In 2002, Fiat recorded one of the biggest annual losses in the history of the Italian corporate world. Its pre-tax loss for the year was a massive €429 million and this heralded the beginning of a tough decade for the auto company. The loss was the conclusion of an ambitious diversification that Fiat had aggressively pursued beginning in the late 90s. The company had been expanding its businesses while at the same time buying other related and even unrelated companies sinking in hundreds of millions of euros in these ventures. Some of the moves did not achieve the success the company had anticipated and the company’s financial condition worsened leading the management to embark on cost cutting measures that included lay-offs (Jennings, 2007).
Lay-offs as a cost cutting measure of course did not go down well with the company’s employees. Labor problems soon emerged between the company’s employees and the management eventually attracting government attention. The government would later intervene and complicate matters even more. The whole crisis brought three major issues to the forefront. These issues include poor management, political intervention, and internal conflicts (Szczesny, 2009). Fiat had for a long time enjoyed success as a respectable automobile company successfully competing against auto giants such as Renault, Mercedes, VW and Toyota. More liberalization within the European automobile industry saw companies such as Toyota and GM aggressively entering the predominantly market and quickly eroding Fiat’s market share.
Faced with competition from companies that had invested billions of euros in advancing their brands in addition to introducing several other models, Fiat put its hopes in a new vehicle model, Stilo. Just like many of the businesses Fiat had heavily invested in its new model, which was meant to help the company reestablish its foothold in the European automobile market but was almost a flop. The new vehicle model did not do as well as the company had projected. As of 1990, Fiat commanded an impressive 14% market share in Europe but as of mid 2002, the company’s share of the market had reduced to just 7.9%.
The hugely disappointing investments that the company had acquired led the company to have huge debts and impede restructuring measures that the company embarked on in 2001. For instance Fiat had intended to cut its debt by half from a high of €6 billion to €3 billion but instead the company’s debt rose by another €600 million to stand at €6.6 billion. The poor financial performance and mounting debts led to the company’s stock loosing value further worsening an already dire situation. Having been a global brand for several years, Fiat found itself sailing in unfamiliar waters. The new models it was introducing into the market were just not resonating with its customers and its brand equity was rapidly fading. The losses the company was making were dragging it down and Fiat was just not able to infuse...