Former chief executive officer, Fiat Group
Born: November 20, 1947, in Rapallo, Genoa, Italy.
Education: Politecnico di Genova (Genoa Polytechnic University), BS, 1974.
Family: Married; children: two.
Career: Manuli Group, 1974–1980, cable engineer; Pirelli Group, 1980–1986, director of logistics; Pirelli Coordinamento Pneumatici, 1986–1989, vice president of operations for the tire sector; Pirelli Neumaticos, Spain, 1989–1992, chief executive officer and chairman of the board; Pirelli Tyre North America, 1992–1993, chief executive officer and chairman of the board; Pirelli Cavi S.p.A., 1993–1995, chief executive officer; Pirelli Cavi e Sistemi S.p.A., 1995–2001, chief executive officer and chairman of the board; Fiat Group, 2003–2004, chief executive officer.
■ Giuseppe Morchio made the tough decisions wherever he worked and was an intimidating figure among his employees. He persistently searched for data that would tell him whether a particular business operation was making money or losing money and whether to sell or cut an operation or invest more money in it to enhance profits. He enjoyed traveling and reading and was avowedly passionate about cars, although his favorite hobby was sailing. Bookish, round-faced with a heavy jaw, and wearing round eyeglasses, he was physically unimposing, but he made his presence felt in any job he held.
Morchio attended the Genoa Polytechnic University, where he earned a degree in mechanical engineering. In 1974 he was hired by the Manuli Group, also known as Manuli Rubber, where he worked as a cable engineer. For the next twenty years the focus of his work would be cables for transmitting
power or information. The Manuli Group was a small company compared with other cable manufacturers, and the industrial giant Pirelli Group offered more room for advancement.
Pirelli had been manufacturing tires for about a hundred years when Morchio joined it in 1980, and it was famous for its Formula One racing tires. Morchio became the director of logistics for tires. In 1986 he was promoted to vice president of operations for Pirelli's tire division, the Pirelli Coordinamento Pneumatici, where he proved to be an able and demanding manager. His work gave him experience in the requirements of manufacturing and in coordinating an international operation, because Pirelli tires were sold throughout much of the world.
In 1989 Morchio was made the chief executive officer (CEO) and chairman of the board of Pirelli Neumaticos in Spain, a promotion in the importance of his title but actually somewhat of a comedown because Pirelli's operations in Spain were not as important to the company as was directing its tire operations. Perhaps his employers wanted to give him international experience by sending him abroad, or perhaps he himself wanted a position where he was the boss of all day-to-day activities. In 1992 he moved on to Pirelli Tyre North America, becoming its CEO and chairman of the board. While in the United States he probably became familiar with the technologies and American companies that would be important in his building Pirelli into one of the world's foremost cable companies.
In 1993 Morchio was called back to Italy and appointed CEO of Pirelli Cavi. Pirelli was losing money and Morchio set to work focusing the company's management on improving the bottom line and emphasizing new technology. Morchio worked his managers hard, calling underlings in the middle of the night and on weekends to talk business. By 1995 Pirelli had returned to profitability and Morchio was appointed CEO and chairman of the board of the holding company Pirelli Cavi e Sistemi. He was now in an ideal position to exercise his skills because he controlled not only the manufacture of tires and cables but Pirelli's diverse holdings in energy-transmission and telecommunications systems.
Morchio's promotion of research and development made Pirelli a world leader in the technology demanded by expanding communications systems such as the Internet. In December 1996 Pirelli sued the American company CIENA Corporation for patent infringement. CIENA countersued, and Pirelli counter-countersued. This resulted in a messy two-year ordeal, but on June 11, 1998, Pirelli resolved its lawsuits against CIENA, with Pirelli dropping its lawsuits in exchange for a $30 million payment and regularly paid royalties on CIENA's continuing use of Pirelli patents. The agreement was reached during direct talks between Morchio and Patrick H. Nettles, president and CEO of CIENA. It was an example of Morchio's willingness to become personally involved in resolving a corporate conflict.
On June 25, 1998, Pirelli Cables and Systems introduced the TeraMux Hyper-Dense WDM system, with 128 channels and a 1.28 terabit transmission. Data had a tendency to break down when transmitted over cables, but the TeraMux system cut expenses by reducing the need for reassembling data. On October 1, 1998, Morchio directed a gift of 4.5 million shares of Pirelli common stock to Pirelli employees worldwide. The minimum number of shares received by an employee was 591. Morchio said the gift was to celebrate Pirelli's 125th anniversary, but he hoped the gift would foster a sense of community among employees and a commitment to the growth and prosperity of Pirelli by giving its employees at all levels an interest in the company's success.
By 1999 Pirelli had 65 factories and 20,000 employees. Morchio sold some of the company's fiberoptics- and component-manufacturing facilities to Cisco Systems for $2.1 billion. Much of the money was reinvested. For instance, on December 15, 1999, Pirelli provided $13.8 million to American Superconductor Corporation for development of high-temperature superconducting wires for energy transmission. Pirelli and American Superconductor had been collaborating on research, and the investment was intended to help bring the superconducting wires to a level that could be tested on a largescale. Superconducting was a young technology, mostly because superconductors had in the past required temperatures near absolute zero in order to work. A high-temperature super-conducting wire could save power companies million of dollars because, in theory, no force would be required to transmit electricity over unlimited distances.
By 2000 Morchio had turned Pirelli into the world's fore-most manufacturer of power cables. On February 11, 2000, Pirelli purchased the cable business of the United Kingdom's BICCGeneral for $216 million. Morchio hoped this would enhance Pirelli as an energy provider. On May 25, 2000, Pirelli introduced new optical-cable components that could handle higher bandwidths for the Internet than were currently available. In addition, Pirelli offered new fiber cables FreeLight and DeepLight, which had applications in the high-speed trans mission of data. By investing in research and filing for and defending patents for new technology, Pirelli's cable business had become not only valuable but huge. The Pirelli Group cashed in on some of the value it had created by selling to Corning its 90 percent ownership of Optical Technologies, a cable and fiber-optics company based in Delaware, for $3.9 billion. Corning agreed to buy another $100 million in other Pirelli properties in the United States. This meant that Pirelli realized $6 billion in 1999 and 2000 from business created after Morchio took Pirelli's helm. Morchio planned to invest the money from the sales in research, Pirelli's fiber-optics business at home, and the company's tire, underwater-systems, and energy businesses.
On December 28, 2000, Pirelli split its energy and telecommunication division into two divisions, one devoted to energy cables and the other to telecommunication cables, each with its own CEO. That month Morchio cashed in $150 million in stock options, and in January 2001 he retired. He planned to travel, especially around the Mediterranean, and to live a life of leisure, but Morchio was driven to achieve, and his leisurely life did not last long.
The Fiat Group had once been a powerhouse in Europe. In Italy in the 1980s, 60 percent of automobiles sold were manufactured by the subsidiary Fiat Auto; by 2000 this had fallen to 30 percent and was continuing to drop. In a plan to revitalize its automobile business, Fiat Group sold 20 percent of Fiat Auto to General Motors for $2.5 billion, with an option to sell the remaining shares to General Motors in early 2004. In 2000 Fiat Auto lost $1.2 billion, while Fiat Group as a whole lost $4.5 billion. Fiat Group was 30 percent owned by the Agnelli family, descendants of Fiat's founder and part of Italy's social elite. Family leader Giovanni Agnelli was determined to hold on to Fiat Auto.
By the end of 2002 Fiat was $7.5 billion in debt, and General Motors saw its huge investment dwindle to a little over $200 million in value. In early 2003 Giovanni Agnelli died of prostate cancer and his brother Umberto was elected chairman of the board of the Fiat Group. Fiat Group was losing millions of dollars per day, and Umberto Agnelli was under pressure to fix Fiat Group's problems quickly. On February 28, 2003, Umberto hired Morchio as the new CEO of Fiat Group. Morchio would be given a free hand in Fiat Group's day-to-day operations, an unusual agreement because the Agnellis had traditionally controlled corporate affairs. Umberto Agnelli and Morchio proved to be a good team; Agnelli kept his end of the agreement, leaving Morchio free to restructure Fiat Group, but he proved to be an astute businessman whose insights in Fiat Group's businesses helped Morchio. Morchio relished the challenge, asserting in April 2003, "When Mr. Umberto Agnelli called me, I had no hesitation. This is the biggest industrial company in the country, with so many problems but also with huge turnaround potential" ( Forbes.com , June 25, 2003).
Morchio quickly declared his intention to retain Fiat Auto as part of Fiat Group, which was an enormous company with 190,000 employees scattered through numerous divisions around the world. Fiat Auto was the foundation of the group, but Fiat Group had diversified so much during the 1980s and 1990s that Fiat Auto was no longer vital to the group's success. Fiat Group owned energy companies, telecommunications companies, industrial-equipment manufacturers, farm-equipment manufacturers, insurance companies, and more.
Even so, Fiat Auto was the biggest division, the seventh-largest manufacturer by volume of automobiles and trucks in the world, selling about 2.5 million vehicles per year. It accounted for 7.4 percent of the European automobile market, down from 14 percent in the early 1990s. Fiat Group as a whole accounted for 4.8 percent of Italy's gross national product. Morchio and Agnelli decided that Fiat Auto and related industrial businesses offered the greatest potential for growth in Fiat Group and would form the heart of Fiat Group's recovery. Morchio quickly determined that the infusion of money from General Motors and bank loans in 2002 was not enough to restart Fiat Auto. In May 2003 he approached General Motors for an investment of another $1 billion, but General Motors, noting the steep increase in Fiat Auto's losses, declined.
On March 22, 2003, Morchio began selling some of Fiat Group's assets to raise some of the money that modernizing and retooling Fiat Auto's factories required. He sold the profitable insurance company Toro Assicurazioni for $2.5 billion. On April 7, 2003, he sold Fiat's aerospace division, Fiat Avio, to the Carlyle Group for $1.7 billion. This still left him $800 million short of the $5 billion he believed would be necessary to revive Fiat Auto. He then recapitalized Fiat Auto by issuing new stock in the company, thus raising over $1 billion. This large stock offering diluted General Motors's share of the company from 20 to 10 percent, and General Motors threatened to sue for breach of contract, saying that the issuing of new shares invalidated its contract with Fiat Group. Morchio felt he could avert this threatened action: In a separate agreement, General Motors and Fiat Group were collaborating on making drivetrains for automobiles, and the demand for the products of this joint venture was already outstripping supply. Morchio hoped that the potential profits from this venture might dissuade General Motors from taking hostile action against Fiat Group. Meanwhile, Morchio was looking elsewhere for partners to help share the costs of developing new vehicles, and he found a new partner in Japan's Suzuki; Fiat and Suzuki agreed to jointly manufacture a sport-utility vehicle in Budapest, Hungary, with Fiat providing its diesel engine. The companies hoped to begin manufacturing the vehicle in 2005, with each company selling the vehicle under its own brand name.
In June 2003 Morchio revealed his long-term plans for revitalizing Fiat Group. He said that one objective was for the corporation to break even in 2004; another was to turn a profit in 2006. These would be daunting tasks, but Morchio was a whirlwind of activity, flowing through offices and factories, a large notebook full of figures under one arm, restlessly searching for ways to cut costs and for investment opportunities. His plan had five steps. The first was to cut costs by $1.1 billion. To do this Fiat Group would close the factories of Iveco, its truck-manufacturing company, and of CNH, which made farm and industrial equipment. This was part of his plan to close 12 factories during 2003 and 2004, mostly outside of Italy. The closings would result in laying off 12,300 employees, 2,800 of them in Italy. Morchio planned to hire 5,400 people in marketing and research as part of the second step, which was to increase spending on research from an annual $100 million to $1.2 billion. The third step was to have Fiat Group retrench its automobile manufacturing by reducing its European output to 1.6 million vehicles per year. Following this retrenchment the fourth step was to have Fiat Auto introduce several new, more stylish models of automobiles, with the objective of increasing Fiat Auto's share of the European automobile market by 9% by 2006. Fiat Group owned the Ferrari, Maserati, and Alpha Romeo brands, each of which had a reputation for poor after-sales service. Thus, the fifth step was to make service more available by investing $450 million dollars over three years to expand the number of Fiat dealers.
By 2003 business credit-rating companies such as Standard & Poor's rated Fiat Group's stock as junk grade; one of Morchio's ambitions was to have the stock rated investment grade by the middle of 2004. Part of his plan to achieve this was to introduce a series of new automobiles that were well suited to the modern European market. In the past, Fiat had dominated with small cars that fit well in the narrow streets of old European cities, but a decline in the quality of Fiat's automobiles and the introduction of better-made Japanese cars had hurt its sales. Prior to Morchio's arrival on the scene, Fiat Group had tried to return to profitability by manufacturing big automobiles to compete with those of BMW; large automobiles had high profit margins, whereas small cars such as Fiat's Punto had very slim profit margins. Morchio pointed Fiat Group back in the direction of small economy cars, investing in re-search and development for over a dozen new models from all automobile divisions to be introduced by 2006, while updating current models. The new Idea and Panda models were released in November 2003. It was a happy day for Fiat when European automobile journalists voted the Panda the European Car of the Year for 2004.
It was perhaps a sign of just how bad times had been for Fiat Group when Morchio was praised in the press for reducing losses for the first quarter of 2004 to a mere $242 million, down from $800 million the year before. Banks renewed their interest in investing in Fiat Group, and Morchio persuaded them to extend deadlines for payments on outstanding loans. Automobile sales were picking up, and Fiat Group was making inroads in his old specialty, the development of energy and telecommunications cables. In February 2004 Morchio had Edison and Fiat Engineering sell stock to raise capital for improvements. It seemed as though Fiat Group would actually meet Morchio's goal of breaking even in 2004.
In April 2004 there was an eight-day-long strike at one of Fiat Group's most modern factories, in Melfi. The Melfi factory made components that were used in almost every other Fiat Group factory, and the strike slowed or halted production throughout much of Fiat's European manufacturing centers, cutting automobile production in half. To the surprise of many, including union leaders, Morchio personally met with union leaders to negotiate a settlement to end the strike. The CEO of Fiat was traditionally treated like royalty and was expected to delegate negotiations with unions to a lower level executive. During a marathon session with the representatives of three striking unions, Morchio and union leaders worked out an agreement.
On May 10, 2004, the factory in Melfi resumed full production after three weeks of below-normal activity. Morchio said that the agreement he reached with the unions was burdensome for Fiat but necessary for its recovery. The strike settlement included a monthly pay increase of $126. Morchio believed that, although second-quarter 2004 income was hurt, Fiat would recover its losses over the rest of the year, putting its recovery back on track.
Morchio continued his efforts to revitalize Fiat Group by hiring outsiders for important executive positions. As CEO of Fiat Auto he hired the Austrian Herbert Demel, then president and CEO of Magna Steyr, an automobile-parts manufacturer. On May 5, 2004, Morchio hired the former head of Ford Motor Company's European operations, Martin Leach, to be CEO of Maserati. Bringing in such experienced outsiders was part of Morchio's long-term plan to revitalize Fiat Group's corporate culture.
On May 27, 2004, Umberto Agnelli died from stomach cancer. Morchio wanted to replace Agnelli as chairman of the board, which would allow him to continue remaking Fiat Group in his own way. On May 30, 2004, the board of directors for Fiat Group met, and the Agnelli family reasserted its control of the company by adding two family members to the board of directors. The CEO of Ferrari, Luca Cordero di Montezemolo, was named chairman of the board. For the Agnelli family di Montezemolo was a logical choice; he was a loyalist who had been with Fiat for 30 years. He had also been Morchio's subordinate for the previous 15 months. Morchio reportedly regarded the election of di Montezemolo as a breach of his agreement with Fiat Group and the Agnellis that he would be given a free hand in revitalizing the corporation. He resigned almost immediately after the snub. Although di Montezemolo said that Fiat Group would continue to follow Morchio's plans to the letter, Morchio quickly became a non-person at Fiat Group, with references to him disappearing from company records.
See also entries on Fiat SpA and Pirelli S.p.A. in International Directory of Company Histories .
Bremner, Richard, "A Tale of Two Dynasties," Management Today , January 7, 2004, pp. 44–48.
Ciferri, Luca, "Microcar Fascinates Fiat CEO," Automotive News Europe , December 1, 2003, p. 17.
Levine, Gregory, "Faces in the News," Forbes.com , http://www.forbes.com/2003/06/25/cx_gl_0625facesam.html .
Wildt, Mathias, "Fiat's Morchio Narrows Losses With New Models, Asset Sales," Bloomberg.com , http://quote.bloomberg.com/apps/news?pid=10000085&sid=aev0jdT309dM&refer=europe .
—Kirk H. Beetz