Fiat Auto is going through hard times. Worldwide sales and profits declined in the first nine months of 1999. After investing heavily in its Project 178 world car platform, Fiat has been hurt by a decline in the emerging markets, where 178 derivatives are built and sold.
Fiat expects to do better in 2000 with help from a new version of its largest volume model - the second-generation Punto supermini launched this fall. Fiat Auto CEO Roberto Testore was interviewed Nov. 15 in Turin, Italy, by Staff Correspondent Luca Ciferri. Here are edited excerpts:
In June, Fiat Group Chairman Paolo Fresco said he would cut $1 billion in costs by the end of 2000, with almost half coming from Fiat Auto. How is that coming?
We are on track. By the end of the year, our structural savings will be 250 million euros ($257.7 million). Next year we will cut another 250 million euros. These savings are mainly from general costs. Specifically for vehicle production costs, we will save 3 to 4 percent this year compared to 1998, and we plan similar improvement next year.
Fiat has been an innovator with its small cars. But it seems you have lost part of your supremacy with the arrival of fresher products from Asian makers. The next tough rival could be the Toyota Yaris Verso, the first B-segment minivan, a product Fiat doesn't have.
But we will have one out of our new A-B platform. I am satisfied with what we offer in the A segment.
The Seicento is making the numbers we planned, over 200,000 units a year. The Panda, which turns 20 next March, remains a very competitive product. We still make over 100,000 units a year, and we will continue it in the new millennium.
With the Seicento, we reduced the investment by basing it on the same platform of the Cinquecento. With the Seicento replacement, we will push more on innovation and base it on a brand new platform.
As for profit margins, the situation is more complex. Lately, our South Korean competitors have come out not only with very interesting products, but aggressiveness in terms of prices. We were attacked with fresher products and wild price cuts from Italy to Poland, from India to Russia.
Did we suffer? Of course. It has been very hard to fight them, but here we are. We achieved the volumes we planned. We didn't achieve the margins we hoped. But we were able to sustain this cutthroat fight thanks to the limited investments for the Seicento, which also meant lower fixed costs.
In addition, we launched a very aggressive cost-cutting program for our Polish subsidiary, and we were able to reduce the Seicento production costs by almost 10 percent.
We made money with Cinquecento, and we are doing the same with the Seicento. Honestly, I do not know whether the theme applies to our South Korean friends.
In 2001, Fiat will introduce a new modular platform concept for the Project 192 Bravo/Brava replacement that combines a traditional steel stamped floorpan with a steel space frame bearing the body panels. What will be the savings?
On the investment side, we are confident of reaching the planned 30 percent savings, compared to a traditional unibody construction. On the production cost side, we are heading to the goal we set for ourselves, but I don't want to share it with my competitors.
The new Punto Fiat took 24 months from styling freeze to production. Will the modular platform allow a further reduction in the time to market?
Yes, but our next reduction will derive more from the growing influence of what I call our component platform rather than from the use of the new modular platforms. In our most recent new car, the Punto II, 50 to 60 percent of parts came off the shelf - from the components platform. In the near future, we plan to reach 80 percent of parts coming off the shelf and this will allow us to delay the date of the styling freeze. This will mean a further reduction on the traditional way to count the time-to-market, but won't change much our internal benchmark, the 48 to 54 months from 'Folder Zero' - our preliminary evaluation - until beginning of sales.
One of the main advantages of the modular platform is that you can easily vary not only the car's length, but also its width. Will this cause a change in your current platform situation - the A, B, C, D and E platforms, plus the Panda and the 178 world car?
Absolutely. The new A-B platform, to debut in late 2002 with the Fiat Seicento and Lancia Y replacements, will also be the base of the third edition of the Punto and the second generation of the world car program. They will become a single family of products built and sold almost all over the world in the range of 1.7 million units a year. Actually, the original 178 platform will survive much longer, because in some emerging markets we still have to launch it, and in general, life cycles are longer than in mature markets.
The C-D platform will be the base of the replacements for the Bravo/Brava, Marea sedan and station wagon, Alfa 145-146 and 156, Lancia Lybra, plus some niche variations.
What will be the base for the new large car, which is planned for 2003?
We will base it on the C-D modular platform. Thanks to our new technology, we can achieve the desired length and width for a product similar in size to the E segment.
Three years ago, many analysts regarded your $2.6 billion investment in the 178 world car program as an extremely bright idea. But in the last couple of years, almost all the markets where you build the 178s have been shrinking. This has hurt profits. What are the long-term prospects for the 178?
Absolutely unchanged. The 178 remains a great idea. As the markets shrunk, our plans were modified, adapted and rescheduled. Let me give some examples. In Brazil, we have almost finished a draconian restructuring, which halved the number of employees. That permits us to break even in 1999, even though the market will be just over 1 million units this year, compared with an outlook of 2.2 million three years ago.
And we have not stopped investing in Brazil. We are about to open a $400 million engine plant in the Betim complex, capable of 2,200 FIRE engines a day. Next July, we will open a joint new plant with IVECO to make our commercial vehicle, the Ducato, and their heavier one, the Daily.
Our joint venture in China with Yuejing Motor Co. (formerly Nanjing Automobile Works) has begun production of the vehicle they derived from the old Seat Ibiza, and we plan to start making the Palio there in 2001.
In India, we have a 4 to 5 percent market share now, mainly with the sole Uno. But with the addition of the 178's various models, our short-term target is to reach 10 percent in a market with the biggest potential growth in the world.
We are paying a high price for our globalization project, but our long-term strategy was right.
What would you like Fiat Auto's market share to be in Western Europe?
Considering our current product range and what is to come, I would say around 5.5 percent of Western Europe, outside of Italy. For Italy, I still consider the right level around 40 percent. In Europe as a whole, I would say from 10 to 11 percent, depending on the volumes of the Italian market, which are not so easy to predict, even for us. One year ago, we forecast 1.8 million for 1999. Now we expect the market to be over 2.3 million. All the indicators say in Italy that 2000 could be even better, but this time I fear a decrease.
Your plan has been to achieve an operating profit in the fourth quarter of 1999, after being in the red in the previous three quarters. Will this happen? What about 2000?
We will have an operating profit in the last quarter of 1999, and we expect an even higher operating profit in the first quarter of 2000. We expect to achieve a net and operating profit for the full year in 2000.