Fiat has announced that it is halting production at four of its Italian plants in response to strike action by workers in its logistics chain, while at the same time its senior executives prepare to meet the country's new Prime Minister Mario Monti today (16 March) to discuss its future.
IHS Global Insight Perspective | |
Significance | Fiat has halted production at four of its Italian plants in response to strike action by workers in its logistics chain, while at the same time its chairman and chief executive prepare to meet the country's new Prime Minister Mario Monti today (16 March) to discuss its future. |
Implications | The strike which has been going on for around 20 days has already had a heavy impact on its production and sales, a situation that it believes will be impossible to catch up with. |
Outlook | This first meeting with Monti since he came to power may well just be a routine discussion, but Fiat will undoubtedly want to reassure him about its plans for the country, while Monti may be looking for its view on a new plan to change labour insurance from 2017. |
Fiat will today (16 March) shut four plants in Italy as a result of a strike by truck drivers in its logistics chain, reports Agence France-Presse (AFP). A spokesperson for the automaker told the news service yesterday (15 March) that the strike had already caused the closure of its Melfi plant "and tomorrow it will lead to the closure of three sites". The representative also was uncertain with regards the situation for next week stating: "We'll see Monday where things are going".
In a statement published earlier this week, Fiat said that the strike, which has been taking place for over 20 days by vehicle transporters in Central-Southern Italy, had caused the automaker to lose production and around 20,000 sales, an amount that it does not expect to recover during the remainder of the year. It also stated that this would cause a negative impact on its market share in Italy and the rest of the region of around 10 percentage points in March due to delays in delivering vehicles to dealers and customers. The company also warned that the strike action was causing the automotive industry even greater suffering than that which it was already being exposed to, and added "This situation needs to be resolved urgently in order to restore normal transport services and avoid further jeopardising the automotive sector".
The situation coincides with the first official meeting between Fiat's chairman John Elkann and chief executive officer (CEO) Sergio Marchionne with the new Italian prime minister Mario Monti today, reports Reuters. The senior executives will also follow this with a meeting with the country's Labour Minister Elsa Fornero and Industry Minister Corrado Passera. A company spokesperson told the news service that the automaker would use the meeting to reiterate its plans to spend EUR2.5 billion (USD4.3 billion) on revamping plants in Italy. This includes the around EUR1 billion already being invested in its Pomigliano d'Arco plant where it is now manufacturing the latest generation Panda. It will also reassert its plans to spend around EUR1.5 billion at its Mirafiori and Grugliasco plants near Turin, where it will manufacture a small Alfa Romeo and Fiat sport utility vehicle (SUV) and two Maserati models, respectively.
Fiat CEO Takes EUR14.5-Mil. Pay Packet in 2011
Separately, it has also been revealed that Fiat CEO Marchionne has been given compensation valued at around EUR14.5 million during 2011, reports Bloomberg News. According to a company report on remuneration, his package includes a base salary of EUR2.45 million for his job at Fiat SpA, as well as 4 million shares in both Fiat SpA and Fiat Industrial, which was spun off into a separately listed unit in early 2011. This is said to amount to a fair value of around EUR12 million which became fully vested on 1 January 2012. At the end of 2011, he was also seen to have 16.9 million in stock options as a result of two incentive schemes. The bulk of the options have a trigger price of EUR6.58 per share while the remainder have a price of EUR13.37. However, the report also showed that he had declined a salary and bonus for his job as CEO of Chrysler for the second year in succession. The report also showed that chairman John Elkann received a salary of EUR1.345 million, and Fiat's former chairman and now a board member as well head of its Ferrari division, Luca Cordero di Montezemolo earned a base salary of EUR5.552 million.
Outlook and Implications
While Fiat is facing up to declines in both its domestic and European markets, it will be especially depressing that it is unable to fulfil what few orders it actually has. This will be particularly the case for the new Fiat Panda being built at the Pomigliano d'Arco plant, which has been met with a warm reception but has had production halted again. The strike is part of wider action against the government and which has already resulted in some stoppages at Fiat in January (see Italy: 30 January 2012: Fiat Restarts Production Following Italian Trucker Strikes, Prepares to Launch 500L Model—Report) and is not only affecting deliveries of vehicles but also the components to build them. In this case, the drivers are against higher fuel taxes and road tolls, demanding a ceiling on insurance premiums, a government crackdown on unlicensed trucking companies blamed for driving down freight rates and easier reimbursement of duty on diesel fuel. However, Fiat has also come in for criticism from the Trasportounito-FIAP union behind the strike which has said that a customer ordering a small Fiat 500 in southern Italy "must pay EUR530 in transport costs" while the company shipping the car from near Rome (Italy) to the dealership is only paid EUR17 for the 270-km trip. However, there could be many other costs that need to be added on to those of the company transporting the vehicle, including its movement from its Polish facility.
The meeting with the Prime Minister is likely to be little more than of a routine discussion between the senior politician in the country and one of its leading industrial businesses. However, it may well have been prompted by reports, which have been subsequently denied, that the company could close plants in Italy, which were reported earlier this month (see Italy: 6 March 2012: Fiat Denies Reports of Italian Plant Closures). Fiat has always said that it will stand by the plans for investment that it has already announced, but it has yet to reveal its investment plans for Melfi and Cassino, its two other passenger carmaking facilities in the country, which appear to have dropped off the radar for now. This is likely to be down to the further drop off in car sales that Italy and the rest of the region is suffering and has resulted in it also holding back some vehicle development and launches. Other areas that could potentially be discussed today, on top of the strike action, is that surrounding on Monti's plan to reform Italy's labour rules which would alter Italy's unemployment insurance from 2017 and could be announced as early as next week, according to Italian newspaper Corriere della Sera.