Fiat Auto: The Italian Giant in Trouble

Fiat's diversification drive during the late 1990s had left the group with huge debts as some of the investments and acquisitions proved to be disappointing. While the group, in 2001, had revealed plans to reduce its net debt to €3 billion from €6 billion by end of 2002, the net debt further increased to €6.6 billion by mid 2002. Fiat's mounting debt and disappointing financial performance had an adverse affect on its share price, which declined sharply during early 2002 (Refer Exhibit I and II for Fiat's financials and share price movements). Paola Cantarella (Cantarella), the CEO of the Fiat group, was blamed by many industry observers for the crisis the group was in. He was accused of not giving sufficient attention to the group's flagship division, and letting competitors eat into its market share.

According to reports, the differences in opinion between Umberto Agnelli (Umberto), the head of the Agnelli family after Gianni Agnelli, and Cantarella played a major part in the latter's decision to resign. It was even reported that Umberto was inclined to remove Fresco from the group as well. While Fiat's diversification moves had often been looked at disapprovingly, it was FA's decline that attracted the most attention. Once a strong player in the global passenger car market, FA had become a company known for lackluster brands and fading brand equity; it was losing cash faster than Fiat could infuse fresh capital in it. As these problems continued, industry observers expressed regret about the sorry state of affairs of one of Italy's most popular, global brands.