Reorganization appears to position Alfa Romeo for sale

["Michael S. Sweigart" <msweigart@domain.elided>]

I pulled this down from today's Automotive News:
http://www.autonews.com/article.cms?articleId=37525 
-Michael in New Joisey


TURIN, Italy - General Motors may end up owning Alfa Romeo and
tightening its alliance with Fiat Auto S.p.A as a result of a
reorganization by the Italian automaker. 

The floundering automaker named Giancarlo Boschetti, the 62-year-old
head of Fiat Group's Iveco heavy-truck and bus subsidiary, to replace
Roberto Testore, who has run Fiat Auto since February 1996. 

Testore, 49, resigned Dec. 10 to accept responsibility for Fiat Auto's
poor financial performance. 

From 1998 through 2000, Fiat Auto reported a combined $1.22 billion in
net losses. Although Testore had promised a $135 million to $181 million
operating profit this year and a symbolic net profit, Fiat internal
documents published in Italy last week say Fiat Auto will lose $436
million at the operating level this year. 

'Fiat needed new driver' 

But Testore also disagreed with Fiat's reorganization into four separate
business units - and gave it as a reason for resigning. 

"I've been driving a different Fiat Auto. This new Fiat Auto needed a
new driver, and I think that Boschetti has the right experience as he
successfully realized a similar transformation at Iveco," said Testore
in an interview with the Fiat-owned newspaper La Stampa. 

Under the reorganization, Fiat Auto will act as a holding company for
four subsidiaries with staff, financial control and coordination
functions. 

It also will continue to oversee the strategic alliance with General
Motors and joint ventures with PSA/Peugeot-Citroen for minivans and
light commercial vehicles. 

Each unit will be "fully responsible for its individual economic and
financial performance, including separate product development,
production, marketing and commercial organizations," Fiat said. 

By making Alfa one of the four standalone business units, the
reorganization positions it for sale to GM, which has high hopes for
reintroducing the sporty brand into the United States in 2005. GM will
sell Alfa cars through one of its distribution channels - most likely
Cadillac or Saab. 

The sale of Alfa would yield several billion dollars for Fiat, allowing
it to reduce its estimated $7 billion debt. At the same time, the stated
wish of Fiat patriarch Giovanni Agnelli to remain in the car business
would be fulfilled by keeping Fiat, Lancia, Ferrari and Maserati. 

Strengthening GM ties 

Fiat said the reorganization will tighten its strategic alliance with
GM, even though it will issue $2.2 billion in five-year bonds
convertible into GM shares - a guarantee that accounts for its entire
6.1 percent stake in the U.S. automaker. But GM said it was
"comfortable" with Fiat's plans. 

"We back the Fiat group restructuring plan because it is in our interest
to have a strong partner on both the financial and business side," said
GM spokeswoman Toni Simonetti. 

Angry dealers, suppliers 

Meanwhile, sources say, a revolt by angry dealers and suppliers fueled
last week's surprise upheaval. 

Suppliers say they cannot afford the annual 5 percent price reduction
demanded by Fiat as it cuts production. 

"The reductions have become unsustainable while volumes decrease," said
a supplier source. Fiat has cut 100,000 units from its fourth-quarter
production schedule, about 20 percent of what was planned. 

Dealers are angry because they say Fiat's brand enhancement program is
being undermined at the close of each month by "self-registrations." 

One Fiat retailer said dealers across Europe are pushed to register
thousands of new cars to artificially meet market-share targets decided
in Turin. The cars then must be sold at the beginning of the following
month as zero-mileage used cars with discounts of 15 percent to 30
percent. 

The final blow may have been signs that the new Stilo subcompact - on
which Fiat is counting heavily - is missing sales targets. 

Testore promised that the Stilo, which replaced the slow-selling Bravo
and Brava in early October, would lead a volume and profits turnaround. 

But in Italy at least, the Stilo launch seems to be troubled. Three
months after bringing it to market, Fiat put sales incentives on it on
Dec. 3

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