Fiat plans to invest $12 billion to help end Europe losses, revive Italian plants, report says
MILAN (Bloomberg) -- Fiat Group plans to invest as much as 9 billion euros ($12.3 billion) on new models to end European losses in three years and revive nearly empty Italian factories, two people familiar with the matter told Bloomberg.
In addition to bolstering the upscale Maserati and Alfa Romeo marques with new Italy-built models, the carmaker will focus the Fiat brand on variants of the 500 and Panda minicars and ditch the Punto subcompact, a former best seller, said the people, who asked not to be identified because the discussions are private.
Fiat brand CEO Olivier Francois has said the Panda family will be aimed at budget-conscious customers while 500 models will target buyers willing to pay extra to have a more premium product.
"The Fiat brand has two dimensions, Panda-500, functional-aspirational, left brain-right brain," Francois said in a recent interview with Automotive News Europe.
Said Roberto Verganti, a management professor at Milan Polytechnic and author of the 2009 book "Design-Driven Innovation": "It's a brave and historic move to abandon your roots. Going upscale with cool, high-margin 500 and Alfa models is the only possible strategy to continue building cars in Italy."
With the timing of Fiat's sought-after merger with Chrysler Group uncertain, Sergio Marchionne, who is CEO of both carmakers, is under pressure to stem the Italian manufacturer's losses in Europe. While Fiat has previously said it aims to develop about 20 new models for Europe by 2016, including eight Alfa Romeos, the company has declined to comment on a revised European strategy until April.
As part of the luxury focus for Italy, Fiat will introduce 500 and Jeep SUVs next year as well as a convertible version of the Alfa Romeo 4C sports car, said the people.
Those cars will all be made in its home country.
The new Alfa Romeo Giulia sedan, designed mainly for export outside Europe, will be built in Italy by 2016, they said.
The Fiat Punto, a subcompact hatchback that competes with the likes of Volkswagen’s Polo, will be replaced by a five-door version of the 500. That mass-market model will be built in Poland to save costs and boost profit margins, the people said.
Auto workers in Poland are paid about one-quarter what their Italian counterparts make, according to data from German auto group the VDA.
Burdened by slumping demand in its home country and a lack of new models, Fiat has been losing market share in Europe for the past four years. The group's deliveries in the region last year were 47 percent less than in 2009, according to data from industry group ACEA. Fiat's European market share has slumped to 6.2 percent this year from 9.3 percent in 2009.
The sales collapse has led to operating losses of almost 2 billion euros since 2011, including 304 million euros in the first nine months of this year.
"We will utilize what we have in defense of what we have," Marchionne said on an Oct. 30 conference call with analysts when asked about cutting capacity. "We will not be shutting down plants. We will shift our production capacity in accordance with our premium brand strategy."
The success of the plan has implications beyond Fiat. Italy has been mired in a cycle of recessions since 2001, and a revival of production by Italy's largest manufacturer could help stabilize the broader economy after the auto industry shed more than 30,000 jobs since 2008, according to Italian auto-industry group Anfia.
"The only way to revive the industrial sector in Italy is moving to luxury production and glorifying the 'Made in Italy' concept," said Giuseppe Berta, a professor at Bocconi University in Milan.
The impact of the downturn is evident at the Mirafiori plant near Fiat's Turin headquarters. The plant was once an engine of Italian industrialization after World War II, bustling with as many as 50,000 workers in the 1970s.
Now, only 5,500 people are employed there, and they just work a few days a month. The factory, which once churned out more than 600,000 cars a year, has built fewer than 20,000 in the first 10 months of 2013, according to the Fim Cisl union.
Fiat has furloughed many of its 30,700 production employees in Italy this year and most of those have been off work for more than five months this year, Fim Cisl said.
The goal is to bring them all back by focusing on luxury Alfa Romeo and Maserati vehicles. Under the plan, Mirafiori workers will start making the Maserati Levante, the elite brand's first SUV, by 2015.
The strategy largely mirrors the German auto industry. BMW Group, Mercedes-Benz parent Daimler and Volkswagen Group, which owns the Audi and Porsche brands, have made upscale cars for decades to offset wages that are among the auto industry's highest. Those cars are exported from Germany around the world.
Focusing the Fiat brand on the 500 and the Panda would free up resources for the upscale shift, which has shown promising signs. After expanding with the Ghibli mid-sized sedan earlier this year, Maserati has received more than 23,000 orders this year, almost quadruple its 2012 sales of 6,200 cars.
Marchionne is expected to announce on new product strategy for Alfa Romeo next April that focuses on a new, still unnamed rear-wheel- and all-wheel-drive architecture. A key aim of the new plan is to boost Alfa's global presence, Automotive News Europe reported in its December emagazine.
"Fiat has seriously started to follow the right strategy for a country with no cheap labor but highly skilled workers," said Mauro Ferrari, vice chairman of parts supplier Webasto's Italian division.
Automotive News Europe contributed to this reportContact Automotive News