Fiat’s presence in growth markets such as China and Russia has been “an area of neglect”, the group’s CEO has admitted. But now he’s started to fix the problems, reports Mark Bursa.
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Sergio Marchionne only took the helm of Fiat Auto in February 2005 – but such has been the turnover of CEOs that he’ll become the longest-serving European car company boss when Jean-Martin Folz steps down at PSA.
Not that he’s hanging around – Marchionne plans to return to his ‘proper’ job of Fiat Group CEO by the middle of next year. But before he hands over the reins of Fiat’s car division, he’s doing a remarkable job of fixing the many ills of the business – not least a sluggish emerging markets strategy that has seen the group struggle to penetrate the crucial Chinese market and lose early leads in India and Russia.
Not for much longer. In his typically blunt style, Marchionne has vowed to fix the problems and has already put into place new, ambitious ventures in both China and Russia.
“Fundamentally, Fiat’s presence in China has been an area of neglect for a number of years,” said Marchionne. “We’re trying to fix it as quickly as we can.”
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By GlobalDataIn China, Fiat’s existing joint venture with Nanjing Automobile, established in 1999, has struggled. It sells around 30,000 cars a year, mainly derivatives of the Palio/Siena ‘world car’. But Marchionne wants to raise the stakes. “Three months ago we announced a 300,000 vehicles a year target with Nanjing, which needs significant product investment. We’ve installed new leadership and transferred people to China.”
In late 2005, an Italian CEO, Paulo Massi, took over at Nanjing-Fiat, replacing a Chinese CEO. And in August this year, the company unveiled the Perla small sedan, the first model to be co-designed by the Fiat group and Nanjing Fiat. It will be built at Nanjing from 2007 with 90% local content. Marchionne said during a recent visit to China that he expects the Nanjing JV to be profitable in 2007.
Part of the increased local content will comprise engines made in China. Last month Fiat signed a memorandum of understanding to buy more than 100,000 1.6 and 1.8-litre gasoline engines from Chinese group Chery Automobile. These will be supplied to the Nanjing venture and will also be fitted to Fiat cars produced outside China. A final agreement is expected to be signed by the end of the year.
Marchionne won’t rule out making cars at Chery, and said Fiat was “intending to engage with another manufacturer” in China as part of a planned EUR500m spend in China by 2010. As well as turning round the Nanjing operation, this includes introducing the Iveco truck brand to China, also via the Nanjing JV.
Fiat has also forged links with Shanghai Automotive, which will build agricultural tractors in a JV with Fiat’s New Holland division. Shanghai already has two JVs with overseas automakers – the maximum allowed by Chinese authorities – so the evidence points to Chery as the possible second partner.
This would be an interesting move, as Chery has maintained its independent status. Reuters reported an unnamed Chery executive as saying: “One option is for Chery to make cars using Fiat’s technologies, and the models would be sold anywhere.”
Some form of licence agreement is a possibility; Chery has had talks with DaimlerChrysler over licence production of small cars. The licensing route is the one Marchionne is taking in Russia, another major growth market where Fiat has surrendered an early lead.
The economic crisis of 1999 saw a planned joint venture with Russian automaker GAZ fail to get off the ground. But now a new relationship has been established with Severstal Avto, the auto making subsidiary of the cash-rich Russian steel giant.
Under the deal, Severstal Avto will build 75,000 of the previous generation Fiat Ducato panel van at a plant in Yelabuga, Tatarstan. Severstal is spending US$120m on the project, which involves setting up a stampings JV with supplier Stadco of the UK. The project will increase Severstal’s turnover by US$1.2bn. It will also involve CKD assembly of the smaller Doblo panel van, with kits supplied from Fiat’s Turkish JV with Tofas.
Marchionne said: “Initially we will have no financial involvement, but we have an option to exercise this, and we will look at doing that in the next twelve months. We’ve established a viable presence in Russia via Severstal and that’s a first step.”
The vans will be sold with Fiat badges and will compete head-on with the LDV vans that will also be built in Russia by LDV’s new owner GAZ, so nearly Fiat’s partner a decade ago. Marchionne said the Severstal venture could also assemble passenger cars. “This will depend on our decision to take a financial involvement.” Russian reports suggest this is a fait accompli – reports in the Troika Dialog newspaper claims the venture will build the new Grande Punto-based Linea sedan, generating US$480m in revenue.
Elsewhere, Fiat is growing its emerging markets presence. In Latin America, Fiat Auto is targeting a 12.7% rise in car sales by 2010, according to Cledorvino Belini, manager of Fiat Auto Latin America. Sales in the region should grow from 550,000 in 2006 to 620,000 in 2010, Belini said, with Fiat’s market share in Latin America rising 1.3% to 14.3% in 2010. Fiat sales in Brazil are expected to rise 6% by 2010 to 488,000 he added.
And in India, Fiat’s alliance with local industrial giant Tata should start to bear fruit. In July it was announced that Tata was to join Fiat’s Indian arm, Fiat India Auto, as a JV partner, and further investments of US$44m will be made in modernising the Ranjangaon facility in Pune and introducing new models, including the Linea and Grande Punto, as well as diesel engines. The moves will double Fiat’s investments in the Indian market and output at Ranjangaon is expected to grow to 100,000 cars and 250,000 engines and transmissions.
Fiat and Tata Motors are also studying industrial and commercial cooperation in Latin America, particularly in utility vehicles and pick-ups. This could involve using Fiat’s existing production units in Cordoba, Argentina to build Tata 4x4s and pick-ups to be sold in various Latin American and overseas markets under both Fiat and Tata brands.
Fiat is also looking at Tata to introduce its truck unit Iveco in India. In addition to Iveco’s alliances in China this would help re-establish Iveco as a major truck player in the region. Getting Iveco and Fiat to work together has also been a major issue for Marchionne – especially getting Iveco dealers to sell the Fiat Ducato van.
These ambitious plans are part of a strategy to increase global Fiat Auto sales by 1m units a year. Marchionne seems to be following the template set by his close friend Jean-Martin Folz at PSA, avoiding full-scale mergers but setting up a series of small, tactical JVs where appropriate.
He paid a warm tribute to Folz at the launch of the new Fiat-PSA van range at the Sevel Nord plant in Valenciennes, north-eastern France. You can bet that the tributes from Marchionne’s own colleagues will be equally warm when he takes a step back from the car business next year.
Mark Bursa
See also:
CHINA/ITALY: Chery to supply engines to Fiat
ISTANBUL SHOW: Fiat readies new C-segment sedan
