However, after intense pressure from the Italian government, Italy and the Auto division have escaped the worst of the cuts, the majority of the latest job losses, amounting to 12,300 by 2006 will be overseas and involve the CNH agricultural and Iveco truck divisions as well as component suppliers.

Morchio's restructuring plan, Fiat's third in two years, aims to see the group break even in 2004 with a return to profit "realistic" by 2006. He is targeting cost savings of €3.1Bn in the period to 2006 and a heavy investment process to modernise the Auto division and bring on-stream of new models and engines on line. €9.1Bn will be sunk into new models, €7.9 billion euros in R&D ( mainly through Fiat Research & Elasis ), €1.8Bn in restructuring operations and €700M in the distribution network.

Capital Increase

The €1.842Bn rights issue will be available through a placement of 368,457,108 million shares at €5 each, three new shares being offered for every five currently held. The issue is at an advanced planning stage and will be rolled out in the second week of July. 

Fiat's biggest shareholder, the Agnelli family's Ifil holding company, immediately announced that it would fully participate in the issue. To keep its 30% stake intact, Ifil will need to raise €502M towards the €1.8Bn capital increase.

Financial analysts were immediately cautious over the plans, unhappy that key questions over jobs and factories in Italy have been brushed under the carpet and are looking to see the effects of restructured operating proceedures in Italy before warming to the plan.

Financial Targets

Morchio expects the group to break-even by the end of 2004, with the Auto division coming out of the red by the end of 2005. By the end of 2006 full profitability of the group will be realised, although the Auto division is not expected to contribute to this. In the meantime Morchio expects the effects of the restructuring plan to be starting to show through by the end of this year, with the operating result, although still negative, "significantly better" than 2002.

Guisppe Morchio is targeting:

- A 4%+ return on sales by 2006, a hike on 2002's -1.4% negative return on sales. This will be achieved through an increase of operating income of €2.9Bn over 2002. €4.7Bn will realised through higher product margins.
- €3.1Bn will be saved through cutting costs further in the 2002-06 period.
- Group overall operations will have breakeven cashflows by end of 2004, breakeven at net levels during 2005 and full profitability in 2006. ( The auto division will breakeven in 2005 and at net levels in 2006 ). 
- Joint ventures with GM will save an additional €450M by 2006, athough a hoped for fresh financial input from the US giant carmaker was not attained, GM struggling at present to restructure its European loss making Opel brand.
- Capacity will rise by 78% for the Fiat/Lancia/LCV division, 90% for Alfa Romeo and 67% for Iveco.

Cost Savings

An expected €3.1Bn will be saved by 2006, the majority of the savings starting to come on-stream during 2004. Cost savings will come through greater use of common platforms, jointly purchased materials and component sharing, mainly through 20% shareholder GM and companies within the US-group including Suzuki who are to build Fiat's new SUV. Integrated purchasing will reduce costs as economies-of-scale are realised.

The use of higher quality materials and components along with an increase in build quality will lead to a significant decrease in warantee costs, currently well above industry standards. There will be a common purchasing and parts-sharing strategy developed between the CNH agricultural and Iveco truck divisions to reduce costs, while CNH will "accelerate the process of strengthening" the distribution networks it created through the merger of New Holland and Case.

The closure of non-Italian CNH and Iveco plants will further reduce costs and streamline operations.

Product & Distribution Targets

Among the goals is the announcement of three new major auto product lines from 2007-10 including the official confirmation of the city-aimed 'Micro' car which will be a true successor to the Seicento. By 2006, 80% of the model range will be all new, 10 fresh product lines are due for launch in that period. Heavy investment will see diesel sales grow to 45% of total ( up from a current 22.8% ) while model life will be slashed to three years, from a current target of five.

Fiat will also be pushing 'environmentally-friendly' products, building on a strong start they already have in this field. Between 2003-06 €7.9Bn will be spent on research and development, a figure equating to 5% of turnover.

Major attention will be focused on the Auto division's poor distribution and after-sales back-up. Alfa Romeo will increase its dealer network by 1,350 to cope with a planned large production increase, while unprofitable overseas ventures will be trimmed. Worldwide dealer numbers will remain steady at around 8,000. 

Initially the poorly-performing Italian dealer network will be overhauled with attention then spreading to "those areas of Western Europe that offer the best opportunities for expansion and on broadening the Brazilian, Chinese and Eastern European sales networks".

Job Losses

Another further round of job losses will occur on top of the 17,000 already on-going. 12,300 jobs will now go, although after lobbying from the Italian goverment, only 2,800 will be in Italy, the remaining 9,500 will be gained from closing unprofitable overseas operations. Of the 12 factories to be shut with the next two years, the Auto division has come off lighly with only one plant targeted to go. Five CNH plants will go, four components plants and two at Iveco.

Morchio did not elaborate on the plants to be closed, due to job and regional sensitivities, but it is believed that Fiat Auto's Indian plant is threatened, although a switch to a GM product line is expected not outright closure.

However 5,400 new staff will be taken on in the period to 2006, 1,600 in Italy and 3,800 overeas.