Alfa Romeo played a prominent role in the five-year plan announced by Fiat Chrysler Automobiles in May 2014. Bill Cawthon considers the weak position of the Alfa brand, FCA’s business strategy and Sergio Marchionne’s apparent longing for a merger with GM.
Identifying Alfa as one of two “global” brands, the other being Jeep, the company said, in 2014, that it would invest EUR5bn (about US$7bn at the time) to bring eight new models into production and increase Alfa Romeo worldwide sales from 74,000 in 2013 to 400,000 in 2018.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
Estimates indicate that Alfa had fewer than 68,000 sales worldwide in 2014. The brand sold 208,335 vehicles in 1999, its best year ever. In 1999, the Alfa Romeo lineup included the 145, 146, 156, 166, GTV and the Type 916 Spider. All except the GTV and Spider were sedans, hatchbacks or station wagons.
Special arrangements have been made. Engineers from other brands have been brought to Italy to create a “skunk works” that could develop new vehicles on an accelerated timetable. FCA says it is investing $1.5 billion to develop two new engines to be produced in the Termoli engine plant.
Harald Wester, the head of Alfa Romeo, says the brand lost its way in the past but it is now back to its true self. The question is, does anyone remember Alfa’s true self? The high point of Alfa Romeo’s glory in the U.S. was in a movie that was made nearly 50 years ago. The outstanding performances by Alfa in racing in the U.S. were more than 40 years ago.
Europe has more recent experience but the whittling down of the Alfa line to just two small cars indicates that the experience wasn’t all that great. The new Alfa will go up against established giants like BMW, Audi and Mercedes-Benz that have strong product lines, good public recognition, well-established dealer networks around the world and resources Alfa and Fiat Chrysler can only envy.
Alfa’s goal also has it beating brands that are already on the market and well known. Fiat Chrysler says Alfa can be sold through the existing Fiat dealership network, but that’s another problem. In the world’s largest markets, the Fiat network is small and a few dealers have closed down because Fiat Chrysler didn’t provide enough products to keep their businesses growing. The Fiat 500 is cute but it’s also eight years old and cute lasts only so long. The Fiat 500L has done reasonably well in Europe but only brought in 14,874 sales in North America (US and Canada) since its introduction.
The Fiat 500X should help but there are still only a relative handful of Fiat dealerships in the US. In Europe, it will be critical for Alfa to be embraced by the huge executive car market. Not only will the cars have to be very desirable and durable, they will have to be price-competitive.
In addition to all the other obstacles Alfa faces, there’s an even more critical problem: Fiat Chrysler has yet to meet a promised rollout date.
All the while, the focus on Alfa means that other products, which are already established, are having refreshes and overhauls delayed. These brands produce real profits today with sales through an existing dealer network.
Maybe it’s time to reexamine the business case for Alfa Romeo.
Despite Sergio Marchionne’s enviable record of delivering on his promises, the Alfa commitment has all the earmarks of a very costly miss. Alfa Romeo can undoubtedly produce beautiful automobiles that are a joy to drive but the real question is can it build one that will sell like the BMW 3-Series?
Marchionne rants about the cost of capital and its returns but that cost has been part of auto making for years. It’s been increasingly burdensome since the 1960s and 1970s as environmental and safety requirements ramped up. But if concern about capital is such a huge issue, will the return be better on a big bet on Alfa or on accelerating much-needed upgrades to its existing brands? Is Marchionne sacrificing Chrysler to bet the farm on Alfa Romeo?
Chrysler and Dodge brands sold nearly 1.1 million vehicles worldwide in 2014. Yet, other than the minivan, their refreshes have been delayed. A desperately needed overhaul of the underperforming Dart has been pushed back. The Chrysler 300, Dodge Charger, Dodge Challenger and Jeep Grand Cherokee are all leftovers from DaimlerChrysler.
It could be time to see if Volkswagen is still interested in Alfa Romeo. Take the unspent funds and reallocate them to the other lines and use the technologies already developed for other brands.
Rick Wagoner, former chairman and CEO of General Motors, was heavily criticized for cutting brands, especially Saturn. It turned out later that he was right; Saturn was a loser all along.
Alfa has had several owners, including the Italian state and every transfer of ownership in its history has been a distressed sale. Time to let someone else try their hand.
Rumors of problems with the Alfa new product launches are among the reasons given for Sergio Marchionne’s pursuit of a merger. Other rumors cite the debt load, upcoming labor negotiations and other reasons. Whatever the reason, Marchionne’s aggression in pursuit of GM, which has gotten to the point that he has tried to enlist Wall Street to help him persuade GM to accept his proposal, needs to stop. Auto executives around the world are lining up to say “No” even if they haven’t been asked – yet.
At this point nobody wants to merge with Fiat Chrysler, if only to avoid losing face.
There’s no denying Sergio Marchionne has produced wonders, first with the rescue of Fiat, then with the rebirth of Chrysler. The results have been phenomenal, especially for Chrysler. Industry-leading sales growth stretching back more than five years; the first-ever million-Jeep year; a crack team of brand leaders like Mike Manley and Bob Hegbloom and delivering on promises that most thought were pipe dreams.
But what Marchionne is doing now is damaging what he has accomplished. No-one will come out and say it, but he’s becoming a joke among his peers and he’s hurting morale among his employees. His message has become that, in spite of all of the Herculean efforts expended by thousands of people in achieving a nearly miraculous turnaround, Fiat Chrysler can’t survive without life support from someone else.
If money’s the problem, he needs to make better use of what he has. Dump Alfa and invest in what is making money now.
If costs of development are the issue, form an alliance like everyone else and save money by sharing a reduced cost. Despite his assertions, the automotive industry has actually survived for a very long time. Sure there have been lots of acquisitions and hundreds of car companies have disappeared in the past 120 years, but enough have survived and prospered.
There are challenges: costs are increasing and regulatory hurdles are becoming more difficult to clear. But persuading governments to adopt a single, uniform standard for safety and environment could save billions of dollars, pounds, euros, yen or yuan renmimbi.
All avenues need to be explored and perhaps the solution is a combination of options. A single-minded obsession with a cash infusion not only hurts those whose work is being peddled, it hurts the value of the asset itself.
If Marchionne can’t accept this and be satisfied with making Fiat Chrysler Automobiles a stronger company, then perhaps it’s time for John Elkann and the board to consider allowing him to take an early retirement.
Fiat Chrysler, especially Chrysler Group, is not damaged goods. It’s time to stop treating it like it is.
