The Fiat Group in 1999 - Report on Operations - Fiat SpA

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8 and <strong>in</strong>tellectual resources <strong>in</strong> an effort to accelerate the implementation of our strategies and focus the entire <strong>Group</strong> on the achievement of our core values: customer satisfaction, employee enhancement and value creation. We are firmly committed to achiev<strong>in</strong>g more consistency between our stated pr<strong>in</strong>ciples and the actual behavior of <strong>Group</strong> employees. Consistent behavior is the gauge that will be used throughout the organization to test the commitment of <strong>in</strong>dividuals to the values of the <strong>Group</strong>. It will be measured not only <strong>in</strong> terms of the ability to reach bus<strong>in</strong>ess objectives, but also on the basis of the skills demonstrated <strong>in</strong> <strong>in</strong>volv<strong>in</strong>g and motivat<strong>in</strong>g employees and operat<strong>in</strong>g <strong>in</strong> the multicultural context <strong>in</strong> which global bus<strong>in</strong>esses are required to compete. We devoted substantial efforts to the development of this type of management culture and we will cont<strong>in</strong>ue to pursue this goal <strong>in</strong> the future. In <strong>1999</strong>, <strong>in</strong> order to strengthen management’s relationship with all stockholders and make sure that its actions are consistent with the goal of value creation, the <strong>Group</strong> <strong>in</strong>troduced a stock option plan, available to about 650 of its senior executives. In February 2000, the plan was expanded to <strong>in</strong>clude 200 additional high-potential managers. In addition, concurrently with the entry of new members, the Board of Directors adopted a more modern corporate governance system. <strong>The</strong> measures taken to achieve this goal <strong>in</strong>cluded the establishment of an Audit Committee and a Compensation Committee. COMPETITIVENESS OF THE ECONOMY AND THE CONTRIBUTION OF INDUSTRY All these <strong>in</strong>itiatives and this process of profound transformation will enable our <strong>Group</strong> to respond to the challenge of an <strong>in</strong>creas<strong>in</strong>gly competitive environment. An equally complex environment faces the Italian economy and that of Europe as a whole, as they seek to realize their growth potential. <strong>The</strong>y must fill the gap that exists between Italian and European growth rates and those experienced <strong>in</strong> the United States by significantly <strong>in</strong>creas<strong>in</strong>g the level of technology <strong>in</strong>corporated <strong>in</strong> products and services. This will require an <strong>in</strong>tensive application of <strong>in</strong>formation and communication technologies, massive <strong>in</strong>vestments <strong>in</strong> research and a shorten<strong>in</strong>g of the time required to translate scientific breakthroughs <strong>in</strong>to <strong>in</strong>novative products and services. Even more important is the ability to develop a true culture of flexibility, which will reduce the Government’s <strong>in</strong>volvement <strong>in</strong> the economy, simplify its bureaucracy and elim<strong>in</strong>ate the restrictions that impede the movement of capitals and jobs from old to new bus<strong>in</strong>esses. <strong>The</strong> task of accelerat<strong>in</strong>g the process of technological and cultural modernization is the responsibility of the entire European society. Clearly, bus<strong>in</strong>esses can provide an important contribution, as they constantly strive to <strong>in</strong>novate, improve employee tra<strong>in</strong><strong>in</strong>g and offer ideas and proposals, <strong>in</strong> an effort to provide the European economic system with the stimulus needed to address effectively the challenge of global competition. It is at this level — where European and global considerations transcend national <strong>in</strong>terests — that the future of European <strong>in</strong>dustry will be decided. And it is precisely at this level that the <strong>Fiat</strong> <strong>Group</strong> <strong>in</strong>tends to contribute to the political discourse <strong>in</strong> those areas that affect the competitiveness of bus<strong>in</strong>esses. IMPROVED RESULTS IN 2000 <strong>The</strong> year 2000 marks the beg<strong>in</strong>n<strong>in</strong>g of the second century of <strong>Fiat</strong>’s history. We are fully aware of the effort that will be required to cont<strong>in</strong>ue the long tradition of growth that started <strong>in</strong> Tur<strong>in</strong> <strong>in</strong> 1899. While <strong>Fiat</strong> Auto may not repeat this year the performance of the last quarter of <strong>1999</strong>, which was exceptional <strong>in</strong> certa<strong>in</strong> respects, it is clearly headed on the road to improved results, thanks to the <strong>in</strong>troduction of new products and the implementation of cost conta<strong>in</strong>ment programs. CNH must tackle the challenge of absorb<strong>in</strong>g the cost of <strong>in</strong>tegrat<strong>in</strong>g New Holland and Case, while operat<strong>in</strong>g <strong>in</strong> a still unfavorable U.S. market. However, it is expected to post positive results <strong>in</strong> 2000, even though it will not yet fully benefit from the synergies it expects to create. More generally, all the new companies that jo<strong>in</strong>ed the <strong>Group</strong> will be faced with the task of complet<strong>in</strong>g quickly the complex process of <strong>in</strong>tegration. <strong>The</strong> other <strong>Group</strong> Sectors should cont<strong>in</strong>ue to grow at a susta<strong>in</strong>ed rate, as they cont<strong>in</strong>ue to reap the benefits of programs designed to cut costs and streaml<strong>in</strong>e their operations. In addition, we must focus our management skills on improv<strong>in</strong>g cash flow generation, so as to reduce the borrow<strong>in</strong>gs <strong>in</strong>curred for acquisitions below the current level, which, however, at 27% of stockholders’ equity, is still conservative for an <strong>in</strong>dustrial group. Overall, the <strong>Fiat</strong> <strong>Group</strong> should experience a significant improvement <strong>in</strong> operat<strong>in</strong>g profitability <strong>in</strong> the year 2000, but <strong>in</strong>come before taxes, while substantially higher than the previous year, will feel the impact of <strong>in</strong>creased f<strong>in</strong>ancial expenses. Nevertheless, we are ga<strong>in</strong><strong>in</strong>g upward momentum and this gives us confidence <strong>in</strong> our ability to reach our goal, which is to achieve a reliable and susta<strong>in</strong>ed improvement <strong>in</strong> the results posted by our <strong>Group</strong>.
THE FIAT – GENERAL MOTORS ALLIANCE On March 13, 2000, our determ<strong>in</strong>ation to help each <strong>Group</strong> Sector achieve a position of leadership and competitive excellence on a global plane produced an important new agreement. On this date, <strong>Fiat</strong> and General Motors announced a strategic <strong>in</strong>dustrial alliance <strong>in</strong>volv<strong>in</strong>g their automotive operations <strong>in</strong> two of the world’s largest markets: Europe and South America. In a nutshell, the salient po<strong>in</strong>ts of the agreement are: ❚ <strong>Fiat</strong> Auto and General Motors will leverage their purchas<strong>in</strong>g and powertra<strong>in</strong> capabilities to create two 50-50 jo<strong>in</strong>t ventures that will provide significant opportunities for synergy and achieve positions of competitive excellence with respect to production costs. ❚ To maximize the available synergies, both companies will work jo<strong>in</strong>tly to achieve a gradual convergence of common product platforms. ❚ <strong>The</strong> cooperation between <strong>Fiat</strong> Auto and General Motors will be extended to <strong>in</strong>clude the back office operations of their respective f<strong>in</strong>ancial services companies and jo<strong>in</strong>t programs <strong>in</strong> the area of advanced research. ❚ General Motors will acquire a 20% stake <strong>in</strong> <strong>Fiat</strong> Auto <strong>in</strong> exchange for the acquisition by <strong>Fiat</strong> S.p.A. of about 5.1% of GM’s capital stock, valued at US$2.4 billion. This translates <strong>in</strong>to a value of US$12 billion for all of <strong>Fiat</strong> Auto. Follow<strong>in</strong>g this transaction, <strong>Fiat</strong> S.p.A. will be the biggest corporate stockholder of General Motors, the lead<strong>in</strong>g carmaker <strong>in</strong> the world. <strong>The</strong> synergies that programs already identified are expected to produce will amount to two billion euros by 2005, half of which will benefit <strong>Fiat</strong> Auto directly. This will significantly improve its cost leadership status and speed up the achievement of its value creation goals. <strong>The</strong> synergies will have a direct impact on the most significant components of the Sector’s <strong>in</strong>dustrial costs: powertra<strong>in</strong> and purchas<strong>in</strong>g represent about 80% of all production costs. If <strong>Fiat</strong> Auto’s and General Motors’ market shares <strong>in</strong> Europe and South America are comb<strong>in</strong>ed, these costs can be spread over more than 5.5 million cars, more than twice <strong>Fiat</strong> Auto’s current volume. This agreement between <strong>Fiat</strong> Auto and General Motors creates a unique bus<strong>in</strong>ess model <strong>in</strong> the global automobile <strong>in</strong>dustry: Two great <strong>in</strong>dependent companies will cont<strong>in</strong>ue to compete for sales and customer loyalty, while they are allied <strong>in</strong> an effort to optimize their costs and other <strong>in</strong>dustrial activities. This will enable <strong>Fiat</strong> Auto to focus its management skills on those areas that are crucial for its future competitiveness: brand management, distribution and customer service. Among the different potential agreements that were available to us, we chose the option that best strengthens our position <strong>in</strong> the automobile <strong>in</strong>dustry. We are conv<strong>in</strong>ced that this decision will enable us to <strong>in</strong>crease the competitiveness and f<strong>in</strong>ancial strength of our Company, thereby creat<strong>in</strong>g more value than would have been created by any other choice, <strong>in</strong>clud<strong>in</strong>g an outright sale of our automotive operations. Nevertheless, <strong>in</strong> order to best protect the <strong>in</strong>terests of our stockholders, we <strong>in</strong>sisted on terms that <strong>in</strong> the future will enable us to reta<strong>in</strong> total flexibility and absolute control of our dest<strong>in</strong>y. <strong>The</strong> great <strong>in</strong>dustrial traditions, technological excellence and market<strong>in</strong>g strength of both partners and the <strong>in</strong>novative terms of the agreement give historic significance to this transaction, which represents a fitt<strong>in</strong>g conclusion for the first century of <strong>Fiat</strong>’s history. We are conv<strong>in</strong>ced that it will <strong>in</strong>crease significantly the strength of our <strong>Group</strong>, while enhanc<strong>in</strong>g its growth potential and contribut<strong>in</strong>g to the development of the <strong>in</strong>dustrial and economic system <strong>in</strong> Italy and <strong>in</strong> all the countries where the <strong>Group</strong> operates. Tur<strong>in</strong>, April 7, 2000 Paolo Fresco Chairman Paolo Cantarella Chief Executive Officer <strong>Report</strong> on Operations – Overview 9
Page 1 and 2: The Fiat</
Page 3 and 4: Consolidated Revenues in</s
Page 5 and 6: Honorary Chairman Giovanni Agnelli
Page 7 and 8: OVERVIEW Stockholders, A year ago,
Page 9: usiness. At the sa
Page 13 and 14: 40,000 30,000 20,000 10,000 0 Reven
Page 15 and 16: 1899 - 1999 Centen
Page 17 and 18: 16 FIAT AND ITS PEOPLE HUMAN RESOUR
Page 19 and 20: 18 With regard to workin</s
Page 21 and 22: 20 FIAT FOR THE ENVIRONMENT <strong
Page 23 and 24: 22 ANALYSIS OF THE FINANCIAL POSITI
Page 25 and 26: 24 represents a gain</stron
Page 27 and 28: 26 In particular: ❚ Teksid closed
Page 29 and 30: 28 Net deferred tax assets At Decem
Page 31 and 32: 30 FINANCIAL POSITION AND OPERATING
Page 33 and 34: 32 OTHER HOLDING COMPANIES In addit
Page 35 and 36: 34 The Companies o
Page 37 and 38: 36 FINANCIAL HIGHLIGHTS BY SECTOR F
Page 39 and 40: 38 model of which 3.3 million units
Page 41 and 42: 40 COMMERCIAL VEHICLES — IVECO Hi
Page 43 and 44: 42 AGRICULTURAL AND CONSTRUCTION EQ
Page 45 and 46: 44 METALLURGICAL PRODUCTS — TEKSI
Page 47 and 48: 46 PRODUCTION SYSTEMS — COMAU/PIC
Page 49 and 50: 48 ROLLING STOCK AND RAILWAY SYSTEM
Page 51 and 52: 50 INSURANCE — TORO ASSICURAZIONI
Page 53 and 54: 52 FIAT ENGINEERING Fiat</s
Page 55 and 56: 54 ❚ With regard to the Internal
Page 57 and 58: 56 TRANSACTIONS AMONG GROUP COMPANI
Page 59 and 60: 58 MOTION FOR ALLOCATION OF THE <st
Page 61 and 62:
New Holland Latino
Page 63:
The Fiat</
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The Fiat Group in 1999 - Report on Operations - Fiat SpA

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