Fiat Survival at Stake Ahead of New Rescue Plan

Drivers frustrated with unreliable Fiats have long dubbed the Italian carmaker "Fix It Again Tony", but as new managers bash out another rescue plan the question is whether they can fix Fiat soon enough to keep it on the road.

After a year lurching through its worst-ever crisis, Fiat is due to unveil the new plan in June. But analysts say it can't simply whip up some magic cure to reverse its losses and must knuckle down to a sound strategy.

The immediate challenge is to make a success of the new Punto city car, due to go on sale in June. If that and three other models due out this year fail to stop the Italian industrial giant bleeding cash, its days may be numbered.

"Once the Punto starts selling we'll have an idea of whether Fiat can make it," said Patrizio Pazzaglia, a fund manager at Bank Insinger de Beaufort. "If we don't see signs of a turnaround in the third quarter, we'll be quite worried."

Chief Executive Giuseppe Morchio, Fiat's fourth CEO in less than a year, has said his plan will focus on innovation, cost control and customer care. But that's just the broad brush.

"There is a very long checklist," said Vivek Tawadey, credit analyst at BNP Paribas. "They need to work on the product side, their quality, distribution, sales, costs and address their working capital and capacity issues. It's a daunting task."

Last year, Fiat pledged to invest 2.5 billion euros a year on new and renovated models to reverse 2002's 11-percent sales slump. The firm has said the fleet of new models should pull its core car arm Fiat Auto and the group back to breakeven in 2004.

In the meantime, high cash burn and 2002's record 4.3 billion-euro net loss have already prompted the top three debt rating agencies to cut the 104-year-old carmaker to "junk".

Fiat, whose shares have halved in the last year, needs to change its image. Its cars are seen as boxy and unreliable and it has a poor record on advertising and after-sales service. Analysts say it can also work closer with other firms in research and components.

"They have some good bits in there. It's a matter of turning around the losses and making some cash out of smaller but better businesses," said Nicoletta Urbani, a fund manager at Sanpaolo.

Fight With Unions

Morchio says there is "great potential" on the cost saving side, especially through its partnership with General Motors, which owns 20 percent of Fiat Auto. But on the biggest expense, Fiat's hands are tied.

Fiat had to battle with Italy's government and unions to slash about 11,000 jobs last year. Analysts say more cuts are needed as Italian labour, about half of Fiat's workforce, is costly and plants are running at less than 70 percent capacity.

"(Chairman) Umberto Agnelli has talked about sacrifices and we fear there will be more radical job cuts," said Giorgio Airaudo, head of the powerful Fiom-Cgil union in Turin. Other unions said more cuts would hamper Fiat's ability to survive.

On the back burner is a put option that allows Fiat to force GM to buy its 80 percent of Fiat Auto from next year but in the next 18 months GM has to decide whether to pay its billion euro part of a five billion recapitalisation of the car unit.

"If it turns its back, it suggests Fiat Auto is still rotten and raises questions over the joint ventures," said Pazzaglia.

Fiat is also expected to call for more cash at the group level after its controlling companies approved capital increases earlier this year. But that might be the toughest task yet.

"I don't have any serious investors in Fiat," said one analyst, who asked not to be named. "Who they think is going to stump up new cash is beyond me."