CEO Marchionne Floats Plan to Utilize Excess Capacity and Give Italian Firm's U.S. Dealers More Models, Brands to Sell
Fiat SpA F.MI -5.33% may produce more vehicles in Italy for export to the U.S., helping the auto maker ease its excess domestic production while aiding Fiat dealers struggling with too few models and the brand's rocky return to the U.S. auto market.
Chief Executive Sergio Marchionne said he may use a factory south of Rome to build an undisclosed car for export to the U.S. Existing Fiat plants are to build Maserati sports cars and a Jeep sport-utility vehicle for U.S. export.
Fiat has five Italian auto plants, and "a lot of these plants are going to be producing for the U.S.," he said.
Mr. Marchionne, who also is CEO of Chrysler Group LLC, declined to identify the model that would be sold in the U.S. The Cassino, Italy, plant that he hopes will become a third U.S.-export facility already assembles the Alfa Romeo Giulietta using a platform adaptable to U.S. requirements, he said.
The proposal suggests Mr. Marchionne is considering a new tack to solve two problems. In the U.S., he would boost volume by giving dealers struggling with their Fiat franchises more models to sell. Currently, the dealers have just three versions of the Fiat 500, a subcompact car. To make matters worse, U.S. demand for the Fiat 500 Abarth sports version has outstripped supply. The U.S. versions of the Fiat 500 are made in Mexico.
In Italy, the move would allow Mr. Marchionne to utilize excess capacity. Most mainstream European car makers are losing money in the region as factories operate well below the between 75% and 85% capacity needed to break even. Fiat is operating below 60% and has already suspended some production and postponed some vehicle launches.
Fiat's return to the U.S. market in late 2010 after a 27-year absence has been a singular disappointment for Mr. Marchionne, who turned Chrysler into a profitable and expanding auto maker. The Fiat 500 has yet to meet its sales targets, and the brand remains well below its goal for U.S. dealerships. Last November, Fiat replaced U.S. brand chief Laura Soave with marketing executive Timothy Kuniskis.
"I'm [angry] about it because I think that what we did is that we launched that car a year or two early," Mr. Marchionne said in an interview with The Wall Street Journal late last year. "We should have launched in 2012 because the dealer network wasn't ready when I launched."
U.S. sales of the Fiat 500 have averaged 3,335 a month this year, or a total of about 16,700 vehicles through the end of May. Mr. Marchionne originally envisioned selling 50,000 Fiat 500s a year. Meanwhile, the Mini Cooper, which he sees as Fiat's biggest competitor, has sold 26,064 vehicles this year through the end of May.
"We are just hanging out here," said a Fiat dealer who asked not to be identified to avoid any backlash from the company. "I have yet to make any money even though I had to sink almost $1 million to build a new showroom," the dealer said. "They keep promising more product but I have yet to see anything. They like to say things are going well but it's really a mess with this brand."
The Fiat 500 tied for last place in an annual quality-ranking survey conducted by auto researcher J.D. Power & Associates. Chrysler officials contend small European cars traditionally score low in the survey, which tracks the number of problems reported by customers per 100 vehicles sold. Fiat had 151 problems, tying with Daimler AG's DAI.XE -3.31% Smart brand.
Mr. Marchionne acknowledged the lack of dealer profitability but said he is currently working on bringing the Fiat 500L to the U.S. in order to help the dealers. The Fiat 500L is a five-passenger model that will be produced in Serbia. It is slated to arrive in the U.S. sometime in 2013.
Fiat's Alfa Romeo brand, which originally was to be reintroduced to the U.S. in 2012 and sold through the Fiat showrooms, has now been delayed until sometime in 2013, although a date hasn't been set.
"The Alfa was the sweetener for those dealers who took on Fiat," another U.S. Fiat dealer said. "We knew Fiat would be risky but selling Alfa with Fiat made it more palatable."
Still there has been some progress with the Fiat brand. Chrysler executives expect year-to-date sales in the U.S. in June to top 20,000 for the first time. That would exceed the brand's total 2011 U.S. sales.
Dealership ranks have grown to 167 from 137 at the end of 2011, with a target of 200 in the next 12 months.
Bill Golling, who has two Detroit area dealerships selling Fiats, said he is expecting to sell almost 375 Fiats this year, surpassing his internal targets. Fiat showrooms are drawing younger and older customers, which he would have missed without the franchise.
"The brand has been strong," he said. "It just takes time and many dealers knew that when they got into it. As far as new product, I would rather it be delayed and that they get it right."