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Automotive Industry

Fiat needs GM, common platforms, less capacity to survive - Europe Report - Brief Article - Statistical Data Included

Automotive Industries, July, 2002 by Anthony Lewis

Go back just a couple of years and the general view was that PSA Peugeot Citroen, with a 70 percent concentration of sales in Western Europe, was the most vulnerable of all the European carmakers. It could not possibly survive on its own.

Things have quickly changed. PSA is now one of the star performers of the European stage offering the right products at the right time and forming clever strategic alliances with Ford (diesel engines), Renault (transmissions) and Toyota (a new small car to be built in the Czech Republic).

Contrast this with Fiat, seemingly impregnable two years ago, dominating its domestic market and a global footprint that could not be faulted. Fiat Auto had a good balance across West and East Europe, South America and further afield.

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Whichever way you look at it Fiat Auto is now in trouble. In a European car market where product is king, the Italian automaker appears to have lost the plot. Even those famed Italian designs have deserted them. Recent new models have met with a cool reception by press and public.

Once the healthiest of European carmakers, Fiat Group's annual meeting in May was presented with a first quarter net loss of $498 million compared with a profit of $182 million a year earlier. Fiat Auto, which accounts for 40 percent of Group sales, had an operating loss of $404 million, higher than expected and caused by weak sales. Sales of the small Seicento were down 22 percent in Western Europe in the first quarter of this year and Punto slipped by 20 percent while recently-launched Stile has barely registered its presence selling 58,550 units. In the same period, the Peugeot 307--launched six months earlier--registered 110,700 sales while the VW Golf (161,900) and Ford Focus (154,120) led the sector.

Fiat is now planning to temporarily lay off about 19,000 workers over three weeks this summer, cutting production by 14,700 cars. There is talk of selling the family jewels -- Ferrari -- to raise $705 million.

Fiat's problems begin at home where it dominated with 35 percent share not long ago. Now market share has slipped to 25 percent. Additionally, in Western Europe, Fiat has seen its car sales slip by 18 percent.

Furthermore, sales of Lancias are down by more than 34 percent, while even a rejuvenated Alfa Romeo has seen sales slide by almost 14 percent. Last year it was the undoubted Fiat star with sales up by 15 percent.

Something needs to be done.

CEO Giancarlo Boschetti has embarked on a course to slash spending on new products, marketing and manufacturing to try and keep losses at the same level as they were in 2001 ($516 million). Product programs are being cut short or delayed with only Alfa Romeo keeping to its planned new model introduction timetable.

Boschetti's plan is aimed at returning Fiat Auto to profitability by 2004. But he told financial analysts that the company faced a number of problems including poor plant utilization (which was improved to 79 percent from 70 percent last year with the closure of the Rivalta factory.) Fiat warranty costs also are 50 percent higher than competitors and likely to exceed $941 million a year. Additionally, the company also has poor margins in Italy and Europe from attempting to maintain market share.

Capacity, he said, could be reduced further by cutting back production lines rather than closing more plants while he is also looking to reduce defects by 30 percent to cut those warranty liabilities.

Another area that needs to be addressed is Fiat's weak and unprofitable sales mix including sales to vehicle rental companies, demonstrators and self-registrations (which accounted for 15 percent of sales in 2001) made largely to inflate sales figures. Boschetti wants to increase retail sales from 64 percent to 75 percent by 2003-2004 and expand fleet sales from 15 to 20 percent.

His plans also call for reducing European manufacturer and dealer inventory, which ended 2001 at nearly 340,000 units. This is the short-term fix but what does the long-term future hold for Fiat?

Boschetti says the key lies with its alliance with General Motors. Joint vehicle projects will achieve long-term savings. By 2005-2006 half of Fiat's vehicles will be based on platforms common with GM, which own 20 percent of Fiat Auto. This should reduce production costs by 5 percent.

This article was provided exclusively to Automotive Industries by Interchange, a U.K.-based automotive business agency and consultancy servicing media and corporate clients. Anthony Lewis is a partner in Interchange and can be contacted via e-mail at ajlewis@compuserve.com.

Automotive Industry

Fiat needs GM, common platforms, less capacity to survive - Europe Report - Brief Article - Statistical Data Included

Automotive Industries, July, 2002 by Anthony Lewis

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