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Tuesday, August 7, 2018

Sergio Marchionne: The Maverick Leader Who Put Fiat Back on Wheels

Announcing the death of Fiat Chrysler Automobiles’ (FCA) charismatic CEO on July 25, its Chairman, John Elkann, who had earlier asked his 236,000 employees to prepare for the worst as the health of its veteran chief executive was fast deteriorating, said, “Unfortunately what we feared has come to pass”, and this speaks volumes about the role the chain-smoking, espresso-fueled Sergio Marchionne played in rescuing Fiat!

This Italian-born Canadian—a chartered accountant and a barrister who had just succeeded in turning around SGS, a service group, headquartered in Geneva—being spotted by Umberto Angelli, the scion of the Fiat Empire, who was desperately looking for a leader who could rescue Fiat, joined its Board in 2003, and a year later became its CEO.

When Marchionne took over its reins, Fiat was in great crisis: had posted losses for three successive years, the loss posted for 2003 stood at €6 bn, and a dizzying succession of four CEOs in a span of three years could not generate any hope of turnaround. Marchionne, who was known for his wit and sarcasm, said that what he had inherited was a “laughing stock”—a ‘cadaver’, perhaps.

Despite being an outsider to car industry, Marchionne, with his charismatic personality, challenging the assumptions of the industry with his razor sharp mind, including his rejection of suits in favor of dark round-neck jumpers and button-down shirts that he claimed to have saved his time in the mornings, made himself available to the employees 24x7 believing that his round-the-clock zeal would become contagious in the company. It is reported that he seldom sat in the corner room; instead spend most of his time in the engineering Dept., where cars were visualized and eventually made. He had broken down the barriers between senior management and employees for ensuring effective communication. With the trust thus created by asking more of himself than he did of those around him, he could be extremely tough and extremely demanding. 

And the results are there to vouchsafe for his leadership: he first succeeded in breaking Fiat’s alliance with General Motors in 2005 to pursue his own destiny independently and also getting a payment of $2 bn from it for breaking the partnership. By 2006, he had turned the company to profitability, and by 2008—well before the global economic crisis—he had put Fiat’s bottom line solidly in the black. Marchionne’s remarkable performance spreads across six domains: financially speaking, it moved away from a loss of €1.6 bn in 2004 to a profit of €1.6 bn per annum by 2008; in terms of market share, during 2008-09, its share in European market had increased by 10%; in terms of market capitalization, its share value tripled during 2004-07, and after global downturn and drop in share value across the market, it bounced back to an annual doubling in 2008 and 2009; in terms of customer satisfaction levels, it went up by almost 25% between 2005 and 2006; and in terms of awards and honors, its Cinquecento model was honored as the European car of 2008, while its Linea won the Autobest award for 2008.

It is the fusion of complex qualities such as ambitious hopes and bold dreams that extended beyond the immediate crisis—Marchionne wanted Fiat to become one of the five or six best-quality auto manufacturers in Europe within five to six years, using the best of the past for building a better future, pursuing the hopes and dreams from the most unlikely starting points and in the face of improbable odds and seemingly insuperable challenges—reducing the design-to-production process from the current four years to barely 18 months and then to 15 months without, of course, sacrificing safety and its determination to impose small cars on the market using the move towards energy efficiency as their opportunity and ally, and pursuing all this not without the fear of failure but handling it with immense acts of personal courage, fortitude and ability to shift and flex as the organization evolved and circumstances required, that cumulatively helped Marchionne to put Fiat back in profits.

Indeed, it is this ability of Marchionne to fuse varied leadership styles and components together into an integrated and self-assured whole that connected employees of Fiat to something greater than they had hitherto attempted and endeared Fiat and Marchionne to the US Obama administration, which handed over 20% stake in Chrysler to prevent it going bust in 2009. At that time, many wondered if Fiat was taking a terrible risk, but Marchionne was clear that he had no choice but to take the risk for growing bigger. Finally, it is to the credit of his deal making ability that in 2014 Fiat could acquire its full control by making Chrysler pay for its acquisition €4.35 bn via a special dividend. And today, Chrysler generates most of Chrysler-Fiat profits.

From then on, he turned his attention to build brands: he made Jeep into a global marque brand. He hived off Ferrari as an independent brand at a valuation of €10 bn. And to cap his performance, in June, he announced that Fiat Chrysler was debt-free. 

Realizing that car-industry is a guzzler of investor’s capital, for it has to constantly introduce new-generation models and also perceiving the likely threat that might emanate from the introduction of electric and self-driven cars, Marchionne, thinking that it would be futile for each company to make such huge investments required to manage these challenges, that too, to play in that same fragmented market, he explored the scope for merger of Fiat with GM. Although the move failed, it is nevertheless the idea merits critical examination by the industry as a whole.  This becomes more compelling for western car companies for facing the challenge posed by the Asian car makers. 

His legendary exploits speak volumes about Marchionne’s leadership model that was driven by high energy, intelligence and the will to hold himself accountable always, which saved two companies from going bust. Car industry will be missing him sorely.


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