Some Chrysler Dealers See Un Problema in Fiat's Plans

As Chrysler Group LLC prepares to lay out its strategy for selling a subcompact car from partner Fiat SpA, the move is raising concerns among some dealers struggling to sell the vehicles already on their lots, The Wall Street Journal reported.

The launch of the Fiat 500 would introduce a fifth brand into the Chrysler family, alongside the Chryslers, Dodges, Jeeps and Ram trucks most dealers carry now.

Chrysler and Fiat hope the tiny Fiat 500 becomes a sales and pop-culture hit along the lines of the Mini Cooper.

But the new nameplate comes to the U.S. as the company's rivals are paring down the number of brands they offer, not adding to them, to contend with a shrunken car market.

General Motors Co. now fields only four makes—down from eight—while Ford Motor Co. will have just two after it shutters its Mercury division by year end.

Some Chrysler dealers also say they are concerned about investments those chosen to sell the Fiat 500 will have to make. Chrysler, for instance, wants dealers to build separate showrooms for Fiat, which could cost hundreds of thousands of dollars each.

"The enthusiasm for the Fiat coming to the market has diminished," said one East Coast Chrysler dealer who is still weighing whether he will apply to sell the 500.

"At first, it was something that would be mixed in" among Chrysler's current models on the showroom floor, this dealer said. Now, "they are going to have to present a compelling story and product to back me investing at least $1 million to build a new showroom."

Chrysler spokesman Ralph Kisiel had no comment regarding showroom costs.

Chrysler plans to outline its strategy for the Fiat 500 at an Aug. 30 gathering of 600 dealers at the Detroit Institute of Arts. The goal is to pick 200 dealers from the group to sell Fiats in selected markets.

Sergio Marchionne, chief executive of both Chrysler and Fiat, said Monday "the multibrand experience is already a way of life in the U.S." despite GM and Ford paring offerings.

"In the case of GM, they had brands that were overlapping. Chrysler doesn't have that problem. Jeep is unique, Dodge is a widely popular brand and Ram is about truck," he said at Chrysler's Toledo, Ohio, operations during a visit by Vice President Joe Biden.

Dealers will have until Sept. 22 to make a formal proposal on how they will achieve the Fiat franchise requirements, such as building a separate showroom and appointing a separate staff to showcase Fiats. Chrysler is offering no financial aid to dealers to comply.

The Fiats will start with the 500 model arriving in December from a Chrysler plant in Mexico. A convertible is expected in 2011.

Plans also call for the sale of Fiat's Alfa Romeo vehicles in the U.S., which Mr. Marchionne said on Monday most likely would happen through the Fiat showrooms. Chrysler said it will locate Fiat dealers in top urban markets with the strongest small-car sales.

If 200 suitable Fiat dealers can't be found within the 600 selected to attend next week's presentation, Mr. Marchionne said he will shop the idea around outside the Chrysler dealer network.

Some Chrysler dealers support the Fiat plan. Alan Helfman, in Houston, said he is interested in a Fiat franchise and plans to come to Detroit to learn more. "It sounds like an excellent opportunity," he said.

Other dealers who plan to attend the presentation said they want Mr. Marchionne to clarify how the five brands are supposed to fit together long term.

One Chrysler dealer in Florida said he was spooked by the experience of dealers who sunk money into selling the Smart, a tiny car made by Daimler AG, and the Mini Cooper, from BMW AG, and haven't seen a payback.

Smart is sold through dedicated dealerships. Sales fell from 24,000 in 2008 to about 14,000 in 2009 and are down 61 percent this year through July. Mini has seen its sales languish since peaking at 54,000 in 2008. BMW dealers sold 45,225 last year and sales year to date through July were down 1.9 percent.

The Fiat 500's arrival is being planned as industry sales are tepid. J.D. Power and Associates last week cut its 2010 U.S. sales forecast to 11.6 million vehicles, down from 11.7 million. Gas prices, which helped pushed many Americans into smaller cars in 2008 when they topped $4 a gallon, remain below $2.50 on average.

Another potential problem for some dealers is franchise placement. In some markets Fiat dealers could compete for the same customers, according to franchise-placement maps viewed by The Wall Street Journal.

For instance, in the Phoenix area Chrysler plans four franchises, double the number of Mini dealers. Three of the four would compete in the suburban Scottsdale market. In Las Vegas, Mini has one dealer while Chrysler wants two selling Fiats. Chrysler's Kisiel had no comment on franchise locations.