By on March 4, 2013

“It may require a miracle to pull off the Fiat chief’s latest gambit,” Reuters writes. To get Fiat out of its rut, Sergio Marchionne has a risky plan: “Take his sporty Alfa Romeo brand global with more expensive models and triple its sales volume by 2016 – after years of losses.”

That plan, says Reuters, “represents Fiat’s only real hope of combating a collapse in its home market and breathing new life into idled factories.” What if it turns out as a bust? “Should it fail, and the new cars flop, the company that Italians view as a cornerstone of their economy will have little choice but to put thousands of employees out of work and tip entire communities into turmoil.”

Reuters and analysts are shaking their heads:

  • The new Alfas will be built in Italy, where labor and material costs are far higher than in the United States, Asia or Eastern Europe.
  • “Get it wrong, or find consumers aren’t interested, and it will be a financial catastrophe,” says Bernstein analyst Max Warburton.
  • Barclays Capital: “It’s not the first time we have heard an ambitious volume plan for Alfa, Volumes were supposed to be 400,000 in 2014 rather than the 70,000 that seems likely.”
  • LMC senior analyst Joseph Langley: “Alfa is going to have a fight on its hands in luring luxury buyers into its vehicles, Charging a premium and leaning on heritage is not enough in the highly competitive luxury segments, as Cadillac and Lincoln have experienced.”
Get the latest TTAC e-Newsletter!

60 Comments on “Marchionne’s Risky Gambit: Bet Everything On Alfa...”


  • avatar

    i’m curious , bertel, what’s your take on this? given your recent writings on how renault is putting itself into a very good position with low cost cars, has marchionne completely lost it? is it the end of alfa? the end of fiat?

    thanks in advance for any light on this decision.

    • 0 avatar

      All I know is that currently, the bottom seems to be falling out of the middle segments in Europe. Rich people still have money and spend some, the rest moves down.

      • 0 avatar
        MeaCulpa

        I’d say that there’s a movement in the opposite direction as well. People buying an entry level BMW instead of a high trim “cheap” car.

        • 0 avatar
          mike978

          Meaculpa – that trend has been going on for a long time. That is why years ago cars like the Ford Granada and Opel Omega died out and increasingly cars like the Mondeo and Insignia are selling in relatively low volumes.

          • 0 avatar
            MeaCulpa

            Yup, the Mondeo and 3 series sort of killed the Scorpio and now the 3 series are killing the Mondeo together with the 1 series. That’s if I’m allowed to over simplify a bit.
            My dad used to have a Scorpio before switching to a string of VAG products, it was surprisingly un-broken (the interior was bad, the fit was crap and some exterior plastic parts melted but the transmission, engine and suspension held up nicely) compared to expectations at the time.

  • avatar
    bobman

    He’s investing in his premium brands, Alpha Romeo and Maserati, with hopes that demand in the US and Asia will see them through the disastrous economic and political situation in Europe. Considering the unstable conditions there, anything he tries would be considered risky. All he can do is make a decision and hope for the best. I’m sure, a lot of marketing research was factored into determining this route.

    Good luck Sergio, you’re going to need it.

    • 0 avatar
      tatracitroensaab

      Sometimes idiot decisions are made due to being within the haze of yes-men and company people. Look, I love Alfa but this is an awful idea. This goes against every trend ever — polarization of the auto market, building stuff in unproductive, union heavy places, etc. Not only that, but as the Economist noted, Italy does not seem to be willing to make the reforms to make the country more competitive.

      Now I am sure that there are good reasons for why Sergio is not doing this, but it looks rather obvious to me that Sergio should dump italy, move production of stuff to Romania/mexico/etc., build some low cost stuff, consolidate platforms/do modular architecture, and maybe, if he feels like spending a lot of money and looking at the long term, take alfa upmarket. There’s room to play up there, its just that only the germans have the heritage to be up there. If alfa spends a decade or two making really kick ass products then maybe they could do it????

      • 0 avatar
        MeaCulpa

        Good luck getting the Agnelli family’s blessing moving FIAT from Turin.

      • 0 avatar
        bobman

        Fiat dump Italy? I can’t see that happening. Fiat is Italy. Just like Chrysler is America. It doesn’t matter that the owners happen to be foreign, they’re institutions, and part of the heritage. The fact is, Italy is Fiat’s largest market in Europe. If they can get through the political mess that exists in Italy at the moment, they may be able to achieve the numbers Sergio is looking for, over time.

        I’m not sure what alternatives he has, really. He ruled out investment a new Punto because he felt there was no market there at this time. His best bet is to see what he can do with Alfa and Maserati in the two most promising markets in the world at the moment. He’s built a distribution organization, and now it’s time to start using those centers for these premium cars.

        You know, if you think about it, his biggest risk doesn’t come from which models he chooses to gamble on, it’s whether he can survive the political mess that exists there. That’s why I said;

        Good luck Sergio, you’re going to need it.

        • 0 avatar
          MBella

          Yes Chrysler is America. That’s why they build cars in Canada and Mexico, and have been foreign owned since the 90s. Their American market share also reflects how much they are America.

          • 0 avatar
            bobman

            Yes that’s true. Chrysler has been selling cars in Canada and Mexico for many years. Both are in NAFTA and in America (North). Chrysler was owned by Cerbius and then by the Canadian and American governments, plus VEBA and Fiat. Fiat has recently become majority shareholder and has indicated that they would like to fully merge both companies. Not sure about what you mean about how that effects their marketshare though. They’ve been fourth in the US (number one in Canada at the moment) for quite some time.

  • avatar
    Morea

    Bet everything on Alfa? Hell, Sergio doesn’t have any chips to play with.

  • avatar
    nickoo

    I remember 20 years ago when cheap sporty looking cars were everywhere. Even 10 years ago there were still a lot of them around, now they’ve almost all disappeared. Someone needs to go after that market, there isn’t much left of it besides the Scion TC. Alpha would be wise to realize that the semi-premium market is over-saturated and that they aren’t going to be winning conquest sales fighting in that price range.

  • avatar

    Whatever the odds of actually pulling it off, and I think they’re low, investing in Alfa makes *some* sense — like everyone else, I’m sure Sergio is looking at Audi’s margins and wanting a bit of that action for himself.

    Doubling down on Italy is more of a head-scratcher, but maybe he figures (or Fiat’s research shows) Alfas need to be Italian-built to have cred?

    As GM is slowly figuring out with Cadillac, if the cars are really good, buyers will eventually find them. If Sergio can build gottahave Alfas and price them non-stupidly, buyers will come. But that’s a big, big “if”.

    • 0 avatar

      Actually, the more I think about this the more I think it’s stupid. If Sergio wants an Italian BMW/Audi (and I think he should want one), Maserati is a much better brand to do it with.

      • 0 avatar
        Lampredi

        Are you serious?! Audis are merely tarted-up Golfs for which people inexplicably pay a premium. Audi is nowhere near Maserati territory, it’s rather a brand that aspires to be (a significantly diluted version of) what *Lancia* should have been if it had been properly managed.

        • 0 avatar
          MeaCulpa

          Wow, smoke crack much? So all those audis with longitudinal engine, torsen diffs, different engines, different electronic packages and infrastructure, different suspension technology and what not is tarted up golfs while riding on a totally diffrent platform… And a GT40 is a tarted up focus. But yes, the A8, S8, S6, S7, RS6, RS7, Q7 V12 TDI, R8 is nowhere near Maserati territory, they’r significantly better than anything that Maserati has had to offer for the last 20 years.

          • 0 avatar

            Indeed. But if Sergio is going to start closing the gap, he’s better off starting with Maserati than with Alfa, which seems hopeless.

          • 0 avatar
            MeaCulpa

            @John Rosevear

            Could attack the E-Class/5-series/A6 and up with Maserati and the C-Class/3-Series/A4 and down with alfas. That’s if both brands should be allowed to live. If Alfa wanted some love budget cred they could just build a track day car, sort of a cheaper GT3, build to order and sell it at cost.
            Say a Giulietta with cage, Öhlins or Bilstein 4-way shocks, gutted interior, OZ wheels, Brembo brakes and some aero. Offer a “for racing only” engine kit. Cal it Giulietta Corsa, stick a four leaf clover on it and sit back and relax while the motoring press pisses themselves and your brand gets cred.

        • 0 avatar
          ZekeToronto

          The only Audis that could be remotely considered as “tarted up” VWs are the A3 and TT–not exactly the bread and butter models of their range.

          As for Maserati, I’d take an A8 (hell, even an A6/S6/RS6) over a Quattroporte any day. It’s a win-win: you pay 33-66% less AND get a better car.

          • 0 avatar
            corntrollio

            Even a TT is not merely tarted up Golf these days. The old TT sure, but not the new one, with its aluminum panels and other changes.

            In either case, an A3 or TT are not nearly tarted up VWs the way Lincolns are tarted up Fords.

            The Passat and A4 once shared a chassis, but no longer. The MLB-based cars are definitely different from the run of the mill VW, and their interiors don’t match at all.

            Pretty ignorant comment, or maybe just a clueless or trolling comment.

        • 0 avatar

          You have completely missed the point. This has nothing to do with the merits of Audis as cars, it has everything to do with Audi’s profit margins. (Hint: They’re HUGE. About half of VW’s global profits come from Audi.) I don’t care if you like the cars or not, they make a LOT of money for VW. THAT is why all the other global automakers with half-dead lux brands have begun investing big to revive them.

  • avatar
    Speed3

    Don’t forget that sex sells. If Alfa can pump out sporty premium cars that can hold their own, undercut the Germans in price, and look the way God intended Italian cars to look, then I think they can pull it off.

    Do you want this fugly Acura or this sexy red Italian car?

    • 0 avatar
      CoreyDL

      That’s the point though. He wants premium Alfas, which will NOT undercut the Germans on price.

      “Want this more expensive, less reliable but sexy car?”

      People said yes in the 70s and early 80s, they won’t say yes now. Reliability has moved into a new level of the atmosphere since then.

  • avatar
    Boxerman

    The potential is there. Everybody knows how to make a mechanicaly relaible car these days.

    BMW has abandoned any pretence of making drivers cars, or cars with style, SAAB is gone, the Japanese stufff is boring and the Koreans are well Korean.

    So yes there is a place for a premium small European car, so far maybe mini has this market.

    Question is can Alafa cars come across as stylishly attractive, the instinct always ios to bland product down or appeal to the US market, which means uninspired cars like the Dart instead of the Mito.

    Then assuming the styling is there, they need powerful motors for their segment, as FIAT founf out with 500 sales. Lastly they need to drive great and be durable.

    So we are talking a Japanese car mechanicaly, with italian emotion anmd styling. I see so many ways they can F it up. Reccent jeep styling indicates styling to the bizzare as opposed to good.

    But yes, if they come up with some great V6 motors, and great turbo 4′s. Excellent transmissions and interesting Alfa styling thye can definatly suceed in a range of cars 5 series and smaller. As to 400,000 units, thats a long way to go and a fairly broad client base which may negate creating a sustainable presence with me too sub par designs.

  • avatar
    danio3834

    Since they will be re-introducing Alfa in the US, they’re clearly hedging their bets on making most of the promised volume in exports to North America. Now that they have a dealer network seeded, they can get these Italian sleds on the street in short time.

    There are a good number of people looking for something different, and “premium” sells, even if it isn’t. A lot of buyers see the Fiat 500 as a “premium” small car.

    So depending on how much is invested, assuming they don’t put all their eggs in the Alfa basket, they should easily be able to increase the volume by exporting attractive alternative cars to the US and other markets aside from Europe.

  • avatar
    Athos Nobile

    Meanwhile in Australia…

    http://www.caradvice.com.au/214278/alfa-romeo-australia-drops-prices-significantly/

    OTOH, for Italy’s own good, I hope he can pull this one off. The arrival of the 4C is good news, lets see the rest of the lineup.

  • avatar
    cargogh

    There has to be a multitude of driver drivers that are looking around wondering what to purchase.
    BMW is softened, Porsche offers no normal sized 4-door, Mercedes just puked on itself with the CLA, and the co-workers and boys at the club need 4 more years to accept the ATS.
    I just hope the design makes the trip here more intact than the boomerang tail lights of the Maserati 3200GT.

  • avatar
    Beerboy12

    I like what Jeremy Clarkson says, “Every true petrol head must own an Alpha at least once”.
    Having said that I fully expect the Alpha’s that arrive in the US will be weirdly (disappointingly?) reliable and not quite as exciting as the old ones.

  • avatar
    Felix Hoenikker

    I think Fiat would do much better if Italy dumped the Euro and floated down their currency to make the Alfa a better value in NA compared to the Germans. By this I mean at least a 20% discount to the comparable competition.

    • 0 avatar
      MeaCulpa

      Except that Italy would still have external debt in euros, changing currency might be seen as a semi default on loans, not a good place to be.

    • 0 avatar
      ranwhenparked

      The Euro is pretty much irreversible. Dumping it would have many advantages to the struggling southern countries like Italy, but the cost of doing so would outweigh the benefits by a significant amount.

      • 0 avatar
        28-Cars-Later

        So the effective transfer payments from the successful European countries to the failed ones should just continue unabated?

        Not trying to be snarky, but the whole bloated new European empire thing is kinda not working from what I see.

        • 0 avatar
          ranwhenparked

          They shouldn’t continue, but they probably will. In the current political climate, I would bet France and Germany would sooner bribe Italy to stay in the Euro than allow it to leave.

          I don’t buy that it would be as impossible as the doomsayers claim though. Italy already changed currencies once in the recent past when they adopted the Euro. Reintroducing the Lire would just require going through all the same processes over again. Of course, the new currency would start life shaky, devalued, and untrusted, which was not really the case with the Euro, even when it was brand new.

  • avatar
    chrishs2000

    Now that Saab is bankrupt and Acura is beakishly irrelevant, I could see this working. There’s certainly an unexploited niche in the sporty/quirky/aesthetically pleasing entry-level segmnent.

  • avatar
    Lampredi

    As much as I want Marchionne to succeed with his plans for Alfa Romeo, and as much as I loathe the idea of a Volkswagen-produced *Audi* Romeo, the thought has crossed my mind that what we’re witnessing here is Piëch having intentionally provoked Marchionne into biting off more than he can chew with Alfa, so that Piëch may eventually pick up the pieces once Marchionne’s plan fails.

  • avatar
    Conslaw

    There’s only one thing I’m trying to understand,I mean,
    What’s it all about, Alfa?

    • 0 avatar
      MeaCulpa

      Alfa has a glorious history. That’s what it’s all about.

      • 0 avatar
        CoreyDL

        “Back in 1857, Alfa Romeo was indeed a successful racing team…”

        “They haven’t quite got this have they?”

        Ha. Top Gear!

        • 0 avatar
          MeaCulpa

          They did well in DTM (sort of) in the 90′s, but history is where the magic is. The lineup hasn’t been much to get excited about for years even if the Gulietta is/was a nice looking car.

          • 0 avatar
            Morea

            In 1993 winning 12 out of 20 races against the likes of BMW, Mercedes, and Opel on their home turf was not too shabby.

            The fact that Alfa has no factory racing program today is a tragedy.

          • 0 avatar
            MeaCulpa

            @Morea
            Knew that they did well, but not THAT well, The Alfa 155 was, and still is,a sharp looking car and the race cars kept some of those good looks. The Q4 was actually one of my dream cars in my youth.
            Alfa not racing anymore is probably due in part to the decline of real Touring Car racing in Europe, really a shame and not just for alfa.

  • avatar
    Pete Kohalmi

    Does anyone see a parallel with Ducati here? They were dying in the early 90s when the 916 sportbike and the Monster streetbike came out and shook up the motorcycle world. They’ve recovered nicely–to the best of my knowledge. Their motorcycles are passionate, guttural and beautiful machines. They now have the capital to make a wide variety of bikes. Italians have always had a flair that some people are willing to pay a premium for.

    Also, I think Sergio made Chrysler’s unions make some concessions when he took over. Doesn’t he have any juice in Italy to make that happen there?

    • 0 avatar
      th009

      They have the capital … but they are part of Audi now.

    • 0 avatar
      Lorenzo

      Those Chrysler union concessions were forced by the U.S. government, not Sergio. Italian unions are a whole ‘nother story. Sergio might be banking on the Italian financial crisis making workers think twice about losing their jobs, much less wildcat striking, an Italian specialty. Fiat has a young Agnelli family member, John Elkann (born in New York City), in charge. He’s Sergio’s boss, and probably the reason the Italian factories are getting the work. If it doesn’t work out, Fiat is a huge industrial powerhouse, a LOT bigger than just its car group, and Elkann may decide to reduce car production in Italy to save the car group.

      • 0 avatar
        th009

        CNH, Iveco and others were spun off in 2010. Automotive business now makes up some 90% of Fiat Group’s revenues.

        • 0 avatar
          ranwhenparked

          Still very much connected though, Sergio Marchionne serves concurrently as chairman of both Fiat Industrial and CNH, and the Agnelli/Elkann clan’s Exor is still the main shareholder in both Fiat businesses.

          But, with the way things are set up now, I would really doubt it would even be possible to move money between them, unless Exor were to opt to reinvest Fiat Industrial dividends into Fiat SpA in some fashion, which I don’t believe they’ve done.

          • 0 avatar
            th009

            Exor is the biggest shareholder (~30%) but does not have full control. Moving money between the companies might well get blocked by the other shareholders.

  • avatar
    Tifighter

    Given that Piëch has tried to buy Alfa from Marchionne something like 10 times now, the brand clearly still has some value to some.

  • avatar
    blowfish

    lets hope sergio can pull this off and not the case of able was i ere i saw elba.

    perhaps he should cut making cars in the boot country. is like 20 yrs ago i looked at products amway pushes,they were 10-20% higher than buying them at a store.
    probably easier to tell my friends to support my coke habit!

  • avatar
    oldyak

    There was a time when Alfa Romeo had the market in its hands…
    The Guila GTV era.
    In the middle to late 60s this car was the pinnacle of what a small european coupe could be!
    twin cam all aluminum engine with sodium cooled exhaust valves,5 speed trans.four wheel discs.excellent build quality..and a really cool cigarette lighter(u dropped the cig in the lighter and pressed down)an a host of other wonderful things I have forgotten..BUT not my first ride in one!!
    Find one REAL veteran enthusiast who hasn’t owned one.
    All I want for Christmas is a MiTo….
    Thanks for reading..if u bothered.

  • avatar
    GTAm

    If a single model subcompact – Fiat 500 can sell close to 50k in the NAFTA region, I would say they can quite easily sell 150k Alfa sedans and hatch backs in the US considering the extensive Chrysler dealer network. In Europe they sold 92,000 cars in 2012 with just 02 models. If they have a fuller range 150k will be quite easy even in a weak market. That’s 300k. China and Asia could easily take another 100k (just look at the volumes of China for premium cars). If at all the 300k target is conservative. Remember how lots of people panned the Fiat 500 in the US as a mega flop when the news first came? Remember how the analysts said that Fiat will not be able to turnaround Chrysler?

  • avatar
    LDMAN1

    Sergio needs to sort out the existing dealer network first. In the US and EU I don’t doubt that the Fiat or Maserati dealer network is relevant but in the rest of the world I would be that there are exclusive (as was the norm then) and dormant 20 year old Alfa Romeo contracts with moribund companies that will be very expensive to Alfa Romeo to break.
    Luca (De Meo) could not pull a return to America when he was in charge. I doubt that Fiat/Alfa Romeo’s current management will be able to succeed.
    Launching new products is expensive. I don’t think that Fiat has the money right now.


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Authors

  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Matthias Gasnier, Australia
  • Tycho de Feyter, China
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Faisal Ali Khan, India