historic region (Brazil).
Italian firms ± Ferrari, Alfa Romeo, Ô The above point also shows a lack
Lancia, Maserati and Magneti of scale compared to their peers
Marelli (Fiat, 2009). and still have Italy as their biggest
Ô It¶s strength in design ± Italian market (24.1% of revenue for

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 style which differentiates itself fiscal year 2008) (Data Monitor,
from competitors. 2009).
Ô Strong management team Ô Although Fiat finished 2008 with
including Sergio Marchionne its best trading profit ever, the
Ô According to the Reliability Index group made a loss of 410m Euros
(2009), Fiat cars are more reliable in the first quarter of 2009 (BBC,
than the industry average. 2009).

3.2 - Fiat Value Chain Analysis

Using the value chain

analysis framework
(pictured left), the
capabilities and resources
within the business can be
identified and evaluated as
to how they add value to the
goods and products.

Primary Activities
Ô Research and development - The research and development for Fiat is
carried out at two centres: CRF and Centro Stile. In June 2009 (EIB, 2009),
Fiat attained loan finance to fuel it's most recent research and development
project, costing 900 million Euros , compared with 751 million in 2007 (Fiat
S.p.A, 2007). The purpose of this R&D is for: "(i) the optimisation and further
development of fuel-efficient conventional powertrain technologies including
the investments in machinery and tooling for the launch of a new family of
more efficient transmissions, mainly for smaller vehicles application; and (ii)
the development of new more fuel -efficient exhaust systems, powertrain and
electronics components, aiming mainly at CO2 reduction" (EIB, 2009).
Ô Components - Fiat's main component manufacturer is Magneti Marelli, who is
one of Fiat's subsidiaries. This keeps costs lower than if the goods were

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 outsourced. Magneti Marelli also sells to third parties which creates profit to
be used for production or Fiat car components (Fiat S.p.A, 2007). The
company also uses FPT Powertrain Technologies for the production of
engines and transmissions. This is also a subsidiary of Fiat S.p.A.
Ô Final assembly - Comau, the global industry leader, assembles most of the
finished components to complete the manufactu ring process. Because
Comau is the market leader, it can be assumed that the quality of service is
high.
Ô Marketing and service - The Fiat brand is now more reputable than it once
was. It is no longer associated with poor quality and reliability. Since the
arrival of the new CEO, Sergio Marchionne, in 2004, the company has gone
from strength to strength and transformed it's brand image (Marchionne,
2008).

Support Activities

Ô Infrastructure - Good infrastructure in Europe, but not elsewhere, except

Brazil, and 7 plants located in Italy. This could be seen to keep the brand
image "Italian", in keeping with the design and "flair" still coming from Italian
roots. Distribution in America should be aided through the 35% stake in
Chrysler and the use of their distrib ution channels.
Ô Logistics - Because Fiat has many suppliers, the way in which these come
together has to be of great efficiency or it will cause lags in production. Fiat
powertrain technologies have recently created a partnership with CEVA
Logistics, who are a reputable supply chain company, in order to ensure
efficiency in inbound and outbound logistics ( CEVA, 2009).
Ô Human Resources - The high quality of the management tea m, especially
Sergio Marchionne, who has a long successful past in non specific
management.

4.0 - Current Strategy

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In light of the research brought forward, it appears that Fiats currently employs a
global business strategy. This occurs in a n international business environment where
the pressures for cost reductions are high and the pres sures for local
responsiveness are low. This is true due to the squeezed profit margins experienced
by all incumbents of the automotive industry and also the fact that most cars are
replicated globally. Some may change due to legal requirements but these a re minor
issues. In evaluation, this strategy is no lon ger suitable for the changing environment
of the automobile industry. Consumers are gaining more bargaining power, which
means that the need to be more locally responsive is higher than it has been.
Pressures to keep costs low are also higher than ever, which is highlighted through
the number of mergers and acquisitions that have been made with other incumbents.
Recently, in the case of Fiat, these have been Chrysler and Opel . The abundance of
mergers and strategic partnerships has increased significantly in the last few years
with the global economic downturn meaning t he reduction in consumer demand and
reduction of profits. A global alliance could mean sharing resources in o rder to
reduce costs in both parties.

Although the global strategy keeps cost low, which is essential for any car
manufacturer, it does not sufficiently address the needs of consumers in different
markets. The increasing need for local responsiveness to ac hieve customer
satisfaction means that Fiat will need a different method of keeping costs low or even
increasing sales to counterweight the balance o n the profit and loss account.
Responding to local markets may be especially difficult for Fiat to impl ement due to
its style and design being part of it's uniqueness as a brand. It has a well developed
R&D department that uses its expertise to produce the cars looking like they do. To
change that Italian flair to be more conducive to the market of sale would d ilute the
unique selling point of the cars. The adaptation could, instead, take the form of
marketing and sales, not just in the actual product.

4.1 - Current Strategic Implementation

The current operations are formulated predominantly around Italy and the head
office in Turin. All the plants are located in Europe except for the plant which
operates in Brazil. This could be a reason for the firm not performing very well
outside of its domestic market or at most, Europe. A majority of its production still

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emanates from Italy. This means that production can be closely monitored but it also
means that export costs will be higher and the ability to be locally responsive is low.
This is in keeping with the Italian design being a key theme through the brand imag e
and keeping production Italian helps towards that but it doesn't have to. As long as
the research and development centre is based in Italy and has the same Italian
designers, the style can be implemented into the vehicles around the world.

Since the appointment of the new CEO, Sergio Marchionne, the company seems to
be a lot more structured in the way that it is run. It seems as though the decisions
come from the top in a clear cut way. The profitability has increased dramatically
from the appointment and Fiat has looked like expanding once again incorporating a
stake in Chrysler in 2009 and a bid to buy Opel from general motors in order to
secure a large market share in Europe. At present the car industry is in tough times
with demand slowing and costs rising. Fiat have realised this and tried to increase
their size in order to achieve better and more efficient economies of scale. Although
this is good, Fiat has not been able to secure another global strategic alliance in
recent times as other manufacturers have. It would benefit Fiat to attain an alliance
with a Japanese car company such a Honda or Nissan in order to gain knowledge of
local tastes and consumer preferences so as to expand operations there. Also, the
Chrysler alliance needs to be used to its full potential. The American market has
been notoriously hard for Fiat to crack, seeing their exit from the marketplace in 1984
(LA Times, 2009). Apparently, Fiat is to re -launch itself into the US market using the
500 as its weapon. The New York Times (2009) is quoted as claiming that Fiat plans
to take the model into Chrysler dealerships as soon as 2010. This shows the
reasoning behind Fiat forming the alliance with the struggling Chrysler. If these plans
go ahead and the 500 is a success like it has bee n in Europe, it will be a
breakthrough in Fiat history and the dawning of a new age. The vast U.S market will
be opened up and with help from its alliance with Chrysler, can start producing cars
for American consumption.

5.0 - Issues of attention

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Although the global strategy is good in that it keeps costs low, it cannot be sustained.
If Fiat does enter the North American market, then it means that their cars will most
probably have to be modified for the penetration in the market to be sustained. Fiat
left the market in 1984 due to the lack of sales. It seemed that the European style of
the car was not in keeping with the tastes and preferences of the American people. It
is still yet to be seen whether the style of 500 be a success, especially due to the fact
that the 500 very much resembles the old 500 released in 1957 (Life In Italy, 2009).
If the sale of the new 500 is not fortuitous for Fiat, it will mean that Fiat will need to
change to a transnational strategy so that the vehicles can be tailo red to the tastes
and preferences of the American consumers. The transnational strategy is most
effective where cost pressures are high and the need to be locally responsive is also
high. As Becker stated, since 2000, the proportion of profit yielded from each car
produced has seen a significant decline (Becker, 2006) . Combine this with weak
capital markets, stock exchange crises, political insecurity, decrease in disposable
income and increasing job risk driving down demand and global discount competition
between manufacturers competing in the non -luxury car market, and it stresses the
intensity of these price pressures (Becker 2006). This strengthens the prominence of
cost pressures and, the re-entrance of the American car market, highlights the need
adapt to local tastes and preferences.

The implementation o f this new strategy relies heavily on the partnership with
Chrysler. As Fiat took a 35% share in Chrysler, this is likely to be a deal on Fiats¶
terms, so the feasibility of the strategy is of a high l evel. The implementation will
involve Fiat using the Chrysler dealerships in the U.S. to stock their cars. This will aid
brand recognition and trust as it is associated with a major American car
manufacturer. Under the terms of the deal, in return, Chrysler will have access to
Fiat fuel efficiency technologies (BBC, 2009). As highlighted in the PESTLE analysis
section of the report, environmental issues are becoming ever more important to
consumers, manufacturers and governments. This may be the cause of the
American consumer interest in the new Fiat 500.

6.0 - Conclusion

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In conclusion, the future of Fiat rests on the ability of the car industry to recover from
the current downturn in demand and is also dependent on the success of the
imminent exploits in the U.S., primarily, in the form of the launch of the 500.
According to the IMF (cited in Data Monitor, 2009), the world economy will decline
further in 2010, which suggests that the car industry will not pick up until after the
global economy has begun to recover. In addition to this, the fact that the distribution
channels belonging to Chrysler can be used, does not mean that the new model will
sell in America. Market research and consumer intelligence needs to be taken into
account before any vent ure is undertaken. There may not be another chance for Fiat
like there was last time.

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