Fiat Announces Proposed Plan to Resolve Fiat Auto Crisis
TURIN--Oct. 9, 2002--The European automobile market remains in the grips of a severe downturn in demand, which fell approximately 4% in the first nine months of 2002 with respect to the same period a year earlier.Although government incentives for the purchase of new vehicles softened the slump in demand, new car registrations declined by nearly 11% in Italy between January and September, as compared with the previous year.
Considering the low rate of growth in the European economy and uncertainty over its development, substantial changes in these trends are not foreseen over the short and medium term.
Fiat Auto in particular is suffering from the negative impact of these unfavorable trends. The market downturn has impacted the company just at the time it was making a major effort to overcome problems that caused its sales decline and poor earnings performance and to become more competitive.
This effort is aimed at:
| -- | updating its product line to improve its presence in more profitable market segments, including entry in segments where Fiat Auto currently does not have a presence |
| -- | increasing sales on European markets, thereby reducing its dependence on the Italian market |
| -- | increasing sales through more profitable channels. |
In view of these goals, Fiat Auto undertook a tough, detailed plan of action at the beginning of 2002 based on developing new models, strengthening its sales operations, and cost cutting.
In the area of product innovation, Fiat Auto has a capital spending and research and development program underway calling for average annual investments of 2.5 billion euros between 2002 and 2005. These investments are aimed at creating new products, which will be used to gain a foothold for the company in growing market segments where it currently does not have a presence. At the end of this process, Fiat Auto models will have an average age of less than four years.
Programs for the joint development of common components as part of the industrial alliance between Fiat Auto and General Motors will make a significant contribution to competitiveness. In 2005, 50% of components will be shared. The cooperation with General Motors will also lead to substantial streamlining of their respective powertrain and transmission output. Introduction of a new generation of powertrains will start in 2003.
In the area of sales operations, Fiat Auto plans call for investing 150 million euros a year between 2002 and 2005 to strengthen its distribution network; increasing sales of vehicles to fleet customers through the hiring of 200 specialized sales representatives; focusing on marketing activities, including the hiring of top-level marketing specialists; and overhauling dealer network sales and technical assistance processes to build up customer loyalty.
The planned investments in products and the sales network will lead to a stronger position in various segments and, at the same time, greater and more profitable penetration in various markets.
As for costs, Fiat Auto has already undertaken major programs both to reduce its inventories and contain its operating and overhead expenses.
The company is also preparing a staff reduction plan that calls for placement of employees under the long-term unemployment benefits program, in accordance with the agreement signed with the Italian Ministry of Labor and Social Policy on July 24, 2002. In addition, production has been cut back through recourse to the Government's Layoff Benefits Fund, which is close to being exhausted in some industrial areas.
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The large, permanent difference between production capacity and sales volumes has undermined the effectiveness of the cost cutting measures taken thus far, severely impacting the profitability of Fiat Auto.
It is absolutely necessary for the company to return to profitability in order to finance the development of new products, reposition itself on the market, and improve its competitiveness. This will make it possible to launch a positive cycle of growth that could be further strengthened by recovery in the domestic and international economy. Thus, a more rigorous plan for comprehensive cost cuts must be adopted, including reorganization of management structures.
In order to reduce a major portion of its costs, the company will request a "declaration of corporate crisis" at Fiat Auto and some Comau and Magneti Marelli plants, whose activities are closely linked with the performance of Fiat Auto.
The declaration of corporate crisis will involve laying off approximately 5,000 Fiat Auto workers and 600 component workers for one year starting in December 2002, with recourse to the Government's Special Layoff Benefits Fund ("Cassa Integrazione a Zero Ore").
Approximately 2,000 other workers will be laid off with recourse to the Government's Special Layoff Benefits Fund starting in July 2003, when production of the Panda model will be terminated.
Furthermore, at other Group Companies plans envisage long-term unemployment programs for workers who will, during the period, become eligible to retirement benefits. Said programs will involve 300 component workers and 200 employees belonging to Service companies and Parent Company businesses for a total of 500 people (300 of whom in the Turin area).
Overall, recourse to the Government's Special Layoff Benefits Fund and long-term unemployment programs will involve approximately 8,100 Fiat Group employees.
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Recourse to the Government's Special Layoff Benefits Fund for one year, starting in December 2002, will be made in the main areas as follows:
-- in Turin
for 1,000 Fiat Auto workers and 350 Comau and Magneti Marelli workers, who represent less than 5% of Fiat Group employees in the Turin area.
In July 2003, recourse will be made to the Government's Special Layoff Benefits Fund for another 2,000 employees (1,700 at Fiat Auto and 300 at Comau Service) due to termination of the production of the Panda model.
It is expected that production line workers will generally be able to return to work when production of new models starts and volumes increase.
In the case of other workers, a plan will be set up to provide them with training for new jobs and possible additional use of pre-retirement allowances.
-- in Arese:
for approximately 1,000 employees (about 25% of employees in the hub and 50% of Fiat Auto employees in the area) upon transfer of low environmental impact vehicles and experimental production to Turin. Plans call for employing these workers in new activities to be locally started up by the buyers of the area; preparation of a plan to retrain workers for new jobs; and possible additional use of pre-retirement allowances.
-- in Cassino:
for approximately 1,200 workers, or 25% of employees, who may return to work during 2003 according to increases in production of the Stilo Station Wagon.
-- in Termini Imerese:
for all workers at Fiat Auto, Comau, and Magneti Marelli, totaling approximately 1,800 workers. The resumption of production will depend on increases in volumes for the Punto model.
In Pomigliano, the requested state of crisis may involve a few dozen workers engaged in support activities. The Melfi plant is not affected by the declaration of crisis.
The industrial reorganization and turnaround plans prepared by Fiat Auto will allow the company to respond to market trends with greater speed and flexibility, giving new impetus to the earnings necessary for development.
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The situation of Fiat Auto and Fiat Group Companies affected by automobile market trends was discussed today at a meeting between the Company and national trade union representatives. The Company has expressed its willingness to discuss the measures illustrated in this announcement under the auspices of the Ministry of Labor and Social Policy, as part of the October review envisaged in the agreement signed on July 24, 2002.