Blunting the Trident

Earlier this week, we reported on Maserati’s current woes. Today, we continue our analysis and pose a few uncomfortable questions.

(c)  Maserati

In the aftermath of Sergio Marchionne’s untimely death earlier this year, many observers offered a range of views as to the former FCA Chief Executive’s legacy. As is customary in times of personal tragedy, criticisms were muted and delicacies were observed. In his stead has stepped new CEO, Mike Manley, tasked with steering the still-listing FCA vessel through another four-year plan unlikely to be worth the powerpoint programme upon which it was scribed – both then and given the subsequent turn of events, now.

Armed with a hefty fire extinguisher, a hastily re-scribbled plan (subject to further change, no doubt), and a reshuffled team, his task, even for the more successful of FCA’s brand portfolio looks onerous. But for the ill-performing upmarket end of the spectrum, and especially its embattled Maserati business, it’s impossible to describe matters in terms other than grievous.

Because, for all of his déshabillé predecessor’s skill as a negotiator and dealmaker, what can be said without apprehension is that under Marchionne’s rule, a vast amount of money was squandered upon a failed growth strategy; one which in its heedless dash for quick gains, recast il Tridente from its position as perhaps Italy’s Aston Martin to something a good deal less exclusive or desirable.

Before we wring our hands too tightly, we should of course consider the many identities Maserati has enjoyed over the generations, not least the downgrading it endured throughout the 1980s under the guiding hand of Alejandro de Tomaso. It took more than a decade, a tremendous amount of effort and vast sums for Fiat Auto (as was) to successfully remake the marque for the exclusive sub-Ferrari end of the market.

In half that time, but with no less effort and expense, FCA have reset it once more as a more affordable, considerably less exclusive and decidedly less crafted range of products, which by the end of last year were being produced in volumes in the region of 50,000 vehicles. Despite falling below the late Mr. Marchionne’s vastly optimistic projections, this represented something akin to a success in growth terms, even if a shortfall of 25% can hardly be described as mission accomplished.

One is forced however to ponder what FCA truly gained. Jobs were protected, although this is of scant comfort for those Italian production staff now on short-time working. FCA, one could argue, maintained a toehold in the so-called ‘premium’ market dominated by the German prestige marques, at least until the more technically-focused Alfa Romeo revival could be readied to under-perform against expectations. Against these paltry upsides however, it hardly seems to have been worth it.

One of the most justified criticisms of the Marchionne doctrine was the Italo-Canadian’s mystifying lack of consistency and focus. Maserati’s recasting gained FCA a quick win, but it also had the effect of pulling the brand into the no-less storied, but considerably more downmarket Alfa Romeo’s orbit. And while it can be accepted that brand-Maserati currently begins where brand-Alfa ends, the potential overlap is not one that any astute manager would be prepared to accept.

A lack of managerial consistency was also notably at play. Having been Mr. Marchionne’s initial choice for the role of Maserati chief, Harald Wester was shunted aside in 2015 with Reid Bigland positioned in his stead. Earlier this year, Bigland was himself re-assigned, with Tim Kuniskis given the helm of both Alfa Romeo and Maserati brands. Now, with Tridente earnings in freefall, margins dramatically slashed and global sales for 2018 unlikely to break the 30,000 vehicle mark, Manley has enacted a fresh round of musical chairs, by re-appointing Wester.

Admitting that bundling both marques together was an error (if not one of his making), Manley nevertheless has not much by way of options. While neither is performing anywhere close to expectations, Maserati’s performance at least approached projections. Furthermore, the Maserati-branded products, being something of an FCA parts bin raid, kept development costs down, allowing, one assumes, a lower break-even point, even at considerable cost to credibility.

Maserati desperately requires more convincing products if it is to regain lost ground but even with a favourable wind, such vehicles remain a good two to three years away, ensuring several more years in the wilderness peddling the current range of faded fancies.

Alfa Romeo’s expensively developed and currently exclusive Giorgio platform is another rather pressing matter. Auto-analysts have speculated that the Biscione’s volumes are likely to stall in the region of 150,000 per annum by 2025, a fraction of the projected numbers. And if the investor community is correct regarding Alfa Romeo’s medium term prospects, Mr. Manley could conceivably conclude that there is only room for one failing upmarket Italian brand within FCA’s portfolio.

Sergio Marchionne’s plan for Alfa and Maserati was an audacious gamble which relied upon getting a sizeable number of highly elusive ducks in a row. The odds of success were never strong, but it’s obvious that it failed, largely because he tried to achieve too much too quickly with insufficient focus, attention, rigour and money.

Can his successor, faced with transformational costs of eye-watering magnitude right across the business he’s inherited continue down the same highly questionable and potentially ruinous path? Some tough and rather unpalatable choices must surely await.

Author: Eóin Doyle

Founding Editor. Content Provider.

16 thoughts on “Blunting the Trident”

  1. The return of Wester, who probably is the man best suited for the job within FCA’s ranks after all, speaks volumes.

    With a bit of foresight and tenacity, the continuation of LdM’s plans for Maserati could’ve worked out. Instead, the brand was allowed to sell an ageing product for too long, only to be replaced with not terribly impressive – and ill-defined – replacements (which are now rapidly ageing themselves, as Richard pointed out earlier).

    Thou shalt not debase thy product.

  2. It appears that FCA is following the same doomed path as BL/ Rover of under investment, waste and aloof and short-sighted management. To think Maserati or FCA could succeed would require optimism of unimaginable proportions.

    1. I had a similar thought to yours. In addition to the similarities you mention I would add too many overlapping brands, unrealistic sales forecasts, being too slow to enact radical change, and operating in a political climate that seeks to protect jobs in the short-term. Streamlining brands would be a start.

  3. For those of us who love Italian cars, this is a tragedy of historic proportions. Half a century ago, the stable of brands now under Fiat’s control enjoyed tremendous brand loyalty and distinct market positionings that were largely complementary to each other. In an alternative universe, where properly formulated long-term strategies were pursued consistently, Fiat Group* could easily be the behemoth that VW Group is today, except with an even stronger heritage and greater brand equity.

    VW had to do it the hard way. They built up Audi from a slightly esoteric and obscure manufacturer of not-quite-Mercedes-quality cars into the steamroller it is today. They reinvented Skoda from pub comedian joke material to latter-day Volvo. They’re trying to imbue Seat with a sporting reputation that Alfa-Romeo still has in spades, despite decades of neglect and mismanagement.

    While VW has been building brand equity slowly and methodically, FCA has been squandering it wantonly. Their American adventure has stretched their management capabilities far too thinly for little or no reward. Meanwhile Fiat, which should be the core volume brand, is withering away to irrelevance. As I said at the top, a tragedy.

    (*In my alternative reality, a properly managed Fiat Group would have run a mile from Chrysler after seeing how Daimler struggled and eventually gave up the fight, hence no FCA.)

    1. Isn´t it interesting how one gets accustomed to the bad. Your comments reminds me that not so long ago there were three brands with full ranges of cars: Fiat, Alfa and Lancia; Maserati existed a little apart and Ferrari was independent within Fiat. The product ranges and prices were very distinct and there was little chance of customer cannibalisation.
      This rot has been going on for decades though: despite their full ranges, the competences were patchy and much of the sales were a few models: Puntos, 500s, Alfa 156s and our old friend the Ypsilon and maybe Kappas and Lybras at some point. The Fiat group wall of cars was thin and fragile. Fiats problems parallel Italy. It´s hard to separate Fiat´s problems from the ingrained cultural problems of the country that hosts it.

    2. Daniel: While I broadly concur that the mismanagement of the Fiat Auto group is something of a tragedy for those of us who cared for colour and diversity they brought to the automotive landscape, it could equally be argued that Marchionne’s deal to take over the Chrysler/Jeep business was (in retrospect at least) inspired.

      By then, the Fiat Auto business was essentially bankrupt. Whether you take the view that Sergio was either a visionary or simply very lucky, his takeover coincided with an era of cheap credit, cheap fuel and the ascension of the SUV in all its myriad forms, which supercharged FCA’s recovery to a significant extent. Indeed, it would probably never have turned around without these factors.

      There are many within the investment community who would probably urge Mike Manley to jettison his European rump of underperforming, capital-hungry brands, either through a sell-off or simple attrition, and concentrate upon the profitable, truck side of the business. I’m sure it’s something he’s considered/ considering, although there are also risks aplenty with such a move.

      But with matters as they are, justifying the existence of both Alfa Romeo and Maserati, not to mention the unceasing investment they will require to compete at the top level (not an area FCA has excelled in, to be frank), he will surely face something of a Sophie’s choice before long. Who to save – who to let die?

    3. Would have also helped if Citroen avoided its 70s bankruptcy (entailing much earlier points of divergence), its ties with Fiat at the time allowing for Maserati to feature the RWD Fiat 130 platform for the Quattroporte II, while a version of the Citroen-Fiat derived FWD Quattroporte II platform forms the basis of a Lancia Flaminia replacement in the same way the Lancia Gamma and Citroen CX were said to originally be a joint-project.

      Alfa Romeo is another matter, in some ways they should have put the Tipo 103 prototype into production during the early-1960s as the latter’s engine was essentially a version of the Alfa Romeo Twin-Cam (which would have reduced costs), whereas aspects of the Alfasud story sort of parallels the Hillman Imp.

      Curiously the following Italian language thread mentions of a 2-litre version of the Alfa Romeo Flat-4, amongst a number of other projects Alfa Romeo investigated from the 1970s-1980s. – https://www.autopareri.com/forums/topic/40114-progetti-alfa-fine-anni-70-e-inizio-anni-80

  4. Fair point, Eóin, although the fact that FCA is making lots of money on American SUVs is of little consolation if none of those earnings is recycled into meaningful European product development. Good for shareholders, certainly, but for car lovers, not so much. I’m afraid you will be proved right before too long and the axe will fall widely and heavily in Europe.

    1. I’d say FCA’s profits in North America are what is keeping the lights on in Italy; the opposite of what you posit that Chrysler is starving them. As Eoin says, Fiat and its subsidiaries were essentially dead men walking before the Chrysler takover. How could they have struggled on as they were? Without injection of US cash, they’d be pushing up the daisies by now. The costs of Maserati and Alfa development could not have been funded by European and South American operations. We’re talking many billions of euros that had to be found beyond the final $7.2 billion purchase price of Chrysler from the US and Canadian governments’loans.

      Americans get annoyed that Chrysler money is being used up by FCA in Europe to not much result – they have the strange idea that Chrysler somehow belongs to the USA despite reality, and spout free market mantra that would do Maggie proud and bring a tear to her eye. Either they are wrong in believing Chrysler profits are being used in Italy, or you are wrong thinking that Chrysler is starving the Fiat Group. Both cannot be wrong. Or right.

      Meanwhile, shortly before Marchionne’s demise, FCA was on course to be free of long term debt sometime in the 3rd quarter this year. Payments had been proceeding smoothly. I see it’s down to only $189 million cash debt as reported this past October 30.

      https://www.fcagroup.com/en-US/media_center/fca_press_release/2018/october/Pages/fca_2018_third_quarter_results.aspx

      FCA look to be doing just fine to me. So I’m not feeling the hand-wringing about Maserati, frankly. Or Alfa, which after a rocky reliability start in the US with Giulia and Stelvio seems to be doing reasonably well, certainly better than Jaguar, which is NOT. If you read those financials, you can see that US profit margins and quantity swamp the rest of FCA, which drag down the final company result. Yes, the US operation is subsidizing the Italian one.

      So the question seems to boil down to whether FCA should spend more money on the Fiat Group or say to heck with them , they’re ruining our stock price. Do they somehow owe Italy a subsidy for more pricey brainwaves? That’s what Manley and his team have to decide. Marchionne wanted some Italian pride and was willing to pay; Manley will care less.

      Finally, study of Fiat’s iron grip on Chrysler for the first few years which led to US resentment was what caused one US commentator to continually reference “Marchionne and his latte-swilling minions” as swanning about Chrysler HQ in Auburn Hills, cheesing off career engineering and financial staff by implying they were backwoods hicks, unsophisticated and really rather mediocre to boot. Cerberus was the final parasite on the Chrysler body after Daimler before Fiat took over and it emptied the cupboards totally after Daimler’s flight. Guess who made the group real money in the end? The hicks.

    2. Responding to Bill: putting on a “free-market” hat, FCA is a company with businesses around the world. Assuming FCA wants to carry on being a firm with European operations, it´s going about it the wrong way. The American side is doing well for reasons which are somewhat not of if its own making: lax fuel efficiency standards, a preference for big, cheap trucks, an upwardly-trending economic cycle. On the European side there are a host of firms doing quite nicely thanks so even European market conditions are harder in some ways, many companies do just okay.
      So, in the light of that, the question is, will FCA act as if its a global company and defend what is a quite adequate market region or will it, like GM, give up. If it wants to remain in the EU market, it needs better Maseratis and Fiats and (naturally, satire) a full range of Lancias. If that means cash from the currently profitable markets going to the EU markets, that should be fine unless someone wants to put on a puke-stained Barbour coat and play the economic nationalist card (which to be really clear, is not Bill! – I have widened the answer beyond the points Bill initially made).
      Bill correctly notes FCA had cleared most of its debt. Jolly good, now please fix the EU operation, one could add. Like most people, Marchionne was a mixed bag of talent and scotomas, part genius, part oaf (with more genius than oaf).

    3. Bill, with all due respect: Your view is just as New World-centred as ours tend to be preoccupied with the old continent’s perspective.

      Absolutely nobody would deny that it was the dollars earned through building and selling Jeeps and RAMs (as well as, to a lesser degree, the floatation of Ferrari) that constituted FCA’s and hence Fiat’s, Alfa’s and Maserati’s lifeline – despite the fact that FCA turned out to be almost as clueless regarding the Chrysler brand as Zee et al.

      However, to suggest Marchionne was harbouring some kind of patriotic agenda is simply risible. It wasn’t so much his Canadian passport that embodied his globalised attitude, but most of his well-documented business decisions, which turned Fiat Group Automobiles into an Amsterdam & London-based company, abandoned mass-market car production in Italy and halted any EU-based engineering investments since the Giorgio platform was developed (BMW is reportedly spending more money in Turin these days than FCA). So if you ask anyone in the Piedmont region about Marchionne’s patriotic feelings, you’ll either be introduced to Italianate sarcasm or downright anger.

      Obviously, Maserati’s appeal was not more than a century of history or Sergio being determined to honour the legacies of Alfieri, Bindo, Carlo, Ettore and Ernesto. Getting a piece of the ‘premium’ cake (including those delicious profit margins) and eating it is what it’s all about. For that reason, no money was spent on a new Punto or Bravo (to the benefit of VAG, PSA and the Koreans), with funding instead going into polishing up that old Mercedes RWD platform once more. Please also do remember that serious thought was given to producing the Levante on the same production lines as the Jeep Grand Cherokee, which aren’t located in Italy (an idea that is likely to have been abandoned only once some kind of Italian government grant appeared on the horizon).

  5. Bob: surely you´re being provokative by suggesting a Maserati sharing metal with the 130? The 130 is a really lovely car but surely the Maserati was too top drawer for a tie-up? I see Maserati more appropriately sharing bits with Ferrari though really the less the better. Citroen and Lancia is another matter.
    Good point about the Alfasud and Imp. I didn´t see the parallels (or had forgotten them). Okay – can we find a third case of “cheap car/new factory” from the same period. We have Imp/Sud and Linwood/Pomigliano. De Lorean doesn´t count: too costly but the new factory part does.

    1. Ideally a 130-based Quattroporte II would butterfly away the need for a Fiat 130, envision the former being powered by the Maserati V6 (capable of being enlarged to 3.2-litres), stillborn V6-based V8s (potentially capable of displacing 4.3+ litres) and possibly a Ghibli/Bora V8 that realises its max displacement of 5.2-litres.

      That way Fiat largely embraces FWD early on compared to real-life (including FWD 500 replacement as was envisioned by Dante Giacosa prior to his retirement), Maserati would continue producing RWD cars from a RWD 130-based Quattroporte II (as opposed to a FWD or De Tomaso-based Quattroporte III) to a much better conceived Fiat 132/Argenta-sized analogue of the Biturbo (instead of the real-life underdeveloped De Tomaso-based model) still featuring the Maserati V6 yet in both NA and turbocharged forms along with if necessary a 3.6-4.0-litre Maserati V8-based 1.8-2-litre Slant-4 (should the 2-litre Fiat Twin-Cam be considered too much of a downgrade even in turbocharged form for an entry-level Maserati).

      The previous post assumes Fiat swaps Lancia with a solvent and better managed Citroen in return for Maserati (which itself would make for an interesting counterfactual). How events transpire later on in this alternate scenario is another matter, perhaps an independent Alfa Romeo decides to collaborate with a Citroen/Lancia that potentially still has some ties to Fiat.

      TBH it is difficult to see how a Fiat group could have worked like the VAG group, Lancia is one casualty while Alfa Romeo after years of neglect has basically been belatedly intertwined with Maserati/Ferrari (in an era where many luxury marques have moved to lower segments). It could have worked had the Fiat group been composed of Fiat, Maserati and Ferrari with both Lancia and Alfa Romeo finding better luck elsewhere.

    2. Cheap car/new factory

      Fiat 126 / Tychy
      Ford Fiesta / Zaragoza
      Oltcit (Axel) / Craiova
      Benz W201 / Bremen
      KdF car (VW Beetle) / “City of the KdF car close to Fallersleben” (Wolfsburg)

  6. I tend to question whether history will remember SM as a genius. For the moment, I wish to consider the seemingly inexplicable back pedaling on the transaxle at Maserati, which necessitated re-engineering the QP V a year before it received a facelift so that a 6 speed ZF automatic transmission could be conventionally mounted. QP VI is automatic only, no more transaxle, but the Maserati GT is still available with both configurations. I’ll note here that GM makes an 8 speed Hydra-Matic transaxle for the Corvette which I’d guess they’d happily sell to FCA if a Ferrari-like solution isn’t feasible. The situation as it stands seems to make no engineering sense, no marketing sense either, and I don’t see how it can be economical. Is it to make a fifth passenger more comfortable?

    Apparently not. So is that a carry over floorpan? The worst of both worlds? What’s under the hump?

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