New Uno Forces Fiat's Hand: New Brazilian Factory In 2011

According to Brazil’s Globo, Brazil’s baby darling, the new Uno, is outgrowing its baby shoes. Fiat must expand to keep up with the demand. The likely winner will be the northeastern state of Pernambuco. Fiat announced that it is in negotiations with that state’s government. Though the Italians denied that a factory was in the offing, what else should an automaker discuss with a state government? Police cars? It is a well known fact that Fiat needs more capacity. It is also well-known that Fiat and various state governments have been doing the habitual mating dance whenever a maker says it’s looking for a new place to call home. Next year will witness the beginning of operations at three new sites as Hyundai, Toyota and even Chinese Chery are busy building their new factories. The Big 4 (Fiat, VW, GM and Ford) in Brazil all have two factories, except for Fiat. Fiat only has one. Market conditions are now forcing the Italians to commit: Double-up or fold?

The new Uno was launched with the expectation of taking the first place in sales from VW’s Gol. No cigar so far. VW has been very aggressive counter-striking. Their secret weapon: Lower prices, something of high appeal to low income Brazilians. Fiat has been charging full price for the Uno.

So is it filthy lucre that protects the top spot of the Gol? Not according to the previously hyperlinked article. Globo reports that there is a waiting line for 20 000, yes 20 thousand Unos, which Fiat can’t deliver just now. 20,000 Brazilians have paid a deposit and are now waiting at home for the one and Uno to arrive.

Brazilians are mostly emotional when it comes to buying cars, so such an exercise (not to mention show) of patience is almost unheard of in this country. It shows how much Brazilians are willing to bear to get their hands on Fiat’s little bugger. This waiting line is what has prompted Fiat to delay introduction of the Uno two-door until next year. Traditionally, small two-doors are usually priced R$2,000 under the four-door. While the market is still hungry for the car, better to sell the most expensive version, right? Another reason would be that there simply isn’t enough capacity or time to adjust the line to produce the cheaper version.

Fiat’s main and only factory in Brazil is in the city of Betim, Minas Gerais state. Since the launch of the new Uno, Fiat has been able to expand production from 12 thousand cars per month to 15 thousand. Now there’s simply no more space. At 800,000 cars per year, the factory is redlining. Fiat recently announced that it would be pouring 7 billion dollars into its operations in Brazil. How many of those will be headed to Pernambuco?

Those familiar with Brazil will no doubt scratch their heads as to Fiat’s (apparently final) decision. I mean, to commit to putting so much money into a state so far away from Fiat’s base in Brazil (2,000km or 1,250 miles). Not to mention the vast distances between Recife (capital of Pernambuco) and São Paulo (2,650km or about 1,600 miles) and Rio de Janeiro (2,300km or 1,400 miles), where most consumers live and buy. Remember that in Brazil almost all production is moved on the back of trucks. So it’ll be pretty expensive to reach those customers in São Paulo, let’s not forget those in Porto Alegre (just 3,700 km or 2,300 miles away). Don’t forget that most suppliers are in São Paulo, Rio de Janeiro and Minas Gerais states. Figure in the fact that the Northeastern region of Brazil is famous for being Brazil’s backwater, where the populace is poor and badly-educated. So, no doubt, they’ll have to pay extra to train the workers. Well, though Pernambuco has not said what its offering, it must be mighty juicy. Also, if you allow me to speculate for a minute…

Pernambuco is home to the port of Suape. It is one of Brazil’s most modern and the federal government has poured money into it. From what I’ve heard until now it hasn’t shown much (i.e. profit) for all the investment. So the federal government must also be sweetening the pot.

Now, let’s speculate further: Port, northeast of Brazil, Fiat in America via Chrysler. Humm, now it starts to make sense. How do some Brazilian-built-Fiat-re-badged-as-Chryslers in America sound? Sounds like an idea to me.