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| Identifier: | 02ROME5139 |
|---|---|
| Wikileaks: | View 02ROME5139 at Wikileaks.org |
| Origin: | Embassy Rome |
| Created: | 2002-10-22 10:08:00 |
| Classification: | CONFIDENTIAL |
| Tags: | ECON EFIN ELAB PGOV EFIN EIND ELAB PGOV EFIN EIND ELAB PGOV EFIN EIND ELAB PGOV IT EIN ITECON ITECON ITECON |
| Redacted: | This cable was not redacted by Wikileaks. |
This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 04 ROME 005139
SIPDIS
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ
USDOC 4220/IEP/EUR/OWE/SED/DDEFALCO
DOL FOR ILAB/BRUMFIELD
TREASURY FOR CAROL CARNES
CONFIDENTIAL
PAGE 02 ROME 05139 01 OF 04 221054Z
E.O. 12958: DECL: 10/22/2007
TAGS: ECON, EFIN, ELAB, PGOV, EFIN, EIND, ELAB, PGOV, EFIN, EIND, ELAB, PGOV, EFIN, EIND, ELAB, PGOV, IT, EIN, ITECON, ITECON, ITECON
SUBJECT: FIAT IN CRISIS: GOI BETWEEN A ROCK ANDA HARD PLACE
REF: A. ROME 5049
B. ROME 473
C. ROME 3885
CLASSIFIED BY: ECONOMIC INISTER-COUNSELOR SCOTT KILNER FOR REASONS 1.5
() AND (D)
1. (SBU) SUMMARY: FIAT, ITALY'S LARGET CORPORATION AND
NATIONAL ICON, IS IN THE MIDSTOF A POTENTIALLY DEVASTATING
CRISIS AS ITS SUBSIDIARY, FIAT AUTO, FACES TH CONSEQUENCES
OF DECADES OF MOUNTING LOSSES AND EBT. THE CRISIS OF FIAT
AUTO CRISIS IS HITTING IALY HARD ECONOMICALLY AND
POLITICALLY. LABOR IS P IN ARMS OVER POSSIBLE JOB CUTS THAT
COULD NUMBER IN THE TENS OF THOUSANDS. THE POWERFUL AGNELLI
AMILY, WHICH OWNS THE FIAT EMPIRE, IS USING ITS INLUENCE TO
PRESSURE THE GOI. GENERAL MOTORS, WHICH OWNS TWENTY PERCENT
OF FIAT AUTO, IS WATCHING WARILY, AS FIAT'S TROUBLES COULD
FORCE THE US AUTOMAKER TO UP ITS SHARE OF FIAT AUTO. THE GOI
FACES A VERY REAL POLITICAL -- AND ECONOMIC -- DILEMMA AS A
RESULT OF FIAT AUTO'S FINANCIAL FREEFALL. END SUMMARY.
FIAT AND NATIONALISM
--------------------
2. (U) FIAT AUTO WAS THE MODEL FOR ITALIAN POST-WAR
CONFIDENTIAL
PAGE 03 ROME 05139 01 OF 04 221054Z
INDUSTRIAL DEVELOPMENT. IT SPAWNED A CORPORATE EMPIRE
(IFIL), INCLUDING ALL COMPANIES CONTROLLED BY THE AGNELLI
FAMILY (FIAT AVIO, NEWS MEDIA, INSURANCE, AGRO-INDUSTRY,
CONSTRUCTION EQUIPMENT, ALFA ROMEO, LANCIA, AND FERRARI,
PIAGGIO, ETC.). IN THE 1960S, 20 PERCENT OF ALL ITALIAN
INDUSTRIAL INVESTMENT IN SECTORS OTHER THAN THE AUTOMOTIVE
SECTOR, INCLUDING SUCH AS STEEL AND PLASTICS -- DEPENDED
DIRECTLY ON THE CORPORATE GIANT FIAT. IN 1964, AT THE END OF
ITALY'S BOOM ECONOMIC YEARS, THE PRODUCTION OF THE AUTOMOTIVE
SECTOR, OF WHICH 90 PERCENT WAS FIAT'S, ALONE ACCOUNTED FOR
3.5 PERCENT OF GDP AND TEN PERCENT OF THE OUTPUT OF THE
OVERALL INDUSTRIAL SECTOR. TODAY, THE DIVERSIFIED FIAT
CORPORATION AND THE BUSINESSES THAT DEPEND ON IT REPRESENT AN
ESTIMATED FOUR PERCENT OF ITALY,S GDP. FIAT AUTO ALONE
EMPLOYS APPROXIMATELY 200,000 PEOPLE (36,000 IN ITS PLANTS),
MANY IN SOUTHERN ITALY. ALTHOUGH FIAT AUTO HAS EXPERIENCED
ECONOMIC PROBLEMS FOR DECADES, IT REMAINS A POTENT SYMBOL AND
DRIVER OF ITALY'S ECONOMY.
3. (SBU) THE FIAT CORPORATION WAS FOUNDED IN 1899 BY GIOVANNI
AGNELLI (THE GRANDFATHER OF THE CURRENT HONORARY CHAIRMAN,
GIANNI AGNELLI). THE AGNELLI FAMILY RETAINS OWNERSHIP AND
CONTROL. FROM THE FAMED CINQUECENTO CAR MODELS OF THE 1950S
TO THE SEICENTO OF THE 1960S, FIAT AUTO HAS LONG BEEN A
SOURCE OF NATIONAL PRIDE. HOWEVER TODAY, PUBLIC OPINION IS
DIVIDED ON THE QUESTION OF OWNERSHIP AND FATE OF FIAT AUTO.
SOME ITALIANS ARGUE THAT ITALY NEEDS TO MAINTAIN A
&NATIONAL8 AUTO INDUSTRY AT ALL COSTS TO PRESERVE ITS
NATIONAL AND INTERNATIONAL PRESTIGE. OTHERS DO NOT FEEL ANY
ANTAGONISM TOWARD A FOREIGN BUY-OUT. MANY ITALIANS HAVE
CONCLUDED THAT FIAT AUTO IS NO LONGER A VIABLE FIRM: ITS
CONFIDENTIAL
PAGE 04 ROME 05139 01 OF 04 221054Z
PRODUCTION IS TOO SMALL TO COMPETE INTERNATIONALLY; DESIGNS
ARE NOT ADAPTED TO MARKET DESIRES, AND PRICES ARE TOO HIGH
FOR THE LOW QUALITY OF CARS PRODUCED.
THE SITUATION TODAY
---------------------------
4. (SBU) FIAT AUTO IS UNDERGOING ITS MOST SEVERE CRISIS EVER,
THE CUMULATIVE PRODUCT OF ITS FAILURE OVER THE PAST 15 YEARS
TO REMAIN COMPETITIVE WITH OTHER EUROPEAN AUTOMAKERS, LEADING
TO MOUNTING LOSSES AND THE CRUSHING DEBT UNDER WHICH THE
ENTERPRISE IS NOW SUFFOCATING (REF A). IN AN EFFORT TO
RETRENCH, FIAT AUTO, WHICH HAD ALREADY CLOSED ITS FOREIGN
PLANTS, HAS ANNOUNCED PLANS TO CLOSE TWO PLANTS AND TO LAY
OFF ONE-THIRD OF ITS EMPLOYEES FROM ANOTHER. A REPORTED
8,000 FIAT AUTO WORKERS WILL BE LAID OFF. ANOTHER 24,000
WORKERS FROM FIAT SUPPLIER FIRMS ALSO COULD LOSE THEIR JOBS.
5. (SBU) THE FIAT AUTO CRISIS COMES AT A TIME WHEN ITALY IS
EXPERIENCING SIGNIFICANT ECONOMIC PROBLEMS. ITALY'S GDP
GROWTH IS LIKELY TO DECLINE TO 0.5 PERCENT IN 2002, A NEAR
POST-WAR RECORD. ITALY'S DRAFT BUDGET, AWAITING PARLIAMENTARY
APPROVAL, ALLOWS VERY LITTLE FLEXIBILITY AND IS GEARED TOWARD
TIGHTENING FISCAL POLICY TO MEET EU STABILITY PACT TARGETS
(REF C). THE COST OF FUNDING EXTENDED UNEMPLOYMENT BENEFITS
FOR AFFECTED WORKERS (WHO WOULD RECEIVE UP TO 80 PERCENT OF
CONFIDENTIAL
CONFIDENTIAL PTQ1689
PAGE 01 ROME 05139 02 OF 04 221054Z
ACTION EUR-00
INFO LOG-00 NP-00 AGRE-00 AID-00 CEA-01 CIAE-00 CTME-00
INL-00 DODE-00 DOTE-00 ANHR-00 SRPP-00 DS-00 EB-00
EXIM-01 E-00 FAAE-00 VC-00 FRB-00 H-01 TEDE-00
INR-00 ITC-01 LAB-01 L-00 VCE-00 AC-01 NSAE-00
NSCE-00 OMB-01 OPIC-01 PA-00 PM-00 PRS-00 ACE-00
P-00 SCT-00 SP-00 IRM-00 SSO-00 SS-00 STR-00
USIE-00 PMB-00 DSCC-00 PRM-00 DRL-02 G-00 NFAT-00
SAS-00 /010W
------------------FC2263 221055Z /38
P 221008Z OCT 02
FM AMEMBASSY ROME
TO SECSTATE WASHDC PRIORITY 6476
INFO EU MEMBER STATES COLLECTIVE PRIORITY
AMCONSUL FLORENCE PRIORITY
AMCONSUL FRANKFURT PRIORITY
AMCONSUL MILAN PRIORITY
AMCONSUL NAPLES PRIORITY
DEPT OF TREASURY WASHDC PRIORITY
DEPT OF LABOR WASHDC PRIORITY
DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L SECTION 02 OF 04 ROME 005139
SIPDIS
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ
USDOC 4220/IEP/EUR/OWE/SED/DDEFALCO
DOL FOR ILAB/BRUMFIELD
TREASURY FOR CAROL CARNES
CONFIDENTIAL
PAGE 02 ROME 05139 02 OF 04 221054Z
E.O. 12958: DECL: 10/22/2007
TAGS: ECON, EFIN, EIND, ELAB, PGOV, IT
SUBJECT: FIAT IN CRISIS: GOI BETWEEN A ROCK AND A HARD PLACE
THEIR SALARY FOR THREE YEARS, VIRTUALLY ALL OF IT PAID BY THE
STATE) WOULD PLACE AN ADDITIONAL BURDEN ON THE GOI. (NOTE:
UNEMPLOYMENT BENEFITS ARE NORMALLY PROVIDED FOR A YEAR AND
DRAWN FROM A FUND FINANCED BY GOVERNMENT, MANAGEMENT AND
LABOR. HOWEVER, FIAT AUTO CAN DECLARE THESE DISMISSALS TO BE
AN &EXCEPTIONAL8 CIRCUMSTANCE AND REQUEST THAT ITS WORKERS
RECEIVE LONGER-TERM BENEFITS, THEREBY SHIFTING THE DISMISSAL
COSTS TO THE STATE. PROVISION OF THESE EXCEPTIONAL BENEFITS
IS ONE FORM OF PUBLIC SUPPORT UNDER CONSIDERATION. END NOTE)
LABOR UP-IN-ARMS
----------------
6. (U) FOR ORGANIZED LABOR, THE FIAT AUTO CRISIS THREATENS
NOT ONLY THOSE 32,000 (8,000 FIAT PLUS 24,000 SUPPLIER FIRM)
WORKERS FACING DISMISSAL; ITS EFFECTS COULD REVERBERATE AND
AFFECT THE 35-40 PERCENT OF THE WORKFORCE REPRESENTED BY
UNIONS.
7. (SBU) EVEN BEFORE THE FIAT AUTO CRISIS BROKE, TWO OF THE
THREE MAJOR CONFEDERATIONS WARNED THAT THEY WOULD TAKE TO THE
STREETS IF THE BUDGET PROPOSAL FOR ECONOMIC DEVELOPMENT AND
SUPPORT IN SOUTHERN ITALY FAILED TO PROVIDE SUFFICIENT FUNDS
TO HONOR THE TERMS OF THE LABOR PACT (WHICH, INTER ALIA,
ESTABLISHES 2003 WAGE RATES) THEY SIGNED WITH EMPLOYERS AND
CONFIDENTIAL
PAGE 03 ROME 05139 02 OF 04 221054Z
THE GOVERNMENT OVER THE SUMMER. THE LARGEST CONFEDERATION,
CGIL, DECLARED THAT ITS NATIONWIDE GENERAL STRIKE OCTOBER 18
(ORIGINALLY CALLED TO PROTEST THE GOVERNMENT'S EFFORTS TO
INTRODUCE MORE FLEXIBILITY INTO THE LABOR MARKETS) WAS TO
PROTEST THE GOVERNMENT'S OVERALL ECONOMIC POLICY. OCTOBER 18
DEMONSTRATIONS IN TURIN (THE HOME OF FIAT), LED BY CGIL
LEADER GUGLIELMO EPIFANI, TOOK ON A MUCH MORE STRIDENT AND
COMBATIVE TONE AS A RESULT OF THE FIAT AUTO SITUATION.
8. (SBU) BUT IT'S NOT ONLY ABOUT JOBS. ALL THREE
CONFEDERATIONS VIEW FIAT AUTO'S GAMBIT AS THE LATEST EXAMPLE
OF A MANAGEMENT SECTOR THAT IS INCREASINGLY PREPARED TO
JETTISON THE CUSTOMARY ITALIAN PRACTICE OF NEGOTIATING WAGES
AND OTHER WORKPLACE ISSUES BY CONSENSUS. FIAT AUTO -) BOTH
ITS TENUOUS POSITION AND ITS PROPOSED REMEDIES )- IS A CASE
STUDY IN ITALIAN INDUSTRIALISTS, SKEWED PRIORITIES, THEY
ARGUE. UNION OFFICIALS ACKNOWLEDGE THAT THEIR MEMBERS
BENEFITED FROM THE LONG LIST OF PAST GOVERNMENT BAILOUTS,
AND, IN THEIR EYES, RIGHTLY SO: ONE OF GOVERNMENT'S
RESPONSIBILITIES AS A SOCIAL PARTNER IS TO SUPPORT INDUSTRY
(AND BY EXTENSION, ITS WORKERS) IN LEAN TIMES. IN RETURN,
INDUSTRY SHOULD DEVOTE A PORTION OF ITS PROFITS IN GOOD TIMES
TO ENSURING ITS LONG-TERM VIABILITY -) AN OBLIGATION FIAT
AUTO HAS IGNORED, THEY CHARGE. THE COMPANY INVESTED LITTLE
IN THE R&D AND DESIGN VITAL TO ENSURING THE COMPANY'S
LONG-TERM HEALTH AND MARKET SHARE/POSITION (AND, BY
EXTENSION, THE JOB SECURITY OF ITS WORK FORCE).
9. (SBU) THIS ACUTE SENSE OF BETRAYAL OF A LONG-ESTABLISHED
SOCIAL COMPACT IS FELT MOST STRONGLY IN SICILY, WHERE THE
1,900-PLUS WORKERS AT FIAT,S TERMINI IMERESE FACTORY HAVE
CONFIDENTIAL
PAGE 04 ROME 05139 02 OF 04 221054Z
BLOCKED HIGHWAYS AND STAGED DEMONSTRATIONS TO PROTEST THEIR
IMPENDING DISMISSAL. THE PLANT'S CLOSURE WOULD BE, IN THE
EYES OF EVERYONE IN SICILY, FROM AFFECTED WORKERS TO LOCAL
OFFICIALS TO MEMBERS OF PARLIAMENT, AN ABRUPT REVERSAL OF
PAST STATE EFFORTS TO REDRESS LONG-STANDING REGIONAL ECONOMIC
INEQUITIES BY SUBSIDIZING INDUSTRIAL DEVELOPMENT IN THE
SOUTH. IN A REGION WHERE UNEMPLOYMENT TOPS 20 PERCENT, FIAT
AUTO'S DECISION, THEY CHARGE, WILL LEAVE THE WORKERS AND
AFFECTED COMMUNITIES ONLY ONE REAL ALTERNATIVE: ORGANIZED
CRIME. TERMINI IMERESE,S CLOSURE, ARGUE LOCAL OFFICIALS, IS
AN OPEN DOOR TO THE MAFIA.
FIAT PLAYS THE GAME
-------------------
10. (C) THE AGNELLIS TIMED THE ANNOUNCEMENT OF FIAT AUTO'S
FINANCIAL WOES FOR MAXIMUM POLITICAL ADVANTAGE. AFTER
CRITICISM OF THE GOI,S DRAFT BUDGET, AND ESPECIALLY OF ITS
PROVISIONS FOR ITALY'S SOUTH, BY MANY IN ITALY'S POLITICAL
AND BUSINESS ESTABLISHMENT (REF A), THE ANNOUNCEMENT OF FIAT
AUTO'S MELTDOWN MADE CLEAR THAT THE COMPANY WOULD SEEK A
SUBSTANTIAL SHARE OF GOVERNMENT RESOURCES IN ANY DEBATE
REGARDING POSSIBLE BUDGET CHANGES. FIAT AUTO EXECUTIVES WERE
QUICK TO PLAY UP THE PROSPECT OF MASS LAYOFFS IN FIAT AUTO'S
SICILY PLANT. FIAT HAS LONG BEEN THE RECIPIENT OF GOVERNMENT
CONFIDENTIAL
CONFIDENTIAL PTQ1691
PAGE 01 ROME 05139 03 OF 04 221054Z
ACTION EUR-00
INFO LOG-00 NP-00 AGRE-00 AID-00 CEA-01 CIAE-00 CTME-00
INL-00 DODE-00 DOTE-00 ANHR-00 SRPP-00 DS-00 EB-00
EXIM-01 E-00 FAAE-00 VC-00 FRB-00 H-01 TEDE-00
INR-00 ITC-01 LAB-01 L-00 VCE-00 AC-01 NSAE-00
NSCE-00 OMB-01 OPIC-01 PA-00 PM-00 PRS-00 ACE-00
P-00 SCT-00 SP-00 SSO-00 SS-00 STR-00 USIE-00
PMB-00 DSCC-00 PRM-00 DRL-02 G-00 NFAT-00 SAS-00
/010W
------------------FC2272 221055Z /38
P 221008Z OCT 02
FM AMEMBASSY ROME
TO SECSTATE WASHDC PRIORITY 6477
INFO EU MEMBER STATES COLLECTIVE PRIORITY
AMCONSUL FLORENCE PRIORITY
AMCONSUL FRANKFURT PRIORITY
AMCONSUL MILAN PRIORITY
AMCONSUL NAPLES PRIORITY
DEPT OF TREASURY WASHDC PRIORITY
DEPT OF LABOR WASHDC PRIORITY
DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L SECTION 03 OF 04 ROME 005139
SIPDIS
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ
USDOC 4220/IEP/EUR/OWE/SED/DDEFALCO
DOL FOR ILAB/BRUMFIELD
TREASURY FOR CAROL CARNES
CONFIDENTIAL
PAGE 02 ROME 05139 03 OF 04 221054Z
E.O. 12958: DECL: 10/22/2007
TAGS: ECON, EFIN, EIND, ELAB, PGOV, IT
SUBJECT: FIAT IN CRISIS: GOI BETWEEN A ROCK AND A HARD PLACE
LARGESSE IN PREVIOUS CENTER-LEFT ADMINISTRATIONS, AND FIAT
MAGNATE GIANNI AGNELLI HAS FAR CLOSER TIES TO THE CENTER-LEFT
POLITICAL ESTABLISHMENT THAN TO THE &UPSTART8 CENTER-RIGHT
BERLUSCONI GOVERNMENT. THE ANNOUNCEMENT WAS A SHOT ACROSS THE
GOVERNMENT BOW: BAIL US OUT OR PAY THE POLITICAL CONSEQUENCES.
11. (C) ADDING TO THE POLITICAL COMPLEXITY IS A
LONG-SIMMERING FEUD BETWEEN AGNELLI AND BERLUSCONI.
BERLUSCONI IS THE BRASH NOUVEAU RICHE TO AGNELLI,S OLD
MONEY. AGNELLI IS THE ITALIAN POLITICAL ESTABLISHMENT,
OVERTURNED BY THE VICTORY OF BERLUSCONI,S SMOOTH &FORZA
ITALIA8 POLITICAL MACHINE. AGNELLI,S MAN, STAUNCHLY
PRO-EUROPE RENATO RUGGIERO, WAS THE THORN IN BERLUSCONI,S
SIDE AS FOREIGN MINISTER FOR THE FIRST MONTHS OF THIS PRIME
MINISTERSHIP. ALLEGATIONS HAVE BEEN MADE THAT BERLUSCONI
SEEKS TO TAKE ADVANTAGE OF THE SITUATION TO BUY AGNELLI-OWNED
SHARES IN INFLUENTIAL CENTRIST NEWSPAPERS, THUS INCREASING
HIS MEDIA EMPIRE (AND NO DOUBT PROMPTING MORE HOWLS FROM THE
OPPOSITION ABOUT GOVERNMENT CONTROL OF ITALY'S MEDIA.)
EVALUATING THE EVENTUAL RESOLUTION OF THE FIAT AUTO PROBLEMS
INVOLVES CALCULATING THE BALANCE OF POWER BETWEEN BERLUSCONI
AND AGNELLI. BOTH HAVE STRONG LEVERS. SOME SUGGEST THE
AGNELLI FAMILY'S POWER IS WANING, BUT THE POLITICAL PRESSURE
ON THE GOI TO SAVE FIAT AUTO IS INTENSE.
CONFIDENTIAL
PAGE 03 ROME 05139 03 OF 04 221054Z
BANKRUPTCY NOT A LIKELY OPTION
------------------------------
12. (SBU) ITALIAN BANKS ENGINEERED A MASSIVE BAILOUT OF FIAT
AUTO IN MID-2002. CONDITIONS ON THESE LOANS WERE STRICT, AND
INCLUDED BANK VETO OF ANY CHANGE IN MANAGEMENT AND A
RESTRUCTURING OF THE FIAT EMPIRE, WITH SALE OF PROFITABLE
ASSETS (INSURANCE COMPANY TORO ASSICURAZIONE, FERRARI, FIAT
AVIO, ETC.) PAYING DOWN THE DEBT BURDEN. ITALIAN BANKS HAVE
REFUSED TO PROVIDE MORE FINANCING TO FIAT AUTO, AND HAVE
CALLED ON THE GOI NOT TO INTERVENE. IN THE EVENT THAT FIAT
AUTO WERE TO FILE -- UNDER DURESS -- FOR BANKRUPTCY, THE
BANKS COULD FORCE FIAT TO SELL ITS REVENUE GENERATORS (TORO
ASSICURAZIONI, FERRARI, FIAT AVIO, ETC.) YET BANKRUPTCY
SEEMS AN UNLIKELY OPTION, IN NO ONE'S INTEREST: NOT THE
GOVERNMENTS (POLITICAL FALLOUT AND COSTLY EFFECT ON GDP
GROWTH); NOT THE BANKS (UNABLE TO RECOUP THEIR FINANCING OF
FIAT AUTO); NOT LABOR (SIGNIFICANT JOB LOSSES ESPECIALLY IN
THE STRUGGLING SOUTH). MOREOVER, THE FIAT CONGLOMERATE -- AS
A WHOLE -- HAS BEEN ABLE TO MANAGE DEBT AND OPERATE AS A
PROFITABLE ENTERPRISE THROUGHOUT ITS HISTORY. (NOTE:
SPECULATION TODAY IS THAT THE BANKS' WILL BE FORCED TO BUY
BACK THEIR DEBT AND BECOME SHAREHOLDERS IN FIAT. END NOTE.)
GM WAITING IN THE WINGS
-----------------------
13. (SBU) ALTHOUGH THERE WAS PREVIOUSLY LITTLE DOUBT THAT
FIAT AUTO WOULD EVENTUALLY BE BOUGHT OUT BY GENERAL MOTORS,
CLEARLY GM IS IN NO HURRY TO ACQUIRE THE FIRM. FIAT HAS A PUT
OPTION TO SELL CONTROLLING INTEREST IN FIAT AUTO TO GM IN
CONFIDENTIAL
PAGE 04 ROME 05139 03 OF 04 221054Z
2004 AT MARKET PRICES. YET GM BLAMED ITS THIRD QUARTER LOSS
ON ITS WRITE-DOWN OF THE VALUE OF ITS 20 PERCENT STAKE IN
FIAT AUTO - FROM $2.4 BILLION TO $220 MILLION. GM MANAGEMENT
HAS ANNOUNCED THAT GM WOULD CONSIDER THE PUT AGREEMENT VOID
IF THERE WERE ANY MANAGEMENT CHANGES AT FIAT AUTO, AND
ESPECIALLY IF THE GOI ACQUIRED ANY STAKE.
GOI FACING A CATCH-22
---------------------
14. (C) THE GOI FACES A VERY REAL POLITICAL -- AND ECONOMIC
-- DILEMMA AS A RESULT OF FIAT AUTO'S FINANCIAL FREEFALL. IT
CAN ILL AFFORD TO SUPPORT FORMER FIAT AUTO WORKERS AT
GOVERNMENT EXPENSE. AND IT CAN ILL AFFORD TO UNDERWRITE
GREATER FIAT AUTO DEBT. BUT IT CAN EVEN LESS AFFORD TO
ALIENATE THOSE WHO DEPEND ON THE COMPANY. HAVING WON THE
ACQUIESCENCE OF CISL AND UIL TOWARD GOI PROPOSALS FOR
MODERATE BEGINNINGS OF MUCH-NEEDED LABOR REFORM, THE GOI
CANNOT WISH TO ANTAGONIZE THEM NOW. THE AGNELLIS HAVE PLAYED
THEIR CARDS WELL.
15. (C) AMONG THE GOVERNMENT'S CARDS, HOWEVER, IS THE GROWING
RECOGNITION, AND RESENTMENT, OF THE FACT THAT WHEN FIAT AUTO
WAS PROFITABLE, THE AGNELLIS MADE MONEY. BUT WHEN FIAT AUTO
IS IN DIFFICULTY, THE AGNELLIS ALSO MAKE MONEY. WHEN, SOME
CONFIDENTIAL
CONFIDENTIAL PTQ1690
PAGE 01 ROME 05139 04 OF 04 221055Z
ACTION EUR-00
INFO LOG-00 NP-00 AGRE-00 AID-00 CEA-01 CIAE-00 CTME-00
DODE-00 DOTE-00 ANHR-00 SRPP-00 DS-00 EB-00 EXIM-01
E-00 FAAE-00 VC-00 FRB-00 H-01 TEDE-00 INR-00
ITC-01 LAB-01 L-00 VCE-00 AC-01 NSAE-00 NSCE-00
OMB-01 OPIC-01 PA-00 PM-00 PRS-00 ACE-00 P-00
SCT-00 SP-00 SSO-00 SS-00 STR-00 USIE-00 R-00
EPAE-00 PMB-00 DSCC-00 PRM-00 DRL-02 G-00 NFAT-00
SAS-00 /010W
------------------FC227C 221055Z /38
P 221008Z OCT 02
FM AMEMBASSY ROME
TO SECSTATE WASHDC PRIORITY 6478
INFO EU MEMBER STATES COLLECTIVE PRIORITY
AMCONSUL FLORENCE PRIORITY
AMCONSUL FRANKFURT PRIORITY
AMCONSUL MILAN PRIORITY
AMCONSUL NAPLES PRIORITY
DEPT OF TREASURY WASHDC PRIORITY
DEPT OF LABOR WASHDC PRIORITY
DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L SECTION 04 OF 04 ROME 005139
SIPDIS
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ
USDOC 4220/IEP/EUR/OWE/SED/DDEFALCO
DOL FOR ILAB/BRUMFIELD
TREASURY FOR CAROL CARNES
CONFIDENTIAL
PAGE 02 ROME 05139 04 OF 04 221055Z
E.O. 12958: DECL: 10/22/2007
TAGS: ECON, EFIN, EIND, ELAB, PGOV, IT
SUBJECT: FIAT IN CRISIS: GOI BETWEEN A ROCK AND A HARD PLACE
ASK, WILL THE AGNELLIS CONTRIBUTE SOME FINANCIAL ASSETS TO
FIAT AUTO )- AND THE WORKERS )- IN RETURN? SOME ARE
CALLING ON THE GOVERNMENT TO STAND FIRM AND INSIST ON AN
AGNELLI FAMILY FINANCIAL CONTRIBUTION, AS WELL AS APPROPRIATE
MANAGEMENT CHANGES AND RESTRUCTURING IN THE FIAT EMPIRE. EVEN
SOME NOTED POLITICAL LEADERS ARE EXPRESSING THEIR FRUSTRATION
WITH THE AGNELLI FAMILY. CENTRAL BANK GOVERNOR FAZIO TOLD
AMBASSADOR SEMBLER ON OCTOBER 17 THAT THE AGNELLIS
DELIBERATELY NEGLECTED FIAT AUTO, NOT ENCOURAGING PRODUCT
DESIGN OR IMPROVEMENT, FOR MORE THAN TWO DECADES. THE
AGNELLI FAMILY WAS TOO COMPLACENT AND SELF-ASSURED THAT
ITALIANS WOULD ALWAYS BUY FIAT AUTOS, EVEN IF BETTER OPTIONS
WERE ON THE MARKET. FAZIO EMPHASIZED THAT THE BURDEN OF
TURNING AROUND FIAT AUTO LIES WITH THE AGNELLI FAMILY.
16. (C) AFTER A MEETING BETWEEN FINANCE MINISTER TREMONTI AND
FIAT AUTO'S CREDITOR BANKS, AND IN LIGHT OF THE REACTIONS
FROM GM MANAGEMENT, THE GOI HAS TAKEN A STEP BACK FROM ANY
IDEA OF DIRECTLY INVESTING IN FIAT AUTO. MINISTER FOR
PRODUCTIVE ACTIVITIES MARZANO TOLD ECMIN OCTOBER 17 THAT,
BEFORE THE GOI PUT MORE MONEY INTO FIAT AUTO, FIAT NEEDED TO
INSTITUTE A NEW AND VIABLE INDUSTRIAL PLAN. MARZANO SAID THAT
OVER THE PAST YEAR AND A HALF THE GOI HAS FUNNELED OVER E2
BILLION INTO FIAT AUTO.
CONFIDENTIAL
PAGE 03 ROME 05139 04 OF 04 221055Z
17. (SBU) THE GOI ALSO NEEDS TO HEED EU COMPETITION POLICIES.
THE EU COMMISSION, IN ACCORDANCE WITH REGULATIONS CONCERNING
STATE SUBSIDIES, MUST AUTHORIZE ANY PLANNED FINANCIAL
INTERVENTION. HOWEVER, EU PRESIDENT PRODI HAS MADE IT CLEAR
THAT HE DOES NOT OPPOSE SUCH INTERVENTION. (NOTE: PRODI, A
FORMER PRIME MINISTER OF ITALY, IS A POTENTIAL LEADER OF THE
CENTER-LEFT COALITION AND A POSSIBLE NATIONAL-LEVEL
CANDIDATE. END NOTE.) EU COMPETITION COMMISSIONER MONTI HAS
SAID THAT THE EU IS "NEUTRAL" AS LONG AS THERE IS A VIABLE
INDUSTRIAL PLAN AND THAT COMPETITION RULES ARE RESPECTED.
COMMENT: THE ROAD AHEAD
-----------------------
18. (C) AS DISCUSSIONS CONTINUE AMONG FIAT, THE BANKS, GM,
LABOR AND THE GOI, SOME SCENARIOS SEEM MORE LIKELY THAN
OTHERS. FIAT AUTO WILL ALMOST CERTAINLY DOWNSIZE ITS
OPERATIONS BUT, UNDER GOI PRESSURE AND WITH A NOD TO LABOR,
IS UNLIKELY TO CLOSE THE SICILY PLANT. WORKERS WILL LIKELY
BE LAID OFF, BUT FEWER THAN FIRST ANNOUNCED. FIAT AUTO'S
CREDITOR BANKS WILL CONTINUE TO PUSH FOR A RESTRUCTURING
INVOLVING AN AGNELLI FAMILY CONTRIBUTION AND SALE OF OTHER
FIAT ASSETS. THE AGNELLIS WILL PUSH FOR FURTHER INJECTIONS
OF BANK AND GOI FINANCIAL SUPPORT. FOR NOW, NEGOTIATIONS
CONTINUE UNDER GOI AUSPICES.
SEMBLER
CONFIDENTIAL
>
2002ROME05139 - Classification: CONFIDENTIAL
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