Under The Moon’s Burning Glare

Good old Automotive News reported some juicy gossip regarding Fiat Chrysler Automotive. 

2002 Fiat Stilo, decent seller with with 3 doors: Parkers.co.uk

The gist of it is that FCA’s CEO Sergio Marchionne thinks making smaller cars in Italy is a waste of time and money. He is concerned that smaller cars are going to be commoditised and that the real margins lie in making larger cars. Resulting from this set of assumptions, stalwarts of the Fiat range will be axed and anything small and plausibly profitable shifted to outside Europe. The Punto – once a European top-ten car – and the MiTo (never a European top ten car) will be discontinued.

With the production lines thus freed up it will be possible to shift production over to bigger and more lucrative vehicles such as new SUVs under the Maserati, Alfa Romeo and Jeep brands. At this point in the story I am thinking of the time the US car industry abandoned smaller cars and gave the Japanese producers a lovely foothold into the N American market.

The analogy doesn’t fully hold because FCA will still make smaller cars, only they don’t seem to want to make them in Italy. The analogy is partially useful because smaller cars will not get the same attention as they once did in FCA brood of brands. And that makes me think that apart from making money, one reason to have a full range is stop customers going elsewhere as they seldom come back. They keep the weeds down, so to speak.

2002 Alfa Romeo GT: source

A ghostly 607 and phantom Scorpio roll silently down my mind’s lane of memories…. they kept the weeds down too.

ANE sees the plan as being a move away from easily affordable to less affordable cars – a margins game not a volume game. In among the plans is talk about an FCA move to hybrid electric cars, something FCA has not been all that good on so far. In 2016 Chrysler only had a hybrid minivan. In future more and more Jeeps will be hybridised. Fiat cars are not as yet widely electrified (putting it midly) – you’d think maybe that’d be easy enough and a better place to start (look over to Renault and BMW for more electric cars).

It’s still a nice sort of thing: source

“Marchionne, 65, who is set to retire as CEO next year, doesn’t see a future in making affordable cars in high-wage European countries, said people familiar with the automaker’s strategy”, writes ANE. What is interesting is that PSA, Renault and VAG among others do see future in making affordable cars in western Europe. What does FCA know that others don’t?

It’s about outlook. Marchionne is the most N. American of the European car industry leaders – his thinking is very much more like Ford and GM’s chiefs than the chiefs HQ’d in Yurrup. I expect some N American readers will write to tell me that that is not so odd since their HQ is de facto in Auburn Hills, MI and de jure in London. And SM is almost half-Canadian anyway.

Fans of the MiTo will be saddened to know that Alfa is ending production of this car, just a short decade since its launch. Reminder from WhatCar???: “Those who prefer petrol have three choices: a 105bhp, 0.9-litre TwinAir two-cylinder, or three variants of the same 1.4 – one producing 78bhp, another 140bhp and another, reserved for the sporty Quadrifoglio Verde, that develops 170bhp. Diesel lovers have two choices: an 85bhp 1.3-litre, or a 120bhp 1.6.” 

Lest we forget in this torrent of FCA scepticism, I like this car for having three doors and a weird look. I am sorry it did not pan out and also sure the MiTo will be a very well-liked car in 2032.

Fiat – the “F” in FCA – will be soon reduced to making Polish Pandas and 500s and none of them will be diesels. Is that sad? Not really though if you proposed in 2002 that Fiat would consist of two models people would have considered you a skeptic or a lunatic. A prediction of similar craziness today would be to say that in 2035 Peugeot cars will consist of the 108 and 208 models. Or that Ford will only sell Kas and Fiestas by then.

I am often struck by the proposition that owning Chrysler and Jeep gave Fiat access to premium brands. I don’t see either Chrysler or Jeep as premium – not even in the way Alfa Romeo, Cadillac and Lincoln are premiumish – and certainly not in the way Audi or Jaguar are premium. Lancia… did someone mention them?

Discuss this part of ANE’s article which shows up my industry nous for what it is: “ FCA’s strategy in North America has so far paid off. The company, which almost halved net industrial debt in the first quarter, reported wider profit margins than Ford during the period and now has its sights on General Motors. Marchionne is aiming to better GM margins in North America before he steps down next year.” 

I suppose if you compare FCA to other American car makers they can look relatively good but that’s because the N. American car makers are not really very healthy deep down – lurching always from crisis to triumph in that capitalist lurchy way.

I went over to car sales base  (Bart Demandt never rests!) to see what the stats looked like before wrapping up. I see another reminder that Ford is giving up on the saloon car market. So, yes. Lurching.

Automobile summed up FCA’s position in the US as number four, down 8 percent. Honda USA are next in line with only two brands to manage and growing ever so slightly. So – yes, FCA can look good and also not so good depending on how you look at things.

That returns to the start: more surprising developments from a car firm that seems to be scripted by Kevin Lynch.

Author: richard herriott

I like anchovies. I dislike post-war town planning.

14 thoughts on “Under The Moon’s Burning Glare”

  1. As I’ve said before, Fiat are finished. They’ve abandoned the Italian style capitalist system of keeping it in the family which promoted long-termism in favour of Anglo – American short-termism. They look like the Rover Group in the lead up to its demise with shrinking sales, lack of capital for investment and inept management. When you look at the meteoric rise of the German triumvirate together with the rapid expansion of Hyundai and Dacia along with the imminent sales explosion of Chinese makers, it’s hard to see where a now, relatively small car producer like FCA can fit in. If you read or watch car articles or videos from the USA, you’ll soon realise what a terrible reputation FCA have there; similar to BL or Talbot in the UK in the 80’s.
    And it’s not just small cars they’re abandoning as evinced here:

    1. That´s a tidy and detailed website there.
      There is no thing which needs spelling out which is that Fiat have seldom demonstrated much skill at consistent management and governance, even in their heyday. When times were good as they were in the era of national markets and high economic growth a firm like Fiat could do well with some visionary managers/engineers. The current conditions expose Fiat (and indeed lovely Italy´s) weaknesses. Perhaps is Marchionne could be cloned and his policies applied in another culture they might have a chance of working. But he is dealing with N America and Italy and these two work-cultures do make it very hard to apply even good ideas.

  2. The improvement in FCA’s financial position is hardly praiseworthy if it had been achieved merely by cutting model replacement programmes and abandoning market sectors completely. It increasingly looks like all its brands are in terminal decline, with the exception of Jeep and (possibly) Alfa Romeo, which will eventually be sold off to VAG or the Chinese…

    1. And RAM pickup trucks, which along with Jeep pay for all the rest of FCA’s duds. Europeans tend to always forget pickup trucks, but FCA certainly cannot.

      Ferrari is NOT part of FCA. Perhaps you had forgotten.

  3. I have long pondered the strategy,and fate, of FCA. It has been four years now since the last ludicrously optimisatic future product and sales forecast from the black-sweatered one. My own analysis leads me to conclude that Fiat, Lancia (obviously), Chrysler and Dodge are finished. The only operations I see with any longevity are the Ram pickup truck division and Jeep. The Alfa Romeo and Maserati operations may be salvageable, but would require immense resources. It is both an Italian and American tragedy.

  4. Jeep makes an outrageous profit, and the Jeep alone keeps FCA afloat worldwide. Like, the US/Canadian market is responsible for like 90% of FCA’s profits.

    The real thing is that Fiat is consistently investing money in things that are non-starters. The Cherokee and other cars sell well, and make profit, and attractive financing and decent 4WD (and Jeep badge) disguise what is a very dated platform underneath. The Cherokee is basically a wide Bravo, and the Compass and Renegade are basically a wide Punto.

    FCA put all those development dollars into the Giulia; a car that despite being good on paper, will never get people out of their 3-series or C-class leases, or in the US, has real threat from the sedate-but-profitable Lexus ES.

    The 500 is now very old.

    You can’t float a brand entirely on a minicar (the Panda)

    And the rest of the cars they make are either Latin American or Eastern European specials, or discontinued.

  5. They also have RAM, which sells by the trailer load. But Dodge might teeter into obscurity.

    You can see the economic logic in what FCA are doing – it is indeed very hard to make small cars in Western Europe. The profit margins are wafer thin.

    However, SM made a big play of insisting that all Alfa Romeos are made in Italy. Presumably, this is to ensure that all their products are imbued with genuine Italian character.

    I worry that moving 500 / Panda production out of Italy means that they will lose their emotional connection with the homeland. Italy has a proud history of making interesting and innovative small cars and it is a great shame that this is going to end.

    What are they going to do when the 500 finally gets too old? There seems to be no plan to replace it. The joint venture with Ford was a flop but Fiat need to develop a new small car platform with somebody.

  6. I had imagined the tiny but terrific “premium” Lancia Ypsilon made a reasonable profit.

    The overall FCA situation is where SM has led them.

    Is there an inheritor who could plot a different route — which has to include catching up on e-vehicles.

  7. Fiats core product has consistently been small car production, their entire brand is so locked in to that formula they are nothing without it. He is right in that FCA can not continue to produce small cars profitably in Europe anymore, he is wrong in the conclusion they should abandon small cars entirely. What they need is access to low wage labour, the answer lies in moving Fiat small car production to a low wage country.

    If they don’t have access to that themselves, they are very vulnerable for a hostile takeover from those that have. I see before me an eastern buyer from India, China, Korea, Malaysia, the Phillippines, etc. Unless FCA can sort this mess somebody will acquire the entire conglomerate, move the production out of Europe and capitalize on selling off property. Ferrari alone should be worth about ten billion Euro or more.

  8. Word on the street in Turin is that FCA currently has no Italian engineered products whatsoever in the pipeline. Not a single one.

    If the rumours are to be believed, that’s due to SM’s focus on delivering the best balance sheet possible for an impending sale – which means there will be no successor to SM as FCA CEO, as there will be no more FCA as we know it once he steps down. Allegedly.

    Production figures of the Alfas and Maseratis also vary greatly from month to month. Speaking of a long-term perspective…

    1. If that is the case things will happen very very fast. They can not go on with nothing in the pipeline, that gamble will only hold until the next quarter report. I’ll expect a sale of of the company before the end of this summer. Any bets against?

    2. This is both interesting, deeply worrying and the confirmation of my deepest fears for the firm. Thank you for that insight, Sir.

  9. I wonder how FCA’s plans will pan out in light of Italy’s new government. I think they’re about to live in ‘interesting times’.

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