July 31, 2014 at 11:17 pm

Fiat leaving Italy amid Chrysler merger's global aspirations

Marchionne (file)

Fiat SpA, Italy’s largest manufacturer and a symbol of the country’s struggle to adapt to globalization, is leaving home after 115 years.

The controlling Agnelli family and other investors will meet Friday in Turin to seal the end of Fiat as an Italian company after it merges with Chrysler. Created by CEO Sergio Marchionne, Fiat Chrysler Automobiles NV will be incorporated under Dutch law, based in the U.K. and listed on the New York Stock Exchange.

“Marchionne doesn’t want to abandon Italy; he wants FCA and himself to be global players, and the center of gravity of FCA has to be repositioned in order to do that,” said Erik Gordon, a professor at the University of Michigan’s Stephen M. Ross School of Business. “It is a little sad for Italy.”

By combining resources with the U.S. carmaker, the company can better compete with heavyweights like General Motors Co., Volkswagen AG and Toyota Motor Corp., the CEO says. A brush with bankruptcy a decade ago proved the Italian focus was unsustainable.

“Marchionne needs the lights of Wall Street,” where Fiat Chrysler plans to locate its primary listing by mid-October, said Vincenzo Longo, an investment strategist at IG Group in Milan. There’s more opportunity there than the Italian market.

Hampered by insufficient reforms, the Italian economy has stagnated over the past 14 years and contracted 10 of the last 11 quarters. Unemployment rates are near record levels, leading thousands of Italians to leave in search of a better future.

The same goes for Fiat. Toughening regulation calls for large sales volumes to finance development of cleaner engines and expand in growth markets like China and India. Bolstered by the combination, Fiat plans to invest 55 billion euros ($74 billion) in the next five years to boost deliveries 61 percent to 7 million cars by 2018. That’s still less than VW’s target to sell 10 million this year.

There’s little option for Fiat as a stand-alone company. North American operations, which were non-existent before Fiat gained control of Chrysler about five years ago, accounted for 62 percent of the group’s second-quarter operating profit. The manufacturer’s once-core European operations lost 6 million euros, as the saturated market gradually recovers from a two-decade low. Without its U.S. division, Fiat would have been unprofitable in 2012 and 2013.

To reduce its reliance on Italy for sales and as a production base, Marchionne started seeking a partner about 10 years ago, when he took charge of the manufacturer, which was financially strapped at the time.

The search, which included a failed bid for GM’s Opel unit, wasn’t successful until Chrysler’s 2009 bankruptcy. Faced with the prospect of liquidating America’s third-biggest carmaker, the U.S. government gave Fiat a chance to turn around the Auburn Hills company.