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Fiat Announces Strategy Up Until 2010; Marchionne to Hand Over Reins of Auto Unit

Published: 10 November 2006
Fiat has announced its automotive unit’s strategy until 2010; CEO Sergio Marchionne is to step down as head of the unit in 2007.

Global Insight Perspective



Fiat Auto's strategy includes the expansion of its Alfa Romeo and Lancia brands, as well as new technology and strategic alliances


Although the division has bullish plans, it could face competition to a key new model.


Fiat is positive over its future, but it remains to be seen whether the "ambitious" targets set by the company can be achieved

During an investor seminar to show off how the Fiat Group plans to develop itself up until 2010, it has released details of its automotive division strategy over this period.

As a whole, Fiat has said that it is looking to target around 2.8 million sales globally, including the unit’s Lancia and Alfa Romeo brands, which it is looking to expand. It also plans to increase its market share in its Italian home market to 35% from the 31.7% it saw in October. Sergio Marchionne, chief executive officer (CEO), said that the target was "ambitious", but was also looking to increase the auto unit’s profit margin to 5% by 2010, from a position currently half of that.

Alfa Romeo: Outlining Range of New Models; Looking to Break Into the U.S. Market

With a 37% rise in sales during 2006 to around 160,000 units, Fiat has outlined an ambitious plan for Alfa Romeo's re-entry into the U.S. market in 2009, and with a range of new vehicles and a plan to use the U.K. model for the brand’s European-wide turnaround, it is looking to push sales above 300,000 units in 2010.

Forthcoming models will include a vehicle codenamed "Junior" by Alfa Romeo that will be a new B-segment vehicle, positioned to target the 18-to-30 market. Priced at around 16,000 euro and measuring 4 metres, the brand described the vehicle as an "innovative concept of a 3-door sporty car". The unit also revealed details of a crossover vehicle named the "CXover". Expected to reach the market during the first quarter of 2010, Alfa Romeo has said that the cross between an "SUV and a coupé" will measure around 4.6 metres and will be priced between 28,000 and 45,000 euro.

A replacement for the 166 luxury vehicle will also be seen in the second quarter of 2009 and will form one of the key components for the company's relaunch in the United States. Based on the next-generation Maserati Quattroporte, the company is forecasting full-year volumes of the car at around 20,000 units in the market during 2010.

Lancia: Increasing Presence Outside Italy

Fiat is looking to improve the Lancia brand’s visibility outside Italy over the next four years, by rebalancing its Italian/international sales mix from 80%/20% to 60%/40%. As part of the unit’s strategy, the brand will enter the Turkish, Scandinavian and Russian markets, as well as restarting production of right-hand-drive vehicles that will help Lancia to re-enter the Japanese and U.K. markets during 2008.

The brand will also be looking to cover multiple segments with single models to ensure wider exposure. For example, Lancia sees the Delta HPE as covering both C- and D-segments, and both hatchback and station wagon markets. The vehicle will also include improved design and materials to express "Italian exclusivity", and will offer gasoline and diesel engines utilising turbochargers.

New Technology from Fiat Powertrain

Fiat has said that it believes that petrol engines will still prevail in the European medium-low passenger car segments and has approached this direction with the launch of innovations in the future. A new small gasoline engine is also on the horizon, due to arrive with the introduction of the Fiat 500. The 0.9-litre power unit will use "Multiair" and turbocharger technology to give between 90 and 110 bhp, depending upon the application, and will replace the 1.2-litre naturally aspirated units seen currently. Other new units will also see the use of a turbocharger such as the 1.4-litre engine to be fitted in the C-segment Bravo, and a 1.8-litre engine that will produce 190 and 230 bhp, depending on the application.

During the seminar Fiat said that it considers diesel hybrid propulsion to be "promising" for urban light-commercial-vehicle applications, and is currently developing the technology for the Fiat Ducato and Iveco Daily. Alternative fuels such as natural gas and hydrogen are also seen as a solution for ultra-low-emission urban vehicles. Fiat is also looking to adding biofuel to its current flex fuel applications

Strategic Alliances An Integral Key

During the presentation, Fiat has said that it sees alliances as key to strengthening its position and entering new segments. The company outlined its plan to build the forthcoming Fiat 'Minicargo' light van being jointly developed by PSA and Tofas and to be built in Turkey, and confirmed the production of a Tata Motors pick-up at Fiat’s plant in Cordoba (Argentina). Other projects included:

  • Ford: A joint project with Ford to construct the next Ford Ka and Fiat 500, based on the current Panda platform and estimated to produce 240,000 units per annum (upa).
  • Severstal Auto: Construction of the Fiat Albea, Doblo and outgoing Ducato van, as well as the new C-segment Linear saloon.
  • Chery: The Memorandum of Understanding (MoU) signed for the supply of Chery's 1.6-litre and 1.8-litre engines for Fiat cars built in China. Annual supply is expected to reach over 100,000 units.
  • Nanjing: The addition of the Doblo, Punto and Linea all added to the product mix between 2007 and 2009.

CEO Marchionne to Step DownFrom Auto Division in 2007

Sergio Marchionne has said that he will step down as the automotive unit’s CEO during 2007, but will maintain his position as head of the Fiat Group until 2010 and beyond. Marchionne told the assembled analysts: "I think there is enough talent in the group so I won't hire anyone from outside the company." No names were mentioned as to who would be chosen as his replacement.

Outlook and Implications

From a position of weakness, Fiat has managed to turn itself around and make bullish plans for the next four years. With the launch of the Bravo and 500 in 2008, and plans for Lancia and Alfa's expansion to complement the core brand, Fiat is hoping to maintain the momentum that began with the launch of the new Punto in 2005. Fiat has also looked to expand internationally with the investment in Latin America announced last month (seeLatin America: 25 October 2006:Fiat Plans US$1-bil. Expansion in Latin America) and other global ventures noted above.

However, the Bravo could see some very strong competition from the Euro-orientated Kia cee'd and Toyota Auris, which are both being brought to market in the coming year. Also upcoming is the impending redesign of General Motors' (GM) Astra, and the arrival of a cheaper-to-produce Golf VI. With these competitors, the Bravo could be an even bigger "make or break" vehicle than the Punto.

Fiat has also used a lot of extra resources through the marketing, manufacturing,, and research and development (R&D) costs that have seen a negative free cashflow. Although these have been booked upfront, the company will want to pay this off rapidly in order to reduce the charges it is faced with. This is part of the plan that Marchionne and his team have put together, with a target of turning this around from 2 billion euro of debt in 2006 to a net cash position of 3 billion euro in 2010.

The automotive division’s targets are positive and with the launch of 23 new models and 16 revised products the company could continue its product-led revival. However, as Marchionne said, the targets for the company are "ambitious". Whether it will end up being too ambitious remains to be seen.

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