Alfa Romeo: Returning to America

Alfa Romeo: Returning to America

By Michelle Krebs

Alfa Romeo is returning to the U.S. next year, the Financial Times reports in Tuesday’s edition.

Fiat Chief Executive Sergio Marchionne told the London newspaper Alfa would beginning selling cars in the U.S. next year and be producing them in North America by 2011 or 2012 — with a partner.

Initially, Alfa Romeo models would be exported from Italy to the U.S. with Fiat absorbing losses caused by the weak dollar versus the Euro. However, Marchionne told the paper Fiat would have to produce vehicles in North America and was shopping for a production partner.

“I can suffer the loss initially, as long as I know I’m going to be producing enough,” he told the Financial Times in an interview. He added North American production of Alfa cars would start by 2011 or 2012.  “I’ve always had the view that we had to produce in America,” he said.

The weakness of the dollar against the euro is forcing European companies to consider manufacturing in the U.S. or expand the manufacturing base they already have. Of late, Volkswagen has talked about building an assembly plant in the U.S. Rumblings of an Audi plant are out there as well. Mercedes-Benz already has a manufacturing plant in Alabama. BMW is expanding its plant in South Carolina. Even Ford appears to be considering building Volvo models in the U.S. — if it hangs onto the brand.

“Nobody making anything in Europe is going to make profits in the U.S.,” Marchionne told the Financial Times. “You can’t. So we need to localize.”

Guessing Game: With Whom Will Fiat Partner?
So now starts the guessing game: Who will dance with Fiat? What will that partnership look like? Will it be a simple pay-to-play production deal? Or might it include sales and distribution?

The Financial Times reported Fiat is talking to Detroit automakers — and there are only three of them so the guessing game is fairly limited — about sharing production of Alfa Romeos in the U.S. None would comment to the Financial Times; Monday was a holiday for the Big Three.

GM has a history with Fiat, and not a pretty one. In 2000, Fiat and GM partnered in a deal that had GM owning 20 percent of Fiat Auto. The marriage was none too harmonious and led to a costly divorce in 2005. GM paid a controversial $2 billion to get out of the arrangement, which could have been even costlier as it contained a clause that could have forced GM to buy all of the then-floundering Fiat Auto.

Also, in the past, there was talk of GM selling Alfa Romeo models in Cadillac showrooms or alongside Cadillac dealerships. But that was an era during which the U.S. dollar was strong against European currencies and the arrangement made little financial sense. Since then,Cadillac has strengthened, and GM has taken full ownership of Saab, which often is paired with Cadillac in distribution. Plus, GM is widely criticized for having too many brands.

Ford, meantime, is getting largely out of the European luxury car business. Ironically, the news of Alfa’s return to the U.S. comes on the eve of Ford officially dumping its British luxury marques. Word is Ford’s sale of Jaguar and Land Rover to India’s Tata will be consummated Wednesday. Ford has said it will hold onto Volvo, at least for now. Fiat, by the way, has a relationship with Tata.

Then again, the departure of Jaguar and Land Rover leaves Ford without true luxury international brands (Lincoln, despite the talk of going global, remains a domestic brand). And Ford has excess capacity — it has a giant, empty plant in the Detroit suburbs that once produced Lincolns and Ford said it has had lookers. Ford certainly could use the cash from a production deal.

Chrysler is a mess. Its future direction is muddier than ever. It can't seem to manage what it's got. But it has had Italian connections beyond Lee Iacocca’s leadership to include coachbuilder DeTomaso and Maserati. And perhaps Fiat could be part of some end game.

Fiat also has considered Mexico as a production source. Marchionne told Reuters at the Geneva auto show Mexico was a possibility and a decision on production would be made by year's end.

All three automakers have lots of excess capacity they could "sell" to Fiat.

What Models Will Fiat/Alfa Sell in the U.S.?
Fiat executives have not said specifically which models will be sold in the U.S., except for the recently introduced 8C Spider, unveiled at the Geneva auto show in March.

However, they have hinted that beyond Alfa Romeo cars, and the 8C Spider, they could bring the Fiat 500, named the European Car of the Year in 2007 , to the U.S. Timing could be perfect as Americans continue to buy small cars at a record pace, especially small, iconic ones such as the 500 and Mini Cooper. Indeed, it is the Mini that provides Marchionne with inspiration. “We need to replicate the (BMW-owned) Mini phenomenon in the U.S.,” he told the Financial Times of the 500's possible sale in America.

Indeed, it's Fiat's host of new products that is one of the reasons the carmaker can even consider returning to the U.S. and expanding globally. In recent years Fiat has introduced a number of winners. Marchionne has promised more — 23 new models by 2010.

America: Part of Fiat’s Bigger Game Plan
A number of factors have made it possible for Fiat to consider a return of Alfa Romeo to North America, where its luxury brand hasn’t sold cars since 1995 and even in that year a scant 400 a year.

The company is now profitable and debt-free, having clawed its way back from near-bankruptcy — again. Marchionne told the Financial Times the return of Alfa Romeo to North America is part of a three-pronged assault on the world’s largest vehicle markets. Already Fiat’s Iveco trucks is preparing to return to the U.S.

Marchionne has promised global sales growth, with sales nearing 3 million from the current 2 million. Alfa Romeo has sights set on China, Russia and Brazil, fast-growing markets where individuals are accumulating wealth quickly and are hungry for luxury cars.

Photos by manufacturer
1 — Fiat Chief Executive Sergio Marchionne
2 — Fiat 500

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.