Car talk

Formula 1 people like to see themselves as important and there is no doubt that despite the misadventures of some of the smaller teams, the industry is big business. But can one imagine a situation in which success in the sport would propel Ferrari boss Luca di Montezemolo to becoming the top automobile executive in Italy?

The Mole can see that happening and while he wishes that he could write in excitement about the F1 driver market and of secret meetings on the tarmac of obscure aerodromes, alas, the modern F1 contract negotiations are done by herds of expensive lawyers. The Silly Season is not what it used to be.

Today there are so many stories pumped out that trying to spot the truth in amongst the smokescreens is harder than ever. And that means that The Mole's interest has been focussed in recent weeks on the corporate manoeuvres going on within the Fiat empire, which could have an exciting effect on the way things operate at Ferrari.

Ferrari has been a great success story in the last 10 years under the management of Montezemolo. The Ferrari brand is incredibly powerful but as Ferrari wants to remain exclusive production is pegged at just over 4000 cars a year. Demand for the cars easily outstrips production. In an effort to make more money from Ferrari, Fiat gave Montezemolo the Maserati brand as well and a new product range and new factories have been completed. It is hoped that the firm will be selling 10,000 cars a year within five years. Now it seems there are moves to add another brand to the Ferrari stable: Alfa Romeo.

The Mole find this rather an amusing concept as those who know the history of Ferrari will know that Enzo Ferrari grew up as an Alfa Romeo employee and in the 1930s his Scuderia Ferrari gradually took over all of the Alfa Romeo sporting activities until the company appointed Wifredo Ricart to take over. Ferrari and Ricart went to war and the result was that Ferrari was pushed out of his own team and fired by the company. His revenge was to start his own company after the war and to start building racing cars to beat Alfa Romeo. This he achieved and eventually Alfa Romeo left Grand Prix racing rather than face being beaten by Ferrari.

If Alfa Romeo were to become a part of the Ferrari empire it would be an exquisite irony and the ultimate victory for Enzo Ferrari, a man who was a big supporter of Luca di Montezemolo in the early stages of his career.

Alfa Romeo is currently part of Fiat's main automobile division Fiat Auto (Ferrari is a separate company) but Fiat Auto is in trouble and needs to pay off some of its debts or else the whole Fiat Group could be dragged down.

Back in February Fiat Auto was restructured. Alfa Romeo and Lancia, which had been operating as a single company since 1986, were split up and Lancia was lumped together with Fiat cars. Alfa Romeo was left standing alone. Even then there was speculation that this would lead to the Fiat/Lancia division being sold to General Motors and Alfa Romeo moved into a new grouping with Ferrari and Maserati.

This makes a lot of sense and now the mysterious Italian merchant bank Mediobanca is pushing the idea as well. Mediobanca is powerful in that it has just acquired 34% of Ferrari for the princely sum of $768m. This was necessary to raise some money to pay some of Fiat's debts. Things have got to be so bad that not long ago that Fiat boss Paolo Cantarella had to take the short walk down the corporate gangplank.

The Italian government and the Agnelli family (which owns the Fiat group) do not want Italy to lose its car industry but Fiat Auto is a mess and has not been responding to treatment. Fortunately a few years ago Fiat did a deal with General Motors to sell 20% of the company to the US giant for $2.4bn. As part of that deal General Motors acquired an option to buy the rest of Fiat Auto. This option can be exercised by Fiat in 2004.

In other words the Italians can dump the car company if it chooses to do so.

Holding on to Fiat Auto is not a good idea in the current global automobile markets. There are six major car manufacturers in the world: with General Motors which produced 8.2m light vehicles in 2001, Ford Motor Company produced 7.4m, DaimlerChrysler 6.3m, Toyota 6.1m, Volkswagen 5.0m, Renault/ Nissan 4.7m. There is then a big drop back to the few remaining mid-sized car firms: Peugeot-Citroen (3.0m), Honda (2.6m), Fiat (2.2m), Hyundai (1.9m) and Suzuki (1.9m).

Most of these are pretty healthy at the moment but Fiat is losing money and the Fiat Group has begun to look ahead to a future away from car manufacturing and in the more profitable sector of high finance.

Shifting the successful and charismatic Alfa Romeo brand to Ferrari would mean that Italy still had a nice niche market in luxury cars while getting rid of the mainstream Fiat brand, which has not been selling well. Quality would replace quantity and GM would end up with the headache of how to fix Fiat Auto. Ferrari would to build its 4000 sought-after cars a year; Maserati would build its 10,000 and Alfa Romeo could revamp itself and go heavily into the BMW-Mercedes-Benz market with around 200,000 cars a year.

The Fiat Group would get about $2.5bn more from GM, Italy would still have a decent car company and Montezemolo would have a new challenge to keep him interested.

And one would suspect that Michael Schumacher could ask for a raise.

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