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Last Updated: Wednesday, 4 July 2007, 20:00 GMT 21:00 UK
Cinquecento's return marks Fiat's revival
By Mark Duff
BBC News, Turin, Italy

On 4 July 1957, an Italian icon hit the road as the first Fiat 500 rolled off the production line in Turin. Exactly 50 years later, another Fiat 500 is being launched.

Luca De Meo
This is the car that gave ordinary Italians four wheels for the first time; that transformed a country and a company
Luca De Meo, chief executive, Fiat cars

The glitz and the glamour of the Cinquecento's official launch is a world away from the businesslike atmosphere at its test track at Balocco outside Turin.

Tucked away amid the rice fields of Piedmont, drenched in sunshine and birdsong at this time of year, this is the place that Fiat's engineers come to when they want to put new cars through their paces, safe from the prying eyes of competitors.

Birdsong doesn't feature among Harald Wester's reasons for coming to Balocco.

Mr Wester is Fiat's head of engineering. He is, by his own admission, like a big kid let loose with his latest toy as he hurls a sporty 100 horsepower, 1.4 litre, sixteen-valve version of the new 500 around the test track's tight turns at a stomach-churning 160 km/h.

"No oversteer," he gloats cheerfully as the small car (and your correspondent) hangs on to the road for dear life. "No oversteer at all."

Make no mistake: Mr Wester is here to give the little car the big sell. But he clearly loves it anyway: when he gets into it, he says, it gives him a "big hug".

Italian premium

Balocco is also the place that Fiat cars' youthful chief executive, Luca De Meo, chose to show off his new baby ahead of the global launch.

The new car is clearly designed to be a tribute to its famous predecessor - all curves and cuddliness. This is Fiat's attempt to carve out a slice of the retro-market that BMW's Mini has made its own.

Fiat 500
You don't go into a shop and buy a suit and expect the Italian suit to be the cheapest there
Luca De Meo, chief executive, Fiat cars

But it is more than that.

Fiat of old, which the historic 500 represented, meant bargain-basement prices. Too often, it came to mean bargain-basement quality too.

The new 500 is "a kind of manifesto of how we want to position Fiat in the future", says Mr De Meo.

"We want Fiat in a higher position than today, more upmarket, and that's the mission of this car."

The Cinquecento is, in other words, a statement of intent.

The new 500 is made in Poland, because Fiat gets more for its money there. In a market where low-cost Chinese and Indian carmakers are itching to compete, European motorists will have to adjust to a world where Fiat cars are still good value, but unlikely to be simply the cheapest on offer.

Mr De Meo says this is the reality of what he calls "the Made In Italy world".

"You don't go into a shop and buy a suit and expect the Italian suit to be the cheapest there," he says. "The same thing is true of the automotive business.

"The Italian-ness of this product is back to the concept itself; that it's called Cinquecento; that it looks like a Cinquecento. This is to me the Italian part of the story - the concept and the execution of the product."

Poor quality

Even a few short years ago, such talk would have seemed vainglorious. Fiat's car division looked destined for the scrapheap. It was, says Gavin Green, executive editor of Car magazine, "the sick man of the European car industry, probably of the world car industry".

"Many people thought Fiat wouldn't survive. It was in a very poor state."

Fiat wants to become the car world's Apple; the Cinquecento will be its iPod

Until about two years ago, the Italian carmaker was working closely with joint venture partner General Motors (GM), the giant American automotive group.

Under their agreement, Fiat Group had an option to sell Fiat's car division to GM. But Fiat was the leper of the world motor industry, so GM - which was facing challenges of its own - was desperate to steer clear of Turin.

In the end, GM's chief executive, Rick Wagoner, decided to pay Fiat $2bn (1bn) to tear up the put option agreement.

Fiat was born and bred to build cars. But over time, the company outgrew its roots and metamorphosed into an industry and finance conglomerate. And as the Fiat Group diversified, it took its eye off the motor industry.

The result was bad design, production problems and poor quality cars. The Italian people responded by deserting in droves.

In 1990, more than half the cars sold in Italy were made by Fiat. By 2003, it accounted for only slightly more than a quarter of the market.

Fiat's executives came and went with the regularity of post-war Italian prime ministers and there were frequent clashes between management and workers.

Design and quality

The crunch came with the passing of a generation. In 2003, Gianni Agnelli, grandson of Fiat founder Giovanni Agnelli and doyen of the family firm, passed away. A year later, his brother Umberto also died.

The two had been the leading aristocrats of Italian industry; it was they who had presided over Fiat's fortunes.

In their place came John Elkann, Gianni's 28-year-old grandson and now Fiat's vice chairman.

In, too, came the man credited with turning around the firm's fortunes - Fiat Group's chief executive, Sergio Marchionne.

Fiat 500
The 500 soon became an icon synonymous with Italian fashion

Mr Marchionne's first instinct was to take the knife to Fiat's ossified management structure. Rather than shutting assembly lines, he turned his attention to middle management, slashing some 2,000 white collar jobs, and picking Luca De Meo to lead the core Fiat car brand's fightback.

Swiftly, the attention turned to the cars. The change was dramatic.

"We saw a big change," says Mr Green. "We saw a company that concentrated far more on the core automotive business; put a lot of effort into getting its cars right; a lot of effort into getting its design right; a lot of effort into getting its quality right."

The figures tell their own story.

Revenues last year were 35% up on 2005. Fiat Group Automobiles, which includes Fiat, Lancia and Alfa Romeo, is making money again for the first time since the year 2000. By the end of this year, its debts, which stood at 9bn euros in 2004, should have been wiped out.

Shareholders are riding the crest of the wave. According to the authoritative motor industry newspaper Automotive News, they have seen their investment grow in value by 94% in the past year alone.

One hundred euros invested in Fiat a year ago is now worth 194 euros. Indeed, over a three-year period, shareholders have seen a 270% return on their capital.

Special project

But Mr Marchionne's ambition doesn't stop there. He wants Fiat's car sales, which reached two million last year - to touch 2.8 million by 2010, increasing its market share from 9% to 11% internationally.

He wants Fiat to become one of Europe's top three car-sellers. And he wants its market share in Italy to rise from 32% to 35% - still a far cry from its heyday, though at least he is eyeing growth.

Original Fiat 500 in the Dolomite mountains (Photo: Fiat press office)
Four million Cinquecentos were sold during the model's life

But as one challenge is met, new ones appear.

The Chinese are coming, so too the eco-warriors. Already, the pressure to cut emissions is part of today's environmentally-sensitive design process.

But Fiat does not despair. Indeed, given its heritage as a small-car maker, it wants to turn the focus on reduced emissions to its advantage. For instance, the new 500 will automatically switch itself off and on again when it stops at traffic lights, cutting pollution and saving fuel.

The new Cinquecento is meant to set the seal on Fiat's recovery, already boosted by the success of recently launched models like the Grande Punto and the Panda in particular. Fiat passenger car sales in Europe surged 17% last year, making it the fastest-growing carmaker in the region.

Mr De Meo believes he is on to a winner. With 25,000 dealer orders for the Cinquecento already in the bag, he aims to sell 50,000 by the end of the year.

Other cars come and go, but with all its emotional and historical significance, the Fiat 500 is something else: an icon, a symbol of Italy and of Fiat itself.

Indeed, a 5m-long cake decorated with miniature Cinquecentos was served at Mr Elkann's wedding in 2004.

"If you look at the history of the automobile, this was something absolutely special," De Meo declares.

"This is the car that gave ordinary Italians four wheels for the first time; that transformed a country and a company. When you work on such a project, it's a bit different."

You can send pictures of your cinquecento to: yourpics@bbc.co.uk.

Do not endanger yourself or others, take any unnecessary risks or infringe any laws.

Fiat boosts car sales in Italy
14 Jun 07 |  Business
Strong sales drive Fiat profits
23 Apr 07 |  Business
Grande Punto gets Fiat on track
13 Apr 07 |  Business
Car sales improve Fiat's fortune
25 Jan 07 |  Business

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