For the Auto biz items:In the early weeks of 2020, we became aware from our colleagues and partners in China of the spread of a new coronavirus and the nature and impact of the containment measures being taken. However, we had little idea at that time of the profound consequences that Covid-19 would soon have on the rest of the world.
Italy was the first country outside of Asia to be badly hit by the virus, which has made those of us who live and work here feel like we have been experiencing other countries’ potential futures for the past six weeks. The nation’s health has become the priority for all of us during this period and the government’s strong lockdown measures have been matched by an extraordinary and inspiring demonstration of responsibility and community from those living here.
Despite the difficulties and discomfort that social distancing creates, we have seen people provide psychological, practical and financial support to those at risk and in greatest need while families, friends and colleagues have all been confronted, sometimes in the most tragic of ways, with the realities of this pandemic.
My sincere condolences go to all those who have lost loved ones to this cruel disease. I would also like to pay tribute to the countless heroic acts of the doctors, nurses and other medical staff who are protecting us all and saving countless lives. The dedication and selflessness shown by everyone working in essential services has been just as inspiring. These measures are beginning to show some results, with Italy seeing signs of a reduced level of contagion.
These glimmers of hope suggest that we will eventually be able to start a return to some kind of normality. But there can be no arbitrage between people’s health and the health of the economy. Without the former we can never have the latter. During this crisis we have been doing all we can to protect our companies, conscious that when our economies reopen, they will be in the front line of ensuring that our communities and countries can begin to recover. We have been doing this in a number of ways:
These have been challenging days and weeks for us all and we know the ripples from this crisis will likely continue for some time. But we have been impressed by the spirit and resolve of our people in making sure our companies emerge stronger when this all passes.
- We have ensured that each company has established a clear and effective pocess for managing the crisis, with increased board interaction and frequent internal communication.
- We have made the protection of people’s health, their employment and their livelihoods the primary concern for all our companies. The issues they face are very different – for example FCA, Ferrari and CNHI have all had to temporarily close their plants while our media companies
have been grappling with the challenges of providing high quality reporting while working remotely – but this does not change the priority that they are all placing on protecting their people.- We have ensured that all of our companies are focused on business continuity.
This has included detailed assessments of their liquidity positions, taking actions to reduce cash outflows and ensuring effective access to financing through debt markets and banking partners, with the crisis being a good reminder of who these partners really are. Each company has also looked at ways to reschedule its investments and reduce costs. However, mindful of the businesses’ longterm health, we have emphasised the need to maintain essential investments and to support our partner companies, including critical suppliers and dealers.
In addition to addressing the consequences of the crisis for our companies, we have taken immediate actions to support the healthcare response in the communities where they operate, and will continue to look for ways of providing this support. Some of these actions have included:
We are conscious that this crisis requires more than a healthcare response so we have also supported our companies in undertaking wider community initiatives. These have included FCA’s provision of a million meals in the US for children who rely on school meals; Ferrari’s support for children and their families in its hometown of Maranello; and Juventus’ fundraising initiative #DistantiMaUniti.
- Purchasing and donating ventilators and Personal Protective Equipment (PPE) for frontline healthcare providers such as the 500.000 surgical masks donated on April 1st to first responders and hospitals throughout Michigan.
- Applying pro-bono our technical and engineering skills to significantly increase production at Siare, Italy’s only producer of ventilators. Similar projects are under way with GE Healthcare and Hillrom in the US and with the latter we are also working to help increase their production of hospital beds.
- Repurposing 3D printers in different European plants to produce face shields for local health authorities and converting a plant in China to produce and donate face masks.
- Providing five fully-equipped bio-ambulances and 500 others vehicles to be used in the medical relief efforts in Italy and in Brazil helping to create a field hospital and fund initiatives to provide basic hospital care to low income families.
La Stampa, through the Specchio dei Tempi Foundation, has also gathered over 10,000 donations, including from our family, that have been used to provide food and medicine to vulnerable people in Torino and Piedmont including to the elderly and to single mothers.
The importance of Exor’s values has become very evident during the last few weeks, with the leaders and directors of our companies adding to our corporate actions by personally sacrificing some or all of their compensation for this year. At Exor we have done the same and will work with the Agnelli foundation to channel these resources into an education initiative to help address the Covid-19 learning challenges faced by schools and students both today and as the current restrictions are lifted.
In addition, the Fiat Group was transformed from a troubled industrial conglomerate into three global leaders in their own fields: FCA, Ferrari and CNH Industrial. We also grew and evolved the geographical mix of our businesses. Ten years ago, two-thirds of our revenues were generated in Europe while today it is less than a third. In this last decade our companies also achieved significant operational improvements which has driven both their robust financial performance and their balance sheet strength.
We have been reflecting on the journey we have taken since the foundation of FIAT back in 1899 because, though we are proud of our past achievements, we are most interested in what we can learn from them, and also what we can learn from our mistakes. We found that our achievements have been underpinned by two characteristics: our entrepreneurial spirit, and our financial discipline. Using this as a starting point, we have gone on to define Exor’s culture with its purpose and its values.
We believe that the purpose of Exor is to build great companies. Great companies perform to the highest standards, are distinctive in what they do, act in a responsible way and seek renewal and change.
The values that we apply in delivering this purpose are:
In defining our culture this way, we believe we capture the strength of our historic entrepreneurial spirit and financial discipline. We have deliberately expressed our values in pairs or dualities, which are often in tension with each other, just as entrepreneurial spirit can be in productive tension with financial discipline. But each duality is most powerful when the right balance between the two sides is achieved.
- Ambition&Humility:We set high aspirations but remain grounded
- Curiosity & Focus: We seek new ideas while prioritizing what matters
- Patience&Drive:We take a long-term perspective but are relentless in getting things done
- Courage & Responsibility: We take bold actions while being mindful of their consequences
This concept of duality was well captured by Bertrand Russell when he said that:
“The desire to understand the world and the desire to reform it are the two great engines of progress, without which human society would stand still or retrogress.”
Of course, what matters more than these words is how we translate them into the actions that we and our companies take each day. We achieve this by cultivating clear and strong cultures within our companies, appointing directors and leaders who share our purpose and values and establishing governance that aligns those cultures with actions.
One key learning from our past successes and mistakes is that the behaviours our leaders exhibit are as important as their skills and knowledge. We look for people who embody our values, who are results oriented, who fight complacency especially during periods of success and who are always aware of what they do not know. We are grateful to the leaders who have been part of our history and look forward to working with those who will accompany us in the future.
The most significant event within our portfolio in 2019 was the announcement of the FCA- PSA merger. This merger, the largest in our history, will create the 3rd largest global car company by revenues and 4th largest by volume.
Both companies have glorious histories. Like FIAT, Peugeot traces its beginnings back to the nineteenth century. The two companies have had many interactions, particularly in the 1970s when Fiat invested in Citroën, Citroën sold Maserati and Peugeot acquired Citroën and Chrysler’s European activities. The iconic Citroën SM (Super Maserati) is a reminder of that past collaboration, as is the successful joint venture between FIAT and PSA in commercial vehicles that was signed in 1978 and which has since produced 6.3 million vehicles.
The NewCo formed through the FCA-PSA merger will have strong market shares in EMEA, in NAFTA and in Latin America and will have significant opportunity to grow in APAC where it will have ~1% market share. It will also own a broad-based portfolio of brands covering all market segments.
The rationale for consolidation in the car industry is a topic that I have written about in the past and its benefits have been demonstrated both by PSA coming together with Opel and FCA and FIAT coming together with Chrysler. We are very confident in achieving annual synergies of ~€3.7 billion at steady state (without plant closures) through the creation of NewCo, particularly given that it will be led by Carlos Tavares, who has achieved strong results as the CEO of PSA and understands the importance of culture.
As I shared in last year’s letter, for the car industry the next twenty years have the potential to be as exciting as the first twenty. We believe that the new company will have the resources and scale to be at the forefront of this new era of sustainable mobility.
Exor will be the NewCo’s largest shareholder, with ~14% of the capital, and is looking forward to working alongside the Peugeot Family who, through their holding companies EPF and FFP, will be the second largest shareholder. In doing this we will draw on the lessons we have learned from our successful partnership with the Ferrari family, which has given Ferrari’s leadership the stable governance it has needed to continue to grow their great company.
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