Sergio Marchionne's surprise visit to the CL meeting in Rimini to listen to President Giorgio Napolitano's speech is too full of suggestions to be classified as an event of ordinary administration. And in fact it is not, above all if one considers the delicacy of the moment that Fiat is experiencing on the Stock Exchange. "I promised him" he limited himself to commenting on the CEO of Lingotto, flashing his feeling for him with the Head of State.
Laconic comment from which we get the news of a previous meeting (which escaped the mass media) between the president and the CEO of Fiat. Confirming that the "American" Fiat maintains solid Italian roots and intends to participate in the effort to emerge from a culpably underestimated crisis, as the Chairman was keen to point out. But also confirming the delicacy of the situation of the Turin house, a sort of anticipation of a warm autumn which, as usual, is destined to mark the near future of the Italian economy.
The Napolitano-Marchionne meeting in Rimini suggests some reflections on Fiat and its difficult moment. Here they are:
a) The stock market crisis of Fiat and Fiat Industrial risks jeopardizing the roadmap for the integration between Fiat and Chrysler. Marchionne defends himself and defends Fiat by reiterating that the group is "solid" and that the stock exchanges are often "irrational" and that, at the moment, the only thing that matters is to increase the "credibility" of all players in the field, States or companies that they are.
Certainly the landslide of the title has explanations that do not concern only the Lingotto. Over the past three weeks, the Global Auto Index has lost about 18 percent, a third more than the market as a whole. Under the threat of a new recession, industry sales estimates are shrinking visibly: JD Power speaks of 75-77 million vehicles for 2011, 10 million less than the early July estimates.
b) But Fiat remains the house most exposed to the reversal of the cycle: since the beginning of the year, the four-wheeler company has left around 40 percent on the ground. Even more, the expectations of operators have been shattered. Only a few weeks ago financial analysts revised their estimates on Fiat upwards, after the consolidation of the Chrysler accounts, capable of earning three times as much in a month as the rest of the group.
Today, on the contrary, it is emphasized that the Detroit subsidiary has positive assets only thanks to goodwill, i.e. an intangible asset. A circumstance that did not prevent GM, just a year ago, from entering the Stock Exchange with some success. But which, on the contrary, if the scenario does not change, will push the rating agencies to downgrade the group's rating in October, with serious effects on the debt front. This also explains the sudden change in analysts' assessment. Goldman Sachs, for example, envisaged a target price of 13 euros for Fiat, three times the current price.
c) The problems are not just about financial volatility. The sharp drop in the Italian market in July (-10,3%) greatly complicates the group's sales recovery plans in Italy and in Europe thanks to the new models. Added to this are the difficulties in India (where Marchionne said yesterday that relations with Tata will be reviewed and updated) and in the take-off of the joint venture in Russia. In Brazil, the strong market that contributes heavily to the profits of the entire group, Fiat is facing the offensive of Volkswagen, ready to take advantage of the difficulties of the Italian competitor.
d) To get out of the ford, Marchionne will first need to strengthen the assets of Fiat-Chrysler, an alliance with fragile shoulders that cannot afford the luxury of a heavy downturn. Difficult, almost impossible, to hypothesize a Chrysler IPO in such a market that would allow for the liquidation of the union partner, the Uaw, and for the fleshing out of assets. Even more problematic is an operation involving Fiat capital, which in any case is not in the plans of Exor, the majority shareholder. The path of divestments remains, far from easy for now, given the moonlight.
Perhaps the only way forward is the sale of a share in Ferrari. The solution of a minority partner is easier than the IPO. But, apart from the problem of the price (it is impossible to tick off a valuation of 5 billion, as Marchionne would like, for a minority stake), it remains to be seen whether the partners in the limited partnership, Exor's majority shareholder, are all ready to do a sacrifice of this magnitude to support the global car challenge launched by Marchionne at the beginning of 2009.
e) Indeed, the manager in the blue sweater enjoyed great popularity until his formula proved successful. It is now a question of verifying whether confidence will withstand the jolts of the crisis. Or if the shareholders, including John Philip Elkann who fully agreed with all the decisions, will begin to examine different options.
f) a point in favor of Fiat Marchionne actually collected in this hot summer: the validity of the inter-confederal agreement on contracts and industrial relations between the unions and Confindustria, to which the latest government maneuver assigns retroactive effects, thus resolving the dispute over the agreements with Fiat in Pomigliano and Mirafiori. Once this obstacle has been unblocked, pace Landini's Fiom, it is clear that it will be easier for Marchionne to confirm his investment program in Italy and the signal sent to Napolitano and the political class on Sunday perhaps also has this meaning.
