Fiat's Dances With Governments Goes Bad

Fiat’s Sergio Marchionne looked like a pretty shrewd operator when he was able to snag a bailed-out Chrysler from the US government without paying a penny. Between that and the booming European sales on the back of government-funded scrappage schemes, Fiat pretty much spent 2009 proving that automakers should cater to governments almost as much as consumers. But as 2009 wound down, Fiat’s government affairs winning streak came to a halt as the Italian government started asking for a little quid for its quo, and it’s been going downhill from there. Now that Fiat wants to shut down its Sicilian Termini Imerese plant, and right-size Italian production, the love affair is officially over. “We are examining the possibility of renewing [consumer incentives],” Italian Prime Minister Silvio Berlusconi told reporters from Automotive News [sub]. “But Fiat does not seem interested in them.”

Of course Fiat is interested in the incentives that it has admitted its addiction to. Berlusconi’s paternal pronunciation merely indicates that Fiat isn’t ready to guarantee jobs at the money-losing Imerese plant, which is the Italian government’s political price. “We have to have the courage to say that there have been enough government handouts if they do not safeguard jobs and industrial sites,” explains Italian Senate Speaker Renato Schifani.

And it’s not just the government. Workers staged strikes last weekend and yesterday, and even the Pope has condemned Marchionne’s decision to shut down Termini Imerese. But Fiat is stuck between short-term profit goals and long-term capacity adjustments, as the Termini plant is a perpetual profit-sucker, but Fiat acknowledges that it likely won’t reach profitability this year without Italy’s consumer incentives. The company projects that Italian sales would slide 20 percent if the incentives aren’t renewed.

Marchionne claims to want any decision more than the current uncertainty, telling the WSJ that:

The government has to make a decision and we will accept it without making a scene. But we need a decision soon to get out of this uncertainty, then we will be able to manage the market and the situation whatever the outcome.

Which means that Fiat had better be planning on an incentive pullback at some point, as artificially stimulated demand always crashes eventually. For someone who heaps scorn on other automakers for their dependence on captive-finance and dealer incentives, Sergio has quite the little incentive addiction problem himself. And feigned nonchalance aside, withdrawals are never easy.