Marchionne bets billions on Alfa, Maserati
Skeptics see many risks, few rewards
Marchionne: Enough cash to reach all goals?
TURIN, Italy -- Sergio Marchionne is betting billions that Alfa Romeo and Maserati will help drive Fiat's money-losing European operations back into the black by 2015-16.
The Fiat-Chrysler CEO is counting on the underperforming sporty brands to help ignite a production boom that will turn the company's underused European plants into big exporters.
Analysts are skeptical of the plan because it likely will conflict with Marchionne's other mission: taking full control of Chrysler Group. Industry watchers say Fiat lacks enough cash to buy full control of Chrysler and to invest billions to revive Alfa Romeo and Maserati.
Fiat is discussing financing options with banks in preparation to buy the 41.5 percent of Chrysler it doesn't own, according to reports.
Marchionne's big gamble on Alfa Romeo and Maserati comes at a time when rivals such as PSA Peugeot Citroen, General Motors and Ford Motor Co. are negotiating to close European plants to adjust to the region's shrinking demand. Shuttering those plants will help the companies end big financial losses in the region.
Marchionne has long said that Europe's volume automakers must reduce capacity to become profitable in Europe again. Now he has accepted that it is politically impossible for Fiat to close factories in Italy. To fully use the group's underperforming Italian plants, Marchionne aims to increase Maserati's annual sales to more than 50,000 by 2015 from just more than 6,000 last year, and he wants Alfa Romeo to triple sales to more than 300,000 by 2016.
Boosting exports from Italy to global markets makes sense as the European new-car market has shrunk every year since peaking at 16 million units in 2007. New-car sales dipped 8 percent to 12.5 million in Europe last year and volume is forecast to slip below 12 million this year.
Concentrating on Fiat Group's higher-end brands also makes sense as BMW, Audi and Mercedes-Benz have avoided the European sales declines that have plagued most volume brands.
"We will focus on Alfa Romeo and Maserati to access the higher end of what we consider to be a permanently polarized market now," Marchionne said last month.
Still, analysts are skeptical. In a note to investors, Morgan Stanley analysts wrote: "While Fiat adapting its product to [the] market makes sense, we think the market could be disappointed that capacity actions do not feature in Fiat's plans."
In February, Marchionne reiterated that Fiat won't close any Italian assembly plants. Four plants have an installed capacity of 1 million units, but last year their combined output declined 18 percent to 394,620 units, according to the association of Italian automakers, ANFIA.
If Marchionne's plan to build upscale vehicles in Italy works, high-margin Alfa Romeos, Maseratis and Jeeps will offset the country's high labor costs and low labor flexibility.
Marchionne envisions Fiat's European plants building about 2 million cars, SUVs and light commercial vehicles annually by 2016, up from 1.25 million units last year.
By 2016, about half of the additional 750,000 units built in the company's European plants will be sold in Europe and the other half -- dominated by Alfa Romeo, Maserati and Jeep models -- will be sold in global markets, under Marchionne's plan.
Analysts say Marchionne's mission may be too costly to achieve.
"Fiat's plan to move upmarket comes with a big price tag," Morgan Stanley said. "With up to 18 billion [euros, or about $23 billion,] in capital expenditures to fund over two years, net debt is unlikely to decline before 2015, meaning a full buyout for Chrysler may be off the table for some time."
In October, Marchionne announced a new plan for Alfa Romeo that calls for the introduction of nine all-new or replacement models in the next four years to boost sales to 300,000 by 2016. To reach this goal he has committed more than $1.3 billion to Alfa Romeo for 2012 to 2014. He said at the Detroit auto show that Alfa Romeo, gone from the United States since 1995, would return by year end.
At the Geneva auto show this month, Alfa Romeo debuted the production version of the 4C sports car, but the automaker won't get a significant sales boost from the coupe because output will be limited to 2,500 units. Until 2015, Alfa Romeo will offer just two aging models: the MiTo subcompact and the Giulietta compact hatchback.
Marchionne is investing more than $1.3 billion in Maserati to double its product range to six models. Those additional models are expected to boost sales eightfold by 2015 compared with last year's 6,288 units.
The first model in Maserati's product offensive is the Quattroporte, which debuted in January at the Detroit auto show. Maserati's re-engineered flagship sedan has been lengthened to better compete against chauffeur-driven, long-wheelbase versions of German premium brands' flagships.
Maserati plans to unveil a mid-sized sedan called the Ghibli at the Shanghai auto show in April. A third model, the Levante SUV, will be built at Fiat's Mirafiori plant in Turin using underpinnings shared with the Jeep Grand Cherokee. Production will begin in 2014.