United Press International

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October 16, 2002
Feature: Italy's Fiat at a crossroads
By ERIC J. LYMAN
UPI SpecialCorrespondent
TURIN -- Perhaps the problems for Italian car maker Fiat can be summarized by the cars parked outside a recent emergency meeting
between company and government officials, when only Fiat representatives showed up driving vehicles produced by that troubled
company.

Fiat's bosses arrived at the meeting near here driving an array of Lancias and Alfa Romeos -- the luxury brands in Fiat's portfolio. But
Prime Minister Silvio Berlusconi appeared in his dark Mercedes-Benz and Finance Minister Giulio Tremonti arrived in a BMW. Even
Gianni Letta, one of Berlusconi's key advisers, drove up in an Opel, a small car brand considered one of Fiat's leading rivals in Europe.

"I'm not sure how much should be read into what cars people use to arrive to a meeting, but it cannot be a good sign," Olivero Cociatella,
a social commentator and author who was at the meetings, told United Press International.

"One way to look at it is that the government was there to evaluate whether or not to use taxpayer money to help out Fiat, and with their
selection of cars, the government officials in effect said that they didn't believe enough in the company to spend their own money on
Fiat's products," he said.

The very fact that Fiat is in need of such an emergency session a decade ago would have been unthinkable. But now, plunging sales,
widespread worker strikes and hundreds of millions of dollars in red ink, have crippled the once-mighty Fiat dynasty, which is facing the
darkest chapter in its 103-year history.

According to the latest Ministry of Transportation figures, Fiat now has only 28 percent of the Italian car market -- only six months after
dipping below the 30-percent level for the first time. More than half the cars in Italy were made by Fiat as recently as 1993.

Now the company is on the verge of selling its core car-making division to General Motors, the U.S. company that traded 5 percent of its
shares for 20 percent of Fiat's two years ago.

The move would allow Italy's 81-year-old business icon Gianni Agnelli, whose family controls Fiat, to focus on the industrial giant's more
profitable holdings that range from insurance and banking to property development and electricity.

But a sale would also end an era in Italian business history. Fiat was founded by Agnelli's grandfather in 1899 as the Fabbrica Italiana
Automobile Torino (the Italian Automobile Factory of Turin), and it the main industrial engine behind the country's post-war reconstruction.

By the company's heyday in the 1980s, it was responsible for a staggering 5 percent of Italy's gross domestic product, a level reached in
the United States only by combining the 22 largest companies in last year's Fortune 500.

Commentators have placed the blame for Fiat's dramatic fall on an array of factors: the company hesitated too long before expanding to
high-margin markets, an Italian population that has grown too cosmopolitan to be satisfied with Fiat's limited line of vehicles, a
under-funded development budget that left Fiat's design team chasing concepts produced by rivals, or a natural development in a sector
that has been consolidating for years.

The government meeting produced no solutions for the company, which insists it has not yet made a decision on the fate of the
money-losing car division.

Berlusconi said he is considering a government-guaranteed syndicated loan from five of Italy's leading banks that could hand the
company enough cash to again challenge Volkswagen, Peugeot and Renault, Fiat's main European rivals. But that move could be
blocked by bank of Italy rules limiting the amount banks can loan to a single business, and by the European Union, which limits the kind
of aid governments can give private companies.

Others hope that Fiat's leadership -- the company is headed by former General Electric vice president Paolo Fresco, and former GE
leader Jack Welch sits on Fiat's board -- will come up with its own rescue plan.

A week ago, the company announced a wide-ranging restructuring plan that is examining everything from ad spending to employee
vacation packages, but it is unlikely that the company can right its own ship without help.

The most likely white knight is still GM. Earlier this week, the company wrote off most of its two-year-old $2.4 billion investment in Fiat as
a loss. That is the best sign yet that the company is looking to buy most of the Fiat shares it doesn't already own, since the move implies
a low value for the remaining 80 percent of Fiat's shares.

Analysts say that if GM does acquire control of Fiat, Italy should brace itself for another round of layoffs, as the parent company would
look to slash costs and integrate operations as a way to return beleaguered Fiat Auto to profitability.

Nowhere is the company's pain being felt more than in Turin, the city Fiat put on the map. So far this year, the automaker has handed out
11,700 pink slips, about one-third of them in Turin.

Counting suppliers and related businesses also suffering in Fiat's wake, city officials estimate that around 11,000 Turin residents -- just
under 4 percent of the city's workforce -- lost their jobs in the first six months of this year alone.

But while displaced workers in other parts of Italy angrily march on local Fiat offices to protest layoffs, people in Turin say they feel more
betrayed than angry.

"Just look around and you can see the optimism that people have here has been drained away," Oscar Margotta, a retired Fiat worker
who also worked for eight years as a liaison between Fiat and the Turin city government, told UPI.

"Fiat had always been like a protective father for Turin. What has happened to Turin is something that eventually happens to all of us: we
realize that the invincible father has become feeble and old," he said.
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