Abstract
Gianni Agnelli went to China in the Seventies, more or less at the time of US President Richard Nixon’s historic visit. Agnelli’s journey could not be defined as a business trip but befitted his personality: it satisfied his curiosity and his constant search for new experiences and, at the same time, it contributed to promoting his image, projecting it into a politico-historic dimension with international connotations. For the Fiat Group this certainly triggered some beneficial spin-off: the precocity of the contact spread a positive aura around the name of the Group in a world that was still closed and isolated, an effect whose entity and consequences are impossible to assess a posteriori.
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Notes
- 1.
From then on, and for many years to come, an Iveco functionary by the name of Viettone followed Marco Polo’s route in a less sensational but more functional manner, back and forward thirty times, without any apparent result if not that of keeping open channels of communication whose influence on the events that followed is still difficult to establish.
- 2.
My messages were roughly as follows. First. We had given them as much modern know-how as we possessed, then and later, offering them the new TurboDaily from the day of its launch in Turin 1984, with the 92-HP direct injection engine, at that time unique in its category throughout the world. Second. They were not to put us in competition with the Japanese: we knew perfectly well that vehicles of oriental origin cost less; but our products were better in terms of sturdiness and performance and these qualities would have remained for vehicles built in China, while costs would have become “Chinese”, in other words low within that country. Third. Our government would have guaranteed a line of credit similar to those of other competing countries. The lobbying apparatus in Corso Marconi (with Cesare Sacchi, Montanari, and others) got underway immediately and with its customary efficiency obtained what was necessary: a promise of 100 million dollars between non repayable funds and soft lending and the same sum in normal export credit. In that period Italy was spending a fortune in aid to developing countries and with regard to the criteria for disbursement there were many suspicions that sometimes led to judicial proceedings. Iveco never paid any bribes either for the contract with China or for other aid for developing countries, and I am not aware of any illegal payments made by the Holding Company. The aid I am talking about was, in my view, very positive and in perfect compliance with the spirit of the law. Fourth. We were not interested in collecting royalties, i.e., payment for the know-how supplied. We would not have sold our best technology, utilizing countless hours of work by our technicians, nor would we have transferred the complete project for the vehicle and all its macro-components, the engine included; in short, we would not have trained a possible competitor for the coming century, merely to collect a few tens of millions of dollars. We wanted a different reward: the pre-emptive right to sell our products in China.
- 3.
The definitive contract was dated 12 September 1986: in China, things moved with enormous slowness.
- 4.
Moreover, Fiat Auto’s support for the project was lukewarm, owing to the poor relations between Paolo Cantarella with the head of the Fiat Research Centre, Giancarlo Michellone, and his boss Luigi Francione. Subsequently, with results already obtained, some talked of selling the project off to Bosch at a knockdown price (the price had been 27.5 billion lire in cash, as well as taking on a debt amounting to 14.2 billion, at a 4 % royalty on turnover for another 32.5 billion), but it’s hard to make a judgement on this even after the conclusion of the initiative: the doubt lies in judging whether Fiat would have managed to clinch the deal on its own in an economically acceptable manner, given the Group’s circumstances in the second half of the Nineties.
- 5.
There was some truth in that analysis. For a long time, Mercedes Benz favoured maintaining its dominance of the industrial vehicle market over profit, and so it lost money for many years to follow; its dealers did not like or did not care about lorry franchises, but were obliged to sell the product in fixed quantities if they wished to continue receiving motor cars. Lutz’s error lay in his belief that this situation was unchangeable. In economics nothing is unchangeable: change is the driving force of the market economy.
- 6.
It was like this in Japan, too. To my mind, it was a question of a comprehensible policy: railways are inefficient as far as goods handling is concerned, because delivery at the station, loading, unloading and final delivery are too costly, especially regarding the widespread distribution called for by modern logistics. On the other hand, the railway is ideal for passengers, who get on and off under their own power. Obviously, I did not openly support this theory when I was Chairman of Fiat Auto.
- 7.
For aesthetic reasons, which I gleaned from some critiques in the press, I divided the capital for the joint venture at 48 % for Iveco and 48 % for Ford, entrusting 4 % to Credit Suisse First Boston in an arbitral position. But the CSFB quota was also a portage.
- 8.
“They can’t possibly be coming just for lorries” Romiti said to me when I announced the planned visit. “They have something else in mind”. I had to disillusion him: that of the automobile was a closed case.
- 9.
Iacocca, after having reached the top of the Company, had been kicked out by Henry Ford with the justification: “I don’t like your face”. The statement, although disagreeable, supplied at least one explanation. Iacocca went to Chrysler and reorganized it. I met Bob Lutz again years later at my house in Turin, where I proposed that Chrysler and Iveco jointly acquire the American truck manufacturer Navistar, which interested me for its diesel engines. He turned the proposal down.
- 10.
My principal aide, always discreet and intelligent, was the administrative vice president Umberto Quadrino.
- 11.
Formally, the operation was signed not by Ford Europe but by Ford UK; its chairman, Sam Toy, was nearing pensionable age and was the idol of English dealers; for them, his presence at the ceremony was a guarantee.
- 12.
In a note to Cesare Romiti of 28 February 1986, I hypothesized an annual loss of 30/40 billion lire for 3/4 years if everything went badly, in accordance with the most pessimistic plans that the Administration had prepared for me, but I held out the prospect of a reasonable probability of achieving far better results; I maintained that in any case the direct and induced advantages that the operation would have brought us would have more than justified the operation. On re-reading the note, too long to be reproduced here, it appears to have been very far-sighted on a strategic level. It had been appreciated by Gianni Agnelli, who had made it known that he was “happy about it”. I knew that I had moved with excessive prudence, but I had to do so for the future in order to protect myself from the criticisms of many who had not expressed an opinion so far but would have been the first to start yelling “I told you so” had things gone badly.
- 13.
Thanks also to the local head, Alan Fox, whom both Boschetti and I backed up in real time.
- 14.
The episode dates from 1984, shortly after my arrival in Iveco. The Chairman of Daimler Benz, Edzard Reuter, had taken his private plane and came to visit me in Turin with great urgency and secrecy. His aim was to verify whether Iveco, in its quality as a German constructor, was displeased with the sale of MAN to the Americans of GM, confirmation of which I gave him immediately at a confidential dinner for two in Villa Sassi. The family who owned almost half of MAN shares gave up on the deal in order to avoid damaging the general interests of German industry: the unity of that people was capable of working miracles! That very evening marked the beginning of my excellent relations with Reuter.
- 15.
The shareholders’ agreements ensured many rights for Iveco, including essential ones regarding technology and supplies from Europe, but the relative majority and, with this, control of the company, was in the hands of the Hindujas; Iveco possessed only one third of Ashok Leyland’s 51 % (at first, the capital held through the Luxemburg LRLIH finance house was around 40 %, but then I increased that quota to 51 % through acquisitions on the stock exchange to avoid the risk of hostile takeover bids) and therefore a good part of the increase in value that this participation would have registered over the years would have enriched the other shareholders; if one day Iveco should have wished to consolidate its own presence to the point of obtaining the majority it would have had to buy at a dear price a share package whose value it itself had contributed to increasing.
- 16.
All you had to do was go down from the offices on the first floor, lined with dark wainscoting, and visit the interior of the industrial buildings to realize how much they had been reduced to empty sheds: immense spaces in which to assemble a few thousand vehicles a year. The engines still had a minimum of technical validity inherited from the past, but this was destined to disappear with the progressive increase in the sophistication of anti-pollution devices; the factory that produced them was pathetic. The factory in Valladolid was entirely unused but the workforce was untouchable, given the underdevelopment of the area, and no one knew where the crisis was going to lead. Then there were two factories in Barcelona whose condition was less critical, only because they were located in a less depressed area. Personnel, although reduced from the historic peak of 12,000 units, still amounted to 6,000 hands, with a ratio per vehicle produced that no longer made any sense. On the other hand the average age of the workers was high while economic and normative treatment was above European averages.
- 17.
In France: Bourbon Lancy and Fourchambaud: in Germany Ulm (2) and Weisweil; in Italy Turin (2), Brescia, Piacenza, Milan (2), Luzzara, Modena, Valle Ufita, Bolzano, Vittorio Veneto, Suzzara, Foggia, and Bari; in the UK Langley and Manchester (data from 1990).
- 18.
Translator’s note: “Bettino” Craxi was an Italian politician, head of the Italian Socialist Party from 1976 to 1993 and Prime Minister of Italy from 1983 to 1987; after being involved in the “Clean Hands” scandal, he went into exile in Tunisia, where he died in 2000.
- 19.
Translator’s note: Claudio Martelli, at the time Minister of Justice, was one of Craxi’s leading collaborators.
- 20.
On 21 July 1989, in Madrid, I met the men of the Spanish company, accompanied by Clemente Signoroni, then head of Fiat’s planning department, and Luigi Michetti, the Fiat representative resident in Spain. Then, so that something would remain in black and white about an operation that concerned a public body, on 7 September 1989 I wrote to Chairman Juan Molina Vivas setting out the general lines of an industrial plan that offered Pegaso a clear and important “mission” within Iveco’s pan-European organization. The memorandum of 17 October offered 36 billion pesetas for 80 % of Enasa and committed Iveco to a gigantic industrial project: a long series of promises, including 10,000 heavy lorries, 15,000 engines, and 2,000 tons of foundry work per annum to be produced in Madrid, promises that called for 38 billion pesetas of investment between 1990 and 1994 and guaranteed work for 5,600 persons.
- 21.
Sixty percent of the Enasa shares went to MAN and 20 % to Mercedes (INI kept 20 % and bought an 8 % holding in MAN); the two German firms intended to divide burdens and benefits between themselves, but everyone know that Mercedes was the one leading the dance, as the events that followed were to demonstrate.
- 22.
I wrote a letter to Aranzadi, signed by Romiti: “While I read your letter with some regret, I would like to remind you that in recent months I have often brought to your attention Fiat’s interest in the development of your country; in this circumstance, too, I wish to reiterate the fact that our position will not change: our intention is to continue to consider Spain a country deserving of the particular attention and potential […] of our Group; I am in fact convinced that Fiat possesses all the requisites to give an important contribution to the development of your country”. The letter, dated 4 December 1989, was made public and aroused the most positive resonance in the Spanish press.
- 23.
Most of the cost derived from initial running losses and so almost half was recouped by tax savings in Italy, without counting residual tax credits in Spain. Not considering fiscal benefits, the final balance of the Pegaso operation was as follows (in millions of lire): payment for the acquisition: zero; initial indebtedness: −380; losses over the three-year period 1991–1993: −1,036; reimbursements from INI: +287; others: −40; total: −1,173.
- 24.
The role of the critic of the initiative was later played by Boschetti, who stated several times, even in far-off 1997, to the “Financial Times”, that “he had said” that the deal was to be avoided: I do not know the reason for this stance taken so far ahead of time. In fact, one day in August 1990 Romiti had asked Boschetti point blank: “Would you buy Pegaso?”, and he had replied: “No!”. But this was the sole manifestation of refusal on his part after all his participation in the talks; I had interpreted it as caution with regard to the future, given that Romiti and I were already completely committed in a positive sense.
- 25.
The 15 producers of industrial vehicles in Europe in 1984 were the following. With a complete range and wide geographical coverage: Mercedes and Iveco. Only top of the range and wide geographical coverage: Volvo and Scania. With a complete range and local geographical coverage: Renault, Leyland, Pegaso, Ford, and General Motors (Bedford). Only top of the range and local geographical coverage: MAN and DAF. Marginal or local producers: Astra, ERF, Foden (Paccar) and Seddon Atkinson. Pegaso, Ford, Astra, and Seddon Atkinson were absorbed by Iveco. Bedford was closed down, DAF merged with Leyland and both failed. The survivors, therefore, numbered eight.
- 26.
In that period I also attempted to set up a collaboration with a Japanese industry, Nissan Diesel, in preparation for some future developments in the very long term.
- 27.
For personal convenience, I classified the macro-components of a lorry in seven families: cabins, chassis, engines, gearboxes, front and rear axles, 4 × 4 torque converters.
- 28.
For example: with the SPR the Brescia factory become Iveco’s most important production site for cabins, chassis, and assembly anywhere in the world, chock-full of work and at the technological cutting edge; yet the local trade unions protested because they were losing a decrepit and inefficient department that produced gearboxes; the slogan was: “they want to ‘rob’ Brescia of mechanical manufacturing!” Alas, the problem of slogans, how much damage has been done by replacing reasoning with slogans, and by reasoning with slogans.
- 29.
I was now Chairman of the Board and Giancarlo Boschetti was the CEO; almost all the board members had remained in their posts for the duration of the development of the SPR.
- 30.
English as in the original report to the Board.
- 31.
The name EuroStar, assigned to the most important vehicle, had other admirers. In Iveco I chose it in order to associate the prefix Euro with the memory of the TurboStar, which had been a symbol of rebirth in 1984 and had enjoyed commercial success (overall, more than 60,000 units were produced). Shortly after registering the name, I received a letter from the chairman of the consortium for the Channel Tunnel in which he asked me if he might use the same name for the train destined to connect Paris and London. Subsequently, the Italian railways also used the name, but I don’t know if they asked anyone’s permission.
- 32.
As I have already mentioned, the Sector Head received a simulacrum of Management by Objectives (MBO) based almost exclusively on an objective of annual profitability and indebtedness. The objective was “negotiated” starting from the actual accounts of the previous year, without any comparison either with the investments made or with the competition or with the market. The Sector Heads immediately learned how to “negotiate” by constantly lowering their offers because their incentive was conditioned by the outcome of such talks and not by the effective result of their Sector, which in the year of validity of MBO was in fact already set.
- 33.
I provide some tables of recapitulation in Document 4 in Chap. 14.
- 34.
We intervened very promptly in East Germany immediately after the fall of the Wall. The Potsdam dealership was the first initiative of its kind and the birth of a private company was a novelty that assumed political and symbolic importance, so much so that the inauguration (1990) was attended by the Transport Minister, the mayor and, from the West, a swarm of journalists and photographers (Fig. 6.10). The ceremony had the rural flavour of days gone by: roast game turning on spits, pub tables with chequered table cloths, girls in regional costume. “Remember this day” count Lambsdorff said to me. He was the former Economics Minister and chairman of the Liberal Party. He added: “It’s the end of an era: if you come back in a few years you’ll find hostesses in miniskirts”. I had great esteem for Otto Graf von Lambsdorff, who in 1985 I had nominated chairman of the Aufsichsrat of Iveco Magirus, where he replaced Liebe of the KHD, and I also brought him onto the Board of Iveco N.V. His image was highly beneficial and his grit and competence helped us on several occasions.
- 35.
Some analytical data are found in Document 5 in Chap. 14. I knew perfectly well that the crisis would have come along sooner or later. Historically, the cycle repeated itself roughly every five years, and you had to be prepared for the inevitable. The inversion of the trend arrived punctually in mid 1990, as I shall say later.
- 36.
See Document 4 in Chap. 14.
- 37.
Translator’s note: the former became amministratore delegato of the Banca Nazionale del Lavoro and the latter Chairman and CEO of Telecom Italia.
- 38.
Informal, secret but highly efficient protectionism caused some damage in the very long term; for example, Piech, the chief of Volkswagen, had to turn to the Spaniard Ignacio Lopez to lower the price of components, and this was so unusual that it made news in the press. My decision to introduce a foreigner, the Italian Alessio Lucca, in the Iveco Magirus Vorstand to oversee the acquisitions of the German firm, which happened long before Piech’s innovation, was revolutionary to the verge of provocation; the local managers suffered terribly.
- 39.
The efficiency of form: the highly experienced, tough Italian manager, whom I mention in the previous note, was moved to tears in the course of the ceremony for his admission into the Vorstand while, standing in front of the ranks of Board members, he listened as Chairman Otto von Lambsdorff read out the details of his past achievements.
- 40.
According to the legend, when they built the city walls of Ulm, the inhabitants could not pass through the narrow walls carrying the bundles of wood gathered in the nearby forests; they understood how to do it only when they saw a sparrow which put a twig in its nest by turning it lengthwise.
- 41.
From the turbo charger to the intercooler, from the ABS to anti-skid systems, from plastic materials to electrophoresis (sheet metal protection), from electronic control modules to climate control systems.
- 42.
Variable geometry turbochargers, waste gates, retarders (engine brakes), gearboxes with twelve or sixteen gears, single-reduction rear axles, pre-heating systems, pneumatic suspensions, the generalized use of aluminium components, air-cushion seats that are adjustable in every situation (the driving seat of a lorry costs as much as the engine of a compact car).
- 43.
Helmut Werner (Mercedes), Steve Langenius (Volvo) and Lev Oestling (Scania).
- 44.
The norm 91/542 was approved by the Environment Council on 18 March 1991.
- 45.
In particular for Euro 2 with CO limits at 4.0 g/kWh, HC at 1.1, NOx at 7.0 and particulates at 0.15.
- 46.
Then and later (as Chairman of the European Manufacturers’ Association) I spent a lot of time trying to impose a reduction in the level of sulphur in diesel fuel, but the oil lobby put up total resistance and I got nowhere.
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Garuzzo, G. (2014). The Strength of Iveco (1985–1990). In: Fiat. Springer, Cham. https://doi.org/10.1007/978-3-319-04783-6_6
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