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Chrysler is Fiat's next challenge

Sergio Marchionne, though not a 'car guy,' led the Italian carmaker's revival. With the Chrysler-Fiat alliance, his reputation as a turnaround artist is on the line.

May 02, 2009|Martin Zimmerman and Maria De Cristofaro

LOS ANGELES AND ROME — Sergio Marchionne is routinely hailed as the savior of Fiat, the man who transformed the Italian automaker from a punch line into a player.

The mayor of Turin, the city in northwestern Italy that Fiat calls home, is a fan -- and not only because Marchionne kept the local car factory open and even gave it a fresh coat of paint.

"One thing he hasn't been able to do is beat me at cards," says Sergio Chiamparino, who occasionally takes on the auto chief in bouts of scopone scientifico, a traditional Italian card game.

Marchionne, 56, is going to need better luck to succeed at his latest automotive challenge. Fiat has struck a global partnership with Chrysler, the struggling American carmaker that on Friday held its first hearing before the New York judge overseeing its Chapter 11 bankruptcy case.

Chrysler suffers from many of the same maladies that afflicted Fiat when Marchionne took over five years ago: falling sales, too much carmaking capacity, fractured finances and a battered image. Fiat didn't bet the house on Chrysler; it's exchanging small-car know-how and technology, not money, for what someday could be a major foothold in the North American market.

But Marchionne's reputation as a turnaround artist is on the line. The classic outsider and number cruncher in a world of "car guys" will have the chance to prove that his success with Fiat was no fluke.

Indeed, Marchionne's track record at Fiat was one of the reasons the Obama administration pushed Chrysler into the arms of the Italian automaker.

"Part of the attraction of Fiat is the quality of its management team and the success they've had in turning around what was a troubled company," said a senior administration official, who declined to be named because he was not authorized to speak publicly about the alliance. "We expect Chrysler to get the full benefit of that."

Although Marchionne likes fast cars -- he totaled a Ferrari, which Fiat makes, in 2007 -- he didn't study for the role of automotive kingmaker at test tracks or in design studios.

The son of Italians who moved to Canada when he was 14, Marchionne worked as a lawyer and accountant there before moving to Europe to run a couple of Swiss companies. A growing reputation as a restructuring expert landed him a seat on the board of sputtering Fiat. A year later he was chief executive.

When Marchionne arrived in Turin in 2004, "Fiat was run by interesting and fun people who wanted to build interesting and fun cars, but they never stopped and said, 'Can we make any money at this?' " recalls Karl Brauer, editor of auto website Edmunds.com. "Marchionne came in and changed all that."

He also brought with him the kind of executive quirks loved by writers of magazine profiles. In interviews, he has revealed a passion for jazz, Russian literature and opera, and he reportedly chain-smokes his way through a daily grind of nonstop meetings to the accompaniment of Bach. In the land of Armani, Marchionne favors a more laid-back wardrobe built around the casual sweaters -- cotton in summer, wool in winter -- that have become his fashion trademark.

But there was nothing casual about Marchionne's approach to the auto business.

Fiat, which also owns the Maserati and Alfa Romeo brands, was in disarray when he arrived. Two members of the Agnelli family, the company's biggest shareholder, had recently died, and there was a leadership vacuum.

The automaker had pulled out of the U.S. in the mid-1980s, in part because of a reputation for poor quality. Fiat, Americans joked, stood for "Fix it again, Tony." (It's actually an acronym for Fabbrica Italiana Automobili Torino -- Italian Factory for Automobiles in Turin.)

The company was losing ground in its home market and was beset by labor problems. It had lost $2.4 billion the year before and was burning through cash at an alarming rate.

Marchionne quickly began shaking up the management ranks, sacking dozens of entrenched executives and trying to instill a sense of accountability. He set goals and expected them to be met -- or else.

Before his arrival, "there were no consequences if targets were not met," said Giuseppe Berti, an industrial economist at Bocconi University. "Marchionne made cuts to management and set reachable targets. However, if those targets were not met, there were consequences for the managers who failed to meet them."

The new boss quickly demonstrated his negotiating skills by wringing a badly needed $2 billion out of General Motors Corp. in return for unwinding a soured alliance the two companies had formed in 2000. He also smoothed over relations with Fiat's Italian unions, even earning the sobriquet compagno (comrade) among some of his workers.

"Marchionne has brought innovation to relations between workers and management in Italy," union leader Giorgio Airaudo said. "So far he has honored his commitments with the trade unions . . . and that wasn't always the case with his predecessors."

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