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In one of those cynical twists of finance, business newswires flashed word Friday morning that Fiat's stock price had shot up 6% at the opening in response to the death of company patriarch Giovanni Agnelli. The market is unsentimental, and crudely calculated that the passing of the 81-year-old Italian corporate legend — who had blocked earlier moves to pull the Agnelli dynasty out of the auto business — cleared the way for the family's long-anticipated and inevitable exit from carmaking.

The market's initial reaction was a reminder of just how much the Italian industrial landscape has changed since the heady days of the post-1950s boom, driven by the dashing Agnelli and his knack for selling stylishly small automobiles all over the world — and revving up the profits at home. "The car has led a revolution of customs and consumption," Agnelli once remarked. "At the same time, it has fundamentally launched the country's economic growth."

But even Agnelli's flash could not sustain a company that has been long on passion and short on the nuts-and-bolts fundamentals that determine success in today's highly competitive global car market. Although Agnelli, known to friends as "Gianni," was once the ultimate decision maker at the Turin conglomerate, his power, like his health, had waned as Fiat was battered by crises in the boardroom and in the market. In fact, control of Fiat had already shifted to his younger brother Umberto, a handover that was scheduled to be formalized the morning of Gianni's death. Also on the agenda: how the family would come up with the billions needed to keep Fiat whole. "He was a remarkable man and it will be hard to replace him. I just wish he had not seen his empire plunge into disaster," said one worker clocking off at Fiat's Mirafiori plant in Turin.

The heirs of Fiat (the family controls 34% of the stock) inherit a desperate company. Fiat Auto lost j1.35 billion last year, and the parent company was forced to string together a huge j3 billion loan just to keep operating. At least j3 billion in additional capital will be needed, according to analysts. Fiat recently announced a plan to cut at least 8,000 jobs, provoking bitter workers to block airports, roads and factories. In Agnelli's honor, though, workers have postponed several stoppages planned for the coming months.

Agnelli had already sold a 20% stake in the auto company to General Motors for $2.4 billion in stock in 2000, in what turned out to be a better deal for Fiat. GM has already taken a $2-billion writedown on the stock. Yet it may have to acquire more. Fiat has a put option that could force GM to buy the remaining shares after 2004. "Fiat Auto cannot be a stand-alone company competing on a global level," says Gareth Williams, an auto analyst at Actinvest. "It needs a very strong alliance and a very strong partner."

Making Fiat into a worldwide brand ensured Agnelli a prominent spot in 20th century entrepreneurial history, a status that goes beyond tales of playboy jaunts and ambassadorial confidences. In 1966, the then 45-year-old Agnelli, often called l'Avvocato (the lawyer, for his legal training) took over Fiat after two decades of backstage service at the company his grandfather and namesake founded in 1899. But now, handpicked by grandpa, the lanky World War II veteran was handed the outright leadership of what had grown into Europe's second largest automaker. Agnelli, himself already known on the jet-set circuit for his Italian charm and bold couture, decided to introduce the world to the good-looking little cars his company churned out in Turin.

Agnelli's gift was his faith in the selling power of all that is Italian, says Maurizio Dallocchio, dean of the business management school at Milan's Bocconi University: "He never gave up on that vision of creating a strong, independent Italian industry with an international perspective. He made Italy famous in the world." By 1968 Fiat overtook Volkswagen as the largest carmaker outside the U.S., with 157,000 employees turning out 1.75 million cars a year.

Fiat continued to expand through much of the 1970s and 1980s, a period marked by labor unrest and terrorism. That's one reason Agnelli transferred manufacturing abroad to places like the Soviet Union, Brazil and Turkey, where labor was cheaper and the industrial scene less chaotic than at home. One of those investments, the huge Togliatti plant opened behind the iron curtain in 1970, produced more critics than money, but Agnelli saw a bigger picture: "What we like best of all ... is that a very large number of cars rolling in Russia are Fiats." Even more controversially, Agnelli also later sold almost 10% of Fiat to Libya in 1976, before eventually buying it back. Agnelli's business ambitions also began to spread into other sectors, including insurance, banking, media and ownership of his beloved Turin football team, Juventus. Mondays could be hell at the office the day after a Juve loss.

But by the 1990s, the carmaking world faced a transformed playing field. Always an advocate of a united Europe, Agnelli eventually fell victim to the European Union's new requirements for open competition. After enjoying decades of protectionist policy from Rome, Fiat was not competitive. Its share of the Italian auto market fall from 60% to 39% in the late 1990s. This, says Dallocchio, is the Agnelli he wants his students to ignore: "Fiat always had an important shield from any competition. Agnelli always made sure he had the support of government forces, regardless of party or ideology. It was a major distortion of Fiat's success, and left the company very, very weak when normal market conditions arrived."

The boss nevertheless refused to cede control, fending off takeover bids from Ford Motors and others. Always convinced that his own fortunes and the country's were inextricably linked, Agnelli once noted: "In a country the size of Italy, a company the size of Fiat has a certain pulling power, which can reflect itself in certain things that are done in the country." Agnelli's business losses were compounded by personal ones. A year after he had chosen his nephew Giovanni Alberto to be his heir at Fiat's helm, the 33-year-old died of cancer, in 1997. Three years later, Gianni's own son Edoardo Agnelli committed suicide by leaping from a viaduct.

Fiat today could surely use some of the old Agnelli style. Gianluca Pediconi, an analyst at Credit Suisse First Boston in Milan, says the automaker will need a major reshaping of its product line and improvement of brand image after a decade of missing the market. And Agnelli's death does nothing to ensure a kick start. "The emotional impact is strong," says Pediconi. "But it's hard to think his death will accelerate any major change in the short term. What's needed are new products, and from frozen design to launch takes at least 30 months."

In the meantime, two family heirs — from distant generations — will carry on the Agnelli legacy, at least for the time being. Umberto, 68, head of the family's financial holding company, will be only the fourth president in Fiat's 104-year history. The likely second-in-command is John Elkann, the son of Gianni's daughter, Margherita Agnelli, who was tapped by his grandfather two years ago to be the heir apparent. Born in New York, Elkann carries his French father's last name and fondness for literature. But with his lanky good looks and Turinese work ethic, the wavy-haired 26-year-old reminds people here of the young tycoon who first sold the world on Italy in 1966. Yet if they love Fiat the way they claim, the Agnelli heirs will almost certainly be forced to let it go, choosing between keeping Gianni's inheritance intact and breaking it apart — a choice between blood and money. Bet money.

• JEFF ISRAELY/Rome
• Will the death of the company's patriarch improve its fortunes?