The winding road behind the Fiat dynasty

Fiat, the Italian automaker that owns iconic brands such as Ferrari, Maserati, Alfa Romeo, Chrysler and Fiat itself, is a worldwide motoring empire. But it had a near-death experience at the turn of century when it had to negotiate a huge convertible loan with its bankers.

Since then the century-old company has pulled off a successful turnaround strategy and in the process rescued an ailing American car giant, Chrysler, as well. The story of the rise and fall and rise again of the storied car maker is synonymous with the Agnelli family -- undisputedly Italian business royalty.

In fact, heirs of the Agnelli fortune wedded members of European royalty including a Bourbon princess and a daughter of the Duke of Melito. Once the Agnellis made all that money only the bluest blood would do according to late professor David Landes’ book Dynasties: Fortunes and Misfortunes of the World’s Great Family Businesses.

The Agnelli dynasty was started at the end of nineteenth century by Giovanni Agnelli, the family’s patriarch and company’s founder. He was trained as a cavalry officer and got into automobile by an accident of fantasy. Initially, he wanted to build a perpetually moving machine, then went for a more realistic goal of a horseless carriage.

In 1898, Agnelli joined force with the Count Bricherasio di Cacherano to found the Fabbrica Italiana di Automobili Torino, or Fiat in short. The skilful Agenelli managed to force some of early partners to sell out, including Bricherasio, and he also foiled an attempt by the state prosecutor in Turin to charge him for manipulating the price of shares.

Since then, the Agnellis have been in firm control of Fiat, a nominally public company. The legal stoush taught Giovanni about the importance of cultivating political patronage, a Latin instinct. Agnelli managed to win friends from a full spectrum of politics from Prime Minister Giovanni Giolitti to future fascist dictator Benito Mussolini.

The Agnellis benefitted handsomely from their political connections, the business was awarded lucrative arms contract when Italy wanted to re-conquer North Africa. When Mussolini came into power, he also ended a government commission looking into excess industrial profits during the war years, according to Alan Friedman’s seminal book Agnelli, Fiat and the Network of Italian Power.

A family tragedy derailed Giovanni’s succession plan when his only male heir Eduardo died in a plane crash. Eduardo’s second son, Giovanni or just Gianni, became torch-bearer for the family and was “destined to enlarge the empire that he inherited.”

The Agnellis were generally more interested in cultivating political connections, enjoying the fruit of their fortunes than running the business itself. Luckily, the family has good eyes for competent and loyal managerial talents.

The first of the non-family managers was Vittorio Valletta, a former banking professor who served Giovanni senior and his grandson Gianni. Under his leadership, he oversaw a massive expansion of Fiat from making 3260 cars a year at the end of 1945 to well over that number every day and sales reached $US1.5 billion a year.

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After the retirement of long-serving family lieutenant Valletta in 1966, Gianni succeed him as the chairman of the motoring empire, which at the time was the third-largest car maker in the world after GM and Ford.

The ambitious Gianni wanted to expand his empire into French soil by acquiring Citroen. But his grand design was thwarted by Charles de Gaulle, who regarded the deal as a national surrender -- and to those fascist losers no less!

Luckily for the Agnelli family, they found another loyal and talented manager, Cesare Romiti, to run the business for them.

The late David Landes wrote “it is rare that a family business finds an outsider to run the firm well and loyally, and Fiat had somehow achieved that miracle twice. The Agnellis had found brilliant resourceful and capable outsiders to manage the business without trying to take it over.”

However, the Agnellis’ fortune took a sharp turn when Gianni’s only male heir, the second Edoardo, was found dead under a bridge in Turin -- an apparent suicide. Despite Gianni’s best effort to train him as the future business leader including elite education at Princeton and banking experience with Lehman Brothers in New York. Edoardo was just not interested.

David Landes blames the loss of commercial drive and energy, along with the Agnellis’ marriage preferences for the bluest blood of European nobility, saying “that kind of thing is poison to commercial commitment; there are so many more enjoyable ways to pass the time.”

Gianni looked beyond his own daughters for successors, and traditional Italian values leave little room for “capable, combative women entrepreneurs.”

Another tragedy befell the family, another potential male heir from Gianni’s brother’s line died from incurable cancer in New York.

Finally, the family patriarch Gianni anointed grandson John Philip Elkann, son of his daughter Margherita to inherit the family fortune. He was promptly appointed to the company’s board of directors at age 22.

Elkann, who is also a director at News Corp, publisher of Business Spectator, is overseeing the next crucial stage of Fiat’s future development, the takeover and integration of American auto-maker Chrysler. Luckily for Elkann and the Agnelli family, they have at their services another talented outside manager, Sergio Marchionne.

Shortly after he joined Fiat in 2004, he managed to turn a failed partnership with GM into $2 billion payout, giving Fiat the much needed breathing-room to develop the trendy Fiat 500 city cars.

It seems that the Agnellis are able to continue the great family tradition of peaceful co-existence of ownership and talented managers giving the 115-year-old car maker a new lease of life.