Fiat Chairman Umberto Agnelli's Death Raises Questions About Family's Future Grip on Company

ROME May 28, 2004; Alessandra Rizzo writing for the AP reported that the death of Umberto Agnelli, Fiat's chairman and the last member of its old guard, marks the end of an era at the Turin-based auto giant and raises questions about the family's future grip on the company.

Agnelli's death came as Fiat battles to rebound from its worst financial crisis ever. It also occurred with crucial developments on the horizon: An option to sell its auto operations to General Motors Corp. comes into effect next year; and a huge loan comes due -- meaning banks could theoretically wrest control of Fiat from the Agnellis.

Agnelli, who died of cancer Thursday night, ran Fiat for 15 months after the death of his elder brother, Giovanni Agnelli. Who might succeed them now is unclear.

"The family no longer has clear leadership," said Matteo Bonizzoni, an automotive analyst at Kepler Equities in Milan.

Fiat might be looking at current CEO Giuseppe Morchio -- who has had a major role in putting together a restructuring plan that analysts say is bringing Fiat back to financial health -- to lead the company while the younger Agnelli generation builds the necessary experience.

The Agnellis had groomed Umberto's son as the Fiat heir, until he died of cancer in 1997. After that, the family looked toward Giovanni Agnelli's grandson John Elkann for a long-term successor. But he's only 28 -- likely too young to oversee a conglomerate with over 162,000 employees.

"He has always been very responsible, very aware of his mandate to ensure the family's continuity," said Fiat historian Valerio Castronuovo. "However, it is difficult to see John Elkann as chairman at such a young age."

This absence of an obvious successor comes at a tough time. In 2002, the year before Umberto Agnelli took over, the Fiat Group lost 4.3 billion euros; after a year at the helm, they had narrowed to 1.9 billion euros. The company issued a restructuring plan, sold off non-auto assets and started focusing on its carmaking core business.

First-quarter results presented earlier this month showed losses were narrowing.

Fiat said it lost 194 million euros ($230 million) for the January-March period from 681 million euros a year earlier, with an operating loss was 158 million euros ($187 million) in the quarter versus a loss of 342 million euros last year.

Revenue fell to 11.2 billion euros ($13.2 billion) from 12.3 billion euros.

The company's biggest division, Fiat Auto, cut its operating loss to 192 million euros ($227 million) from 334 million euros.

"These results were unhoped-for a little over a year ago," Morchio said at the time. "The company is still not healed in all of its units, but we have achieved important improvements through hard and difficult work."

The company also confirmed its targets: reaching break-even at the operating level this year; doing the same at Fiat Auto by the end of 2005; and returning the entire group to profitability in 2006.

Fiat pledged that the worst hemorrhaging was over. But losses are still there.

The company's stock closed up about 2 percent Friday. Some market traders wonder whether Fiat without a powerful Agnelli at the top might be more willing to take unpopular cost-cutting measures -- and perhaps even sell off the auto business that has been the chief financial drain.

Giovanni Agnelli and then Umberto both fought hard to save the auto business that made their family fortune. But that could change now, analysts said.

"Selling, even at a low price, would be appreciated by the market," said Bonizzoni.

Starting next year, Fiat could seek to exercise an option to sell its auto operations to General Motors Corp., which bought 20 percent of Fiat Auto in 2000.

Also looming is the due date of a 3 billion euro loan that eight banks gave in 2002 and that could be converted into equity in the autumn of 2005.

If that occurs, the Agnelli family's stake in Fiat would decline to around 22 percent from the current 30 percent, while the combined stake of the banks would be around 26 percent. For the first time in Fiat's history, the Agnellis could lose control.

Bank officials have given mixed signals on whether they might be willing to convert the loan.

But even the talk of a Fiat without Agnellis shakes Italians who grew up with the legend of the family. "We are accustomed to associating Fiat's name to the Agnelli name," Castronuovo said.