Investors in Fiat Chrysler Automobiles (FCA) might be confused about where the company really lives these days, but CEO Sergio Marchionne’s new five year plan next week is likely to leave nobody with any doubts about priorities as he marches the company towards matching and beating the competition.
When Fiat completed the merger with Chrysler earlier this year with the $4.35 billion buyout of the UAW’s stake, investors were in a spin about what nationality FCA actually was. Its shares will probably be listed in New York, it will be domiciled legally in the Netherlands, and pay tax as though it was British.
But Marchionne, who has said Fiat Chrysler must raise sales to between six and seven million a year to face down the likes of Toyota of Japan, General Motors, and Germany’s Volkswagen, won’t leave any room for doubt on May 6, as he demands Chrysler’s SUV maker Jeep, Fiat’s colorful Alfa Romeo and to a lesser extent upmarket Maserati lead the charge towards more sales and higher profits.
Last year, Fiat Chrysler sold about 4.4 million vehicles.
This won’t come cheap. Reviving Alfa Romeo alone will cost upwards of $7 billion. Some experts fear that simply raising output, without taking care to improve quality, won’t help profitability.
Stefano Aversa, co-president of industry consultants Alix Partners, said analysts concur that it will cost between three and five billion euros ($4.2 billion to $6.9 billion) to make Alfa Romeo an effective competitor in the premium sector against the likes of BMW, VW’s Audi and Mercedes.
Under a previous failed plan, Alfa Romeo was supposed to reach sales of 500,000 this year, with 85,000 in America. In fact Alfa Romeo made only 75,400 cars last year, down from 92,100 in 2012, according to Automotive Industry Data. Sales of Alfa Romeos will finally get under way later this year in the U.S. with small numbers of little, high-priced 4C sports cars.
Alfa Romeo has been a long-term money loser for Fiat, with losses of between $250 million and $500 million for the first 10 years of this century. Yet such is the perceived power of the Alfa Romeo brand that mighty Volkswagen has made no secret of its desire to buy the company. This is hard to believe when you consider Alfa Romeo’s distant sporting history has long been overtaken by models that were a nightmare of style over substance, exciting buyers with their fabulous looks, inspirational engine noises and driveability, but then disappointing with poor quality and plunging second hand values.
Aversa said products are likely to be at the forefront of the new plan that is about to be unveiled and will be the first for the new integrated FCA.
“Sergio Marchionne is likely to be much more centered on product and push forward premium vehicles from Alfa Romeo and Maserati, and I think he will continue to focus on the north American market with Chrysler doing well and on exploiting the brand Jeep globally.”
“On the emerging market side, Marchionne will certainly try to protect and leverage its leadership position in South America, which is still a market with unique opportunities, and to accelerate the development of China, which now seems to be on the right track, but still with a long way to go,” Aversa said.
Aversa describes India as an “unfulfilled promise” for most western manufacturers, including Fiat, but too important in the long term to skip.
Fiat is thought by some analysts to be dangerously over-borrowed, but Aversa doesn’t think it’s a big problem.
Any large manufacturer will need to make big investments on electrification, hybrids, aluminum and alternative materials to meet tough fuel consumption standards. For FCA, Aversa expects Marchionne to further leverage so-called mega platforms, which allow multiple vehicles to be made with the maximum amount of commonality and therefore reduce capital expenditures.
Aversa reckons Marchionne will announce plans for a new cheap car.
“I expect to see plans for a low-cost car. Almost all the big manufacturers are looking at this market segment. If done right it can be profitable and Fiat has the capabilities to address these low cost cars and make money,” he said.
International Strategy and Investment also expects Marchionne to give Jeep and Alfa a key role in the plan, and likes reports that suggest the plans for Alfa Romeo include it becoming a standalone entity, separately reporting its profits and sales.
“Indeed, the separation of Maserati has enabled the investment community to immediately recognize the brand’s progress, with revenues of 776 million euros ($1.1 billion) during the fourth quarter as shipments increased four times helping Maserati to a 10.3 per cent margin for the full year,” the investment bank said.
“Of course more important than reporting semantics next week will be the credibility of the plans for Alfa Romeo and Jeep themselves,” it said.
Some experts suggested that for FCA to make it big, it would also have to merge to create more volume and economies of scale. Companies like Mazda, Mitsubishi, Subaru, and Suzuki of Japan are said to be candidates. Even British based and India owned Jaguar Land Rover has been cited as a possible partner.
Others suggest that Fiat’s Ferrari supercar subsidiary might be on the auction block to cut debt.