Fiat on the Rise?
News has emerged over the weekend about the plans that Fiat has after its deal with Chrysler is consummated. The story is an ideal example of the way in which recessions produce opportunities as well as the more often described disasters. Somewhere the great economist Joseph Schumpeter is smiling: the ‘creative destruction’ he saw in the inevitable cycles of capitalism reveal the next path toward new wealth, just as it lays bare the folly of the old path.
Of course he also said that a ‘depression is just a cold douche for capitalism’, so perhaps he had less empathy for the unemployed than we might want from one of our leading thinkers.
Still he had a point.
Fiat is attempting to use its new and strengthened competitive position by cobbling together a vast auto empire from the ashes of Chrysler and GM.
Its plan is complex, with many moving parts, but its timing is impeccable. Essentially Fiat wants to spin off its car making operations, based in Italy with eleven factories, into a new auto group, and then add in the European operations of Chrysler and GM. The latter include brands such as Opel, Vauxhall, and Saab. The various European parts of the defunct American auto makers consist of ten more factories, mainly in Northern Europe – in particular Britain , Germany, and Sweden. None of these countries have much appetite right now for further plant closings, so they may well be supportive with cash grants as well as other subsidies and pressure on local unions to ease the plan’s implementation.
Were Fiat to pull all this off the new car maker thus created would rank second worldwide to Toyota ahead of Ford and Nissan/Renault and roughly on a par with Volkswagen. GM would be reduced to a third rank, but would have part ownership in the new company.
This is heady stuff and demonstrates the advantage that the non-US auto industry has at the moment. Not only are they ahead technologically and operationally, but they are better capitalized and thus in a much stronger position to dictate the outcome of what appears to be the inevitable shake-up in the industry now that GM and Chrysler have foundered. With worldwide demand at a low ebb the industry has vast overcapacity that needs to be eliminated. Not only this, but the assets within the industry need to be allocated to those shareholders and managements most able to create value.
This was Schumpeter’s point: basic economic forces will always force assets into the hands of the most able. Thus new opportunities are always emerging even in the depths of recession. While Schumpeter’s theories represent something of a backwater his imagery certainly is vivid. And his larger point seems to have validity.
Just ask Fiat: there’s money to be made in this recession. Too bad for Chrysler and GM. But that’s capitalism for you.
