The recent union between Fiat and Alfa Romeo saves a failing state-owner enterprise (Alfa) and gives Fiat a leg up in the competitive European car market. Earlier this month, after weeks of high-finance discussions, the board of the Instituto per la Ricostruzione Industriale (IRI), the holding company of Alfa Romeo, chose Fiat's offer over Ford's. Ford wanted to expand its European operations; Fiat's desire is to improve its position in the medium- and high-cylinder limousine market in Europe.
Alfa Romeo, famous for high-cylinder vehicles of 1,800 to 2,000 cc, has been beset by labor problems in its three main auto factories. Falling sales compounded financial problems.
Losses reached $175 million last year. These were reduced to $51 million for the first six months of 1986, while sales for 1986 slightly increased over the previous year. Still, Alfa sold only 161,920 vehicles in the first 10 months of the year, a minuscule part of the company's production capacity of 400,000 cars.
The Fiat offer was termed, by many, one the government could not refuse. In principle, Fiat pays a total of $5.7 billion for Alfa, promising to invest $3.6 billion in updating Alfa manufacturing plants, machinery, and models. Alfa is being merged with Lancia, a luxury-car subsidiary of Fiat.
Between 1987 and '95, 75 percent of the updating and modernizing budget will go toward the improvement of Alfa alone. Fiat has pledged to keep the exclusive Alfa trademark and models.
Another major point in favor of the Fiat offer was its commitment to maintain existing employment at Alfa in addition to the 9,000 workers at Lancia.
In comparison, the Ford offer was considered reasonable, but overall less advantageous. Fiat bought 100 percent of Alfa; Ford's offer was exclusively for Alfa Romeo's auto manufacturing concern - the equivalent of only 19.5 percent of the total Alfa group. Ford made no precise undertaking to maintain employment levels, simply stating it did not plan to follow up the purchase with massive layoffs. And Ford promised to invest $2.85 billion between 1987 and 1994 in Alfa, aiming to increase car production to 400,000 vehicles a year.
The purchase is a major boost for Fiat toward leading the European market in high-cylinder executive automobiles. At present, the top position is held by Mercedes, which controls 24.3 percent of Europe's high-cylinder auto market.
Fiat estimates the new Alfa-Lancia products will eventually become No. 2, with 23 percent of the market. This means Fiat must maintain its promise to extend the market for Alfa cars, including the US market. This was one of Ford's trump cards in the negotiations: Ford European and US sales networks would have been used for Alfa sales.
While national fervor as well as economic acumen has led both industrialists and laborers to favor the Fiat bid, there were a few initial voices raised from the unions in favor of Ford as being less likely than Fiat to suddenly lay off workers. The main bulk of the unions, however, are now on the side of Fiat.
For car lovers, an important factor is that both Fiat and Ford undertook to maintain and improve Alfa Romeo models. They will still be the powerful, elegant vehicles of Cabinet ministers, police patrols, and those who simply want a good-looking, fast automobile of the kind that prompted Henry Ford to say, ``Every time I see an Alfa Romeo I raise my hat.''