When Fiat wheels out its white-haired patriarch, things must be serious. This week, Gianni Agnelli issued a statement at the same time as the group was announcing an injection of EUD1.8 billion ($1.6 billion) into its car division, Fiat Auto, which is owned 80% by Fiat and 20% by General Motors (GM). Mr Agnelli was trying to stop the slide in the company's share price (see chart). The honorary chairman-and head of the family that controls about a third of Fiat shares-said cars would remain a crucial part of the group. So why, you might ask, did Fiat include an option to sell Fiat Auto to GM after 2004 in the alliance contract signed two years ago? Insiders admit that this year will be even worse for Fiat Auto than last year, when it made losses of EUD549m. Blame collapsing markets in Brazil, Poland and Turkey, where Fiat has big operations. At home, collapsing prices are to blame: Fiat so dominates the Italian market that competitors will happily slash prices just to win a few sales. That is one reason why Fiat's latest white hope, the Stilo saloon, is falling 10% short of its sales targets. Other Fiat models are long in the tooth and losing out to fresher products from rivals. The result is that Fiat's European factories are working at only 75% capacity, when they need to hum at over 80% to make profits. The problems at Fiat are not confined to cars, however. In the late 1990s the group made big investments in non-automotive businesses, a strategy that made it more diverse, but also left it with too much debt. Worse, some of the acquired businesses have proved disappointing.
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