The continuous rumors of an eventual sale of FCA group to another car maker are missing one important thing. It is clear that before stepping down, Marchionne wants to leave solid finances attractive enough to be acquired by another big player. The last quarter results confirm this attempt of improving the profitability and cash generation. However, the financial statements for Q3-17 show also an alarming situation among the brands of the group.
FCA’s current profitability is mostly coming from its SUVs and trucks. As the company is still waiting to reach the breakeven point for its brands Maserati and Alfa Romeo, the only real profitability source is coming from Jeep and Ram. Ferrari is no longer part of the equation, and the rest of brands post sales drops as a consequence of a lineup which is not aligned to consumers’ needs.
The main problem here is that Fiat brand, which counts for around 35% of FCA global sales, is not adding value but is possibly destroying it. It is not a global brand, and it has several brand image issues that affect its commercial performance in most of the countries where it operates. Fiat is not a brand recognized for its quality or for its cool cars. Europeans barely choose it when buying a new car, and excluding the iconic Fiat 500, you don’t see any other Fiats in the roads of Europe.
In Italy the situation of Fiat is far from the glorious and artificial years when they controlled a big part of the market. It is no longer the referent and during the last years it has lost the dominant position in four of the six largest regional markets of the country. Despite the historical link between the brand and Italy, many Italians don’t think of Fiat when it is about technology, quality or reliability. According to my latest research, Fiat brand currently produces 4 models in Italy. Ten years ago, the brand produced 7 different models there, and 20 years ago there were 10 Fiats made-in-Italy.
Brazil is the other part of the story. In contrast to the bad quality reputation in Europe, Fiat is a reliable brand there. And not only that, it is cool and is still a good car to own. Nevertheless, Fiat is also becoming less popular among Brazilian drivers, following the shift from traditional segments to SUVs. FCA has decided to position Jeep as the brand of SUVs, leaving Fiat with the usual small hatchbacks. This means fewer potential for Fiat brand, with its market share posting the lowest result since 2002.
In terms of range, Fiat is not only old, with an average age of 8 years, but it is not aligned to global trends. There is only one SUV from the 24 different models currently available, while other European mainstream brands like Renault, Peugeot, Volkswagen, or Skoda offer more than 3. Even Seat has more SUVs in its range than Fiat. While the brand focuses its limited resources on the launch of sedans and small cars (like the Tipo, Argo or Cronos), it should allocate most of the investment on growing segments like B-SUV and C-SUVs.
Based on these facts, what’s the future of Fiat brand? it is not clear what the plan is for the coming years. We don’t see any new big launches in the short term, and it is likely to continue seeing the brand depending on small cars and vans. The management must take a decision on whether investing more on Fiat brand or not. Meanwhile an eventual sale will be severely punished by the presence of what used to be Italy’s economic engine.
What to do?
I think Fiat has one last chance to become a real player. The idea of splitting the brand into two sub brands is in my opinion the best way of giving it a chance. Fiat has struggled for years in an attempt to change the public perception that it is a cheap and ordinary brand. They haven’t been able to achieve that. Instead of continue trying to positionate Fiat as a Volkswagen rival, the management should reconsider the idea of having the functional and aspirational sides of the brand. It was a good idea, but unfortunately it was one of the many beautiful PowerPoint presentations that didn’t become reality.
Fiat should attack the market from below and from above. If it is considered a cheap brand, then the company should not fight this, but it should make use of it. Renault earns money thanks mostly to Dacia, a brand that very few people knew only 10 years ago. And of the reasons for Dacia success is that it lacks of direct competitors. Why not having the functional Fiat family as the rival of Dacia with the next generation Panda becoming cheaper, a cheap new subcompact (Sandero rival), and the Tipo? they could be also joined by a rational A-SUV (based on the Panda but using a different name), a cheap B-SUV and even a cheap C-SUV?
At the same time, the brand could also focus on the top side of each segment with the aspirational family based on the Fiat 500. If Mini could do it by adding the 5-door version of the traditional Mini Hatch, why Fiat doesn’t try with a bigger and 5-door 500 for the B-Segment? what about having a fancy and stylish compact car to sit above the Tipo? and the most important: a more refined 500X, a semi-premium C-SUV and a even a bigger and stylish D-SUV? Meanwhile Brazil must focus on launching cheap SUVs (from A to D) for the developing markets (South America, Mexico, India, South East Asia, Magreb). Whatever it is, the brand must act now!