A different approach

Fiat will find out if it pays to be different

Sergio Marchionne is living up to his reputation as maverick in the European car industry. The chief executive of Fiat doesn't only eschew ties; he also ignores the latest producers' fad: plant closures and mass layoffs. While General Motors, Ford and Peugeot Citroen are pushing through painful European downsizing programmes, Fiat has decided to abstain.

Marchionne, who shut one plant in Sicily in 2011, argues that in the short term, winding down another one costs much more than it saves. Fiat is betting that the European car market will recover before the long term arrives and is trying to control costs with temporary layoffs. Besides, Fiat is aiming to expand from small and cheap cars into the potentially much more profitable premium segment. Alfa Romeo, Jeep and Maserati are to be made into global upmarket brands. Alfa alone is supposed to triple volumes with nine completely new models by 2016.

The strategy seems to be working reasonably well so far. In the first quarter of 2013, Fiat gained 0.1 percentage points of market share in Europe and its losses there dropped by about a third to 111 million euros. Investors are pleased. Fiat's shares are up about 20 per cent since the start of the year.

This is not Marchionne's first bold bet. In the crisis year of 2009, Fiat teamed up with Chrysler of the United States, at the time widely considered doomed. With a helping hand from the American taxpayer, the Italians quickly turned things around. Fiat has increased its stake to 58.5 per cent and wants to swallow the rest.

Chrysler's healthy earnings have helped to keep Fiat afloat. Will the good news last? A drop in Chrysler's first-quarter profit doesn't bode well, but Fiat insists the problems are temporary, due to the expensive launch of new models.

Financially, a quarrel with Chrysler's minority shareholders might drive up the price Fiat has to pay for the remaining stake, limiting the funds available for investment in the premium upgrade. The risks are numerous.

Fundamentally, Fiat remains a relatively small and poor player in a global market where size and money are crucial. However, the Chrysler experience shows that it's dangerous to underestimate Marchionne.