significantly less than the industry average of 3.38. Return on equity shows better results. Five year average is 11.06 for Fiat; 8.58 for industry, showing that although their profit margins may be low, they are earning good returns based on their level of equity. For price earnings ratio, valuations are not given for Fiat in Appendix D. Due to their 2009 losses, their 2009 ratio would be negative. Given an industry five year average high of .04 and an industry five year low average of .01, negative ratio is not unexpected or unusual in Fiat’s the industry. Diagnosis Fiat was clearly sinking during their alliance with GM and the years leading up to it. Fiat wanted a partner like GM to help and support it with capital, technology, innovation and cost sharing. They were burdened with overcapacity and losing market share in critical markets. Clearly, their goals were not met as they continued to sustain significant losses and saw their market share slip even further. Fiat had suffered losses even during consistent periods of revenue, indicating a root problem in cost containment and management. Their focus on cost sharing and increasing their markets did not yield results to overcome these root issues. The elimination of the GM alliance, infusion of billion in 2005, and hiring of Sergio Marchionne and his sweeping GM’s $2 strategies provided the right mix to turn the company around to a strong and profitable position within two years. Four years later, the company was poised to turn the tables by being the investor and rescuer with an alliance with Chrysler Group, LLC. Can Fiat continue their recent successes, while taking on the risk of Chrysler and its outdated models, overcapacity, and cumulative losses?
significantly less than the industry average of 3.38. Return on equity shows better results. Five year average is 11.06 for Fiat; 8.58 for industry, showing that although their profit margins may be low, they are earning good returns based on their level of equity. For price earnings ratio, valuations are not given for Fiat in Appendix D. Due to their 2009 losses, their 2009 ratio would be negative. Given an industry five year average high of .04 and an industry five year low average of .01, Fiat’s negative ratio is not unexpected or unusual in the industry. Diagnosis Fiat was clearly sinking during their alliance with GM and the years leading up to it. Fiat wanted a partner like GM to help and support it with capital, technology, innovation and cost sharing. They were burdened with overcapacity and losing market share in critical markets. Clearly, their goals were not met as they continued to sustain significant losses and saw their market share slip even further. Fiat had suffered losses even during consistent periods of revenue, indicating a root problem in cost containment and management. Their focus on cost sharing and increasing their markets did not yield results to overcome these root issues. The elimination of the GM alliance, infusion of GM’s $2 billion in 2005, and hiring of Sergio Marchionne and his sweeping strategies provided the right mix to turn the company around to a strong and profitable position within two years. Four years later, the company was poised to turn the tables by being the investor and rescuer with an alliance with Chrysler Group, LLC. Can Fiat continue their recent successes, while taking on the risk of Chrysler and its outdated models, overcapacity, and cumulative losses?