Marchionne insists Fiat Chrysler needs 9 brands; market watchers disagree
Fiat Chrysler CEO Sergio Marchionne wants his recently merged nine-brand automaker to more than double vehicle sales and operating profit by 2018, but financial analysts doubt there will be enough cash available to fund double-digit - and in some cases triple-digit – volume growth at eight of the marques over the next five years. They believe Marchionne will need a leaner portfolio for his plan to work.
"If it was not for Brazil, where it is the No. 1 brand, Marchionne should simply kill the Fiat brand," Philippe Houchois, a London-based auto analyst at UBS told Automotive News Europe. Said Arndt Ellinghorst of consultancy International Strategy & Investment in London: "I still think it could be Dodge or Chrysler, but not Dodge and Chrysler."
Marchionne and his team unveiled Fiat Chrysler's five-year plan last month. The key targets for 2018 include: boosting sales 60 percent to 7 million; increasing revenue to about 132 billion euros from 93 billion euros expected this year; and improving operating profit to a range of 8.7 billion euros to 9.8 billion euros from a 2014 goal of 3.6 billion euros to 4.0 billion euros. Analysts consider all three goals beyond Fiat Chrysler's reach, especially since it will carry a net debt of more than 10 billion euros until at least the end of 2016. Fiat Chrysler also must cover costs associated with 55 billion euros of self-financed investments during the plan period.
Marchionne expects to reach the lofty 2018 goals by: more than doubling of Jeep’s global sales to 1.9 million; boosting sales in China fivefold; and turning struggling Alfa Romeo into a sought-after global premium brand with eight new models and annual sales of 400,000 – up from 74,000 last year. Marchionne is betting 5 billion euros on his fourth relaunch bid for Alfa, which has failed to turn a profit during his 10-year tenure at Fiat.
‘Bottom of the pile’
Said Harald Hendrikse, a London-based analyst with Nomura Holdings: “The problem is PowerPoint presentations are a lot easier than real life. These brands need a huge amount of work to get where they need to be. The world changes very slowly and you have brands at the bottom of the pile in many regions. It’s not going to happen overnight.”
When questioned by analysts last month about the plan, Marchionne was asked whether he thinks his volume and profit expectations could actually sustain Fiat Chrysler’s nine brands over the long term. The CEO said that Fiat Chrysler’s advantage is that “we now have brands in the marketplace that are not butting heads.” He added that the new plan already eliminated two brands: Lancia and SRT.
Lancia era ends
Lancia will sell its one car, the Ypsilon, only in Italy until the 3-year-old model is discontinued, likely by the end of the decade. SRT will be downgraded to a subbrand of Dodge. Marchionne said the automaker’s leadership “debated heavily” whether to merge Chrysler and Dodge. “Co-mingling Dodge and Chrysler would have cost us a lot of share,” the CEO said. He didn’t believe that it would have been possible to satisfy all customer needs with a combined Dodge and Chrysler. “That combination doesn’t work in our view,” he said. Instead, Marchionne wants to double the Chrysler brand’s lineup to six models by the end of 2018 and eliminate two Dodge nameplates – the Avenger sedan and Grand Caravan minivan – to settle what he called a long-running “internal turf war” between the brands. Chrysler will be positioned as the company’s “mainstream North American brand” and challenge Ford, Chevrolet, Hyundai and others. USB’s Houchois fears that Dodge will take a harder-than-expected hit when it stops making a large minivan. “It is a bold move indeed,” he said.
Marchionne promised that Fiat Chrysler would continue to emphasize brand differentiation to avoid making a mistake he sees in the current marketplace. “Depending where you travel, I’ve seen cars that start with an R having a D in front of them,” he said, referring to Dacia models re-badged as Renaults in countries such as Russia and outside of Europe. “The cross mixing of brands is going to destroy the fabric of the brand. A brand is a precious thing,” Marchionne added. His words and passion for brand preservation come too late for Lancia. The 108-year old Italian automaker suffered its final blow when its European lineup added rebadged large Chryslers that found few buyers in Europe.
You can reach Luca Ciferri at firstname.lastname@example.org.