Fiat Revival Celebrations Are Premature
December 26, 2007

By Richard Feast

It’s being hailed as the turnaround story of the year, but put the champagne back in the cellar. Celebrations about a Fiat revival are premature.

I was a judge on one of those auto industry Man of the Year award panels last year. Sergio Marchionne, the 55-year-old Italian-Canadian who has done so much to stop the rot at the Fiat group, emerged as the clear-cut winner.

My nomination for someone else stood little chance in the face of overwhelming voting for the “saviour” of Fiat. Still, I have reservations about whether Marchionne deserved the award – because we’ve been here before.

Anyone who’s studied Fiat long enough knows it’s a boom-or-bust group. It is Europe’s equivalent of Chrysler, one year a glamorous master of the automotive universe, another a down-and-out bum.

There’s no doubt Marchionne has done a bang-up job since taking charge of Fiat in mid-2004. His achievements generated plaudits of the type Carlos Ghosn received at Nissan. So far, so good, but it’s too early for this level of adulation.

Fiat is definitely on the up. But so it has been at different times over the past quarter-century under the Agnellis, Romiti, Ghidella, Cantarella, Testore, Fresco and others. The problem was, the good times never lasted.

The real challenge for Marchionne is to turn the recent achievements into lasting commercial success. The precedents are poor.

To do so, the group has to make sustained improvements to its sales numbers, product quality, dealer standards and globalization program. Unless it makes persistent, tangible progress in these areas over at least three generations of product, the group will be in a similar position to the one it was in the early millennium –- almost bankrupt.

Fiat got into that state because it squandered a whole series of advantages. Back in the early 1980s, it was market leader in Europe with a share of over 12 percent. Its Punto model vied to be the region’s best-seller. Despite the 1986 acquisition of Alfa Romeo, the group’s European share is now less than 8 percent. And Europe accounts for three out of every five cars Fiat sells worldwide.

Where Did It All Go Wrong?

Alfa Romeo represents one of the great missed opportunities. So does Lancia, which Fiat has owned since 1969. Thirty-eight years! How long does a group need to turn round the fortunes of a brand?

Marchionne talks of lifting annual sales of Alfa Romeo and Lancia to 300,000 each by 2010. Considering Alfa Romeo averaged annual sales of 175,000 since the start of the 21st century, and Lancia a mere 125,000, that will be a challenge. And we have heard similar sentiments many times before.

Marchionne recognizes the problem. He lamented to the London Sunday Times this summer, “People say Alfa Romeo is a great brand, but they don’t buy the cars.”

Fiat bought Maserati in 1993, but seemed uncertain what to do with it. It was initially put under the wing of Ferrari -– itself a faultless unit run at arm’s length from the mainstream car business –- but responsibility for Maserati is now with Fiat.

However, Roberto Ronchi, Maserati’s chief executive, claims the marque has turned the corner. It recently made its first quarterly profit since the Fiat acquisition and expects to sell a record 7,000 cars during 2007 and 12,000 by 2011. Again, we have heard overly ambitious sales projections for Maserati before.

Back in 1971, Fiat bought another company it didn’t know what to do with –- Abarth, a high-performance auto racing tuner whose name today means little to anyone under 60 years old. After lying dormant for decades, the Abarth name is being revived to adorn sporty versions of Fiat products. If Abarth is of any value now, why wasn’t it 10, 20 or 30 years ago?

Blame the Engineers

The group has so far failed to make premium cars that can compete with the dominant German brands. Abarth, Alfa Romeo, Lancia and Maserati were all great performers on roads and tracks. But under Fiat tutelage, each proved a serious under-performer in the showrooms.

In fact, Fiat is poor at producing large cars full stop. The past year’s sales revival by the Fiat brand is based on the new Bravo, Grande Punto, Sedici and the cute new Cinquecento, which recently won the European Car of the Year award. At just under 170 inches long, the Bravo is the largest of these models. Fiat hasn’t produced a large-car success in living memory. And, of course, auto industry lore says small cars equal small profits.

One of the primary causes of these failures, I maintain, is that Fiat was traditionally run by car engineers -– rabid gasoline-heads who thought they knew what was best for the company’s various marques. The record books show they didn’t.

To that extent, Marchionne, a lawyer, has a better chance of success than his predecessors. When he joined the Fiat board in 2003, it was his first job in the auto industry. 

There are other pivotal reasons for Fiat’s roller-coaster track record. Its product quality is not as good as that of most of its European rivals, let alone that of Japanese and South Korean firms. And its dealers still have a tendency to treat customers like the enemy. The result: hopeless trade-in values.

A blog response to the Sunday Times profile of Marchionne summed up the problem: “Making cars that travel from A to B without breaking down might be a starting point but it's the depreciation that really upsets most of their (Fiat) buyers.”

J.D. Power and Associates’ most recent customer satisfaction indices confirm the predicament. In Germany and France, Honda was top and Fiat was well below the industry average. Lexus was top in the U.K. and Fiat was once more firmly below the industry average.

Prophet Ahead of Its Time

Fiat was also unfortunate with its timing on globalization. In the postwar era and throughout the cold war, the group ventured where others feared to go.

It was at the time a diversified industrial group with divisions that specialized in civil engineering, railways and aircraft as well as cars, trucks and construction equipment. Fiat was thus able to offer emerging nations a package comprising, say, a power station, dam, freeway and car plant.

The group was an automotive pioneer in the Soviet Union (the gigantic Lada plant), Poland (Polski-Fiat), Yugoslavia (Yugo), India (where Premier Motors enjoyed a privileged position in a closed market) and Brazil. Fiat’s Iveco truck and bus business had joint ventures in China long before they became fashionable.

But Fiat was then distracted as the world beyond Italy and Western Europe changed politically and economically. Its early advantages in Brazil, Russia, India and China –- the very BRIC countries whose size and economic growth now have everyone’s attention –- were lost. Now Fiat has to play catch-up in these countries.

Marchionne said at the end of 2006 that Fiat’s recovery was over and that a new period of growth had begun. He vows to introduce 23 new models by 2010, when global sales will, he says, be 2.8 million compared with the present 2 million.

While Fiat is charging back into Russia (with Severstal), India (with Tata) and China (with Chery), its performance in Europe will be all-important. Marchionne wants the group’s market share to leap from the current 8 percent or so to 11 percent during that period. The targets seem fanciful given the level of competition –- and Fiat’s history of missed opportunities.

If he does manage it, though, Marchionne would deserve to be the auto industry’s Man of the Decade, not just the year.

Photos by Fiat Group
1- Sergio Marchionne
2 - Fiat Cinquecento
3 - Fiat Bravo

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