Fiat's Silent Partners

By Janice Castro

In most ways, business could not be better for Fiat and its charismatic chairman, Gianni Agnelli. The Italian conglomerate, which manufactures such high-tech equipment as robotics and telecommunications systems, as well as autos and other vehicles, has come roaring back from a string of losses in the late 1970s and early 1980s. Fiat's profits increased 113% last year, to a record $884 million on sales of $18 billion. But the company has been unable to escape an increasingly embarrassing problem: about 15% of its stock is owned by Libya, and two representatives from the land of Muammar Gaddafi sit on Fiat's 25-member board.

Because of Libya's investment in Fiat, the Pentagon has decided not to award a proposed $7.9 million contract to the company under which it would have built 178 earthmovers for the U.S. Marine Corps. Reason: the Reagan Administration does not want any American money to flow--even indirectly--into the coffers of a government that sponsors international terrorism.

Fiat became entangled with Libya in 1976. The company was short of cash, and Gaddafi, who was piling up petrodollars, was not then generally viewed as a bankroller of terrorists. Fiat welcomed Libya's investment of some $400 million. Recalls Agnelli: "We liked petrodollars. Everybody needed petrodollars."

As Fiat has prospered, the value of Libya's stock in the company has multiplied to an estimated $2.5 billion. Not surprisingly, Libya has no interest in ridding itself of what has proved to be a very good investment. Says Agnelli: "We have offered to buy, but they won't sell." Adds Roberto Nicolello, Fiat's chief of public affairs: "We're handcuffed. The Libyans are not interested in selling for one simple reason: Where can they put this money? No one will accept $1 from Gaddafi these days."

Since Libya currently owes Italian businesses and institutions more than $800 million, it is conceivable that Rome could seize the Libyans' Fiat stock as a partial repayment of the debt. But not likely. Government officials say that such a move is out of the question as long as Italy maintains diplomatic relations with Tripoli.

While missing out on the Marine Corps contract will not put much of a dent ) in Fiat's sales or profits, the prospect of being excluded from bidding on substantially larger Pentagon contracts worries Agnelli. He is a staunch supporter of President Reagan's Strategic Defense Initiative, the antimissile research program known as Star Wars. Says Agnelli: "Sure, I'm concerned. We're trying to participate in SDI. If Fiat is blacklisted, that could be a big problem."

Fiat executives question the fairness of the U.S. move, since other firms that may have Libyan shareholders are not being penalized. They also insist that their Libyan directors have never tried to influence the way the company does business. Says Nicolello: "They behave like Swiss bankers." Maybe so, but the Gaddafi connection could be a continuing source of trouble for his unwilling business partners at Fiat.

With reporting by Sam Allis/Rome