Fiat pegs future in Italy on luxury cars

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Bloomberg

Fiat is looking to higher margin models to win back market share and boost profitability. Analysts have praised the strategy, saying it is the only way to keep costly Italian jobs. Photo: Bloomberg

Milan - Fiat planned to invest as much as e9 billion (R127bn) on new models to end European losses in three years and revive nearly empty Italian factories, two people familiar with the matter said yesterday.

In addition to bolstering the upscale Maserati and Alfa Romeo marques with new “Made in Italy” models, the car maker would focus the Fiat line on variants of the trendy 500 subcompact and the budget-oriented Panda small car, ditching a former best seller, said the people, who asked not to be identified because the discussions were private.

“It’s a brave and historic move to abandon your roots,” said Roberto Verganti, a management professor at Milan Polytechnic and the author of the 2009 book Design-Driven Innovation. “Going upscale with cool, high-margin 500 and Alfa models is the only possible strategy to continue building cars in Italy.”

With the timing of Fiat’s merger with Chrysler uncertain, Sergio Marchionne, who is chief executive of both companies, is under pressure to stem the Italian company’s losses in Europe. While Fiat previously said it aimed to develop about 20 new models for Europe by 2016, including eight Alfa Romeos, it has declined to comment on a revised European strategy until April next year.

As part of the luxury focus for Italy, Fiat would introduce 500 and Jeep sports utility vehicles next year as well as a convertible version of the Alfa Romeo 4C sports car, the people said. Those cars would all be made in Italy. The new Alfa Romeo Giulia sedan, designed mainly for export outside Europe, would be built in Italy by 2016, they said.

The Fiat Punto, a compact hatchback that competes with the likes of Volkswagen’s Polo, will be replaced by a five-door version of the 500. That mass-market model would be built in Poland to save costs and boost profit margins, the people said.

Motor workers in Poland are paid about a quarter of what their Italian counterparts make, according to data from VDA. The Punto, which was last overhauled in 2005, accounted for 31 percent of Fiat’s European sales in 2007, according to IHS Automotive data.

Hurt by slumping demand in its home country and a lack of new models, Fiat has been losing market share in Europe for four years. The group’s deliveries in the region last year were 47 percent less than in 2009. Fiat’s European market share fell to 6.2 percent this year from 9.3 percent in 2009. The sales drop has led to operating losses of nearly e2bn since 2011, including e304 million in the first nine months of this year.

“We will utilise what we have in defence of what we have,” Marchionne said on October 30 when asked about cutting capacity. “We will not be shutting down plants. We will shift our production capacity in accordance with our premium brand strategy.”

The success of the plan has implications beyond Fiat. Italy has been mired in a cycle of recessions since 2001, and a production revival by Italy’s largest manufacturer could help stabilise the economy.

The impact of the downturn is evident at the Mirafiori plant near Fiat’s Turin headquarters. The factory had as many as 50 000 workers in the 1970s. Now, only 5 500 people work there for a few days a month.

Fiat had furloughed many of its 30 700 production employees in Italy this year and most of those had been off work for more than five months this year, union Fim Cisl said. The goal is to bring them all back by focusing on luxury Alfa Romeo and Maserati vehicles.

The strategy largely copies the German industry. BMW, Mercedes-Benz parent Daimler and Volkswagen, which owns Audi and Porsche, have made upscale cars for decades to offset wages that are among the motor industry’s highest.

“Fiat has seriously started to follow the right strategy for a country with no cheap labour but highly skilled workers,” said Mauro Ferrari, the vice-chairman of parts supplier Webasto. – Bloomberg


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