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Reference ID	Created	Released	Classification	Origin
02ROME5139	2002-10-22 10:08	2011-08-30 01:44	CONFIDENTIAL	Embassy Rome

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 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 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 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 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 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 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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Viewing cable 02ROME5139, FIAT IN CRISIS: GOI BETWEEN A ROCK ANDA HARD PLACE