Tag: Fiat

OM in the News: Fiat Threatens to Quit Italy

Fiat CEO Sergio Marchionne has recently threatened to cease manufacturing in Italy if he cannot bring down operating costs and increase productivity. This article in Businessweek (Oct.28-Nov.4, 2011) can make for an interesting class discussion on a whole variety of OM issues, from efficiency to capacity to productivity to union relations to off-shoring. The standoff between Italy’s largest manufacturer and one its hard-line unions (metalworkers–who are 12% of the workforce) is emblematic of the challenges facing the country. Italy’s industrial competitiveness has been eroding steadily, while Eastern European rivals have been working hard to improve conditions for corporations. The World Bank just ranked Italy 87 th in terms of ease of doing business; Hungary, Poland, and the Czech Republic all scored better.

Let’s look at the productivity gap (see Chapter 1). Fiat’s 22,000 factory workers in Italy assembled 650,000 cars in 2009. But the 6,100 employees at its plant in Tychy, Poland, built 600,000 vehicles. The Italian workers, in effect, each made 30 cars a year on average, compared to about 100 in Poland. And auto workers in Italy earn $38.55 an hour, more than 3 times the wage paid in Poland.

This productivity gap has Marchionne pushing Italian unions to agree to more flexible hours and to limit strikes and curtail absenteeism. (12,000 workers took part in an Oct. 21st strike).  Says the union head: “Fiat workers, not its managers, want to keep the company in Italy”.    An impasse with unions could end up with production shifted to other locales in Europe and the US–a move made easier by Fiat’s ownership of a controlling stake in Chrysler. An Italian economist writes: “If Fiat moves abroad, it will become a metaphor for a country that cannot be reformed, that has lost all hopes in the future”.

Discussion questions:

1. How is this also an issue for American auto makers?

2. Relate the article to news regarding Greece’s economic problems.

OM in the News: Chrysler’s Gamble with Mass Customization

The year was 1973. Jay and I were both teaching at Boston U.’s brand new European  MBA program, just outside of Pisa, Italy. The most popular car on the Italian road was the “Cinquecento”, a midget of a  vehicle that could easily fit in the back of a Chrysler minivan. The Cinquecento had all the power of about 3 Vespa motorscooters, my vehicle of choice in college. When I left Italy I never thought I would see one again.

So yesterday’s Wall Street Journal article (Nov.22,2010) announcing that Chrysler was bringing the Cinquecento to the US–and planning to sell 50,000 of them in 2011–was a bit of news. The car will be called the Fiat 500 and be manufactured at a retooled Chrysler plant in Mexico. Five feet shorter than a Chevy Impala, the 500 will retail for $15,500. But the reason you may want to bring this topic to your class is Chrysler’s risky strategy of mass customization (Chapter 7). Where the Japanese mastered the global auto market by limiting production options (a typical Honda might have 2 transmission options, 6 paint choices, 2 interiors, etc.), the Fiat 500 will provide a dizzying array of features to choose from.

With 3 versions of body style, 14 exterior colors, 14 seat colors, 6 wheel styles, and so on, there will be about 1 million combinations of the new car. Chrysler hopes the chance to customize the 500 will draw a wide range of customers who may want a “one of a kind”. In the past, US auto makers learned the risks of mass customization: too many choices leave dealers with lots full of cars, but not the exact one a customer may want (and 80% of US customers want to drive their car off the lot the day they buy).

Further, suppliers are being asked to keep more parts on hand so they can more quickly build a seat or interior combination , then ship it to the plant within a few hours.

Discussion questions:

1. How interested are students in a unique, customized car that will take 30 days to deliver?

2. Why is Chrysler taking this approach?

3. What are the competing products and how do they fare?