The Compass made in Italy: how feasible?

As the current range gets old and its domestic sales plunge, FCA needs to address the production capacity issues in Italy. This is not a minor thing, considering the fact that the European country hosts 7 of its 31 assembly plants around the world. Italy is not only where Fiat, Alfa Romeo and Maserati were born, but it is also the second largest market for the group, accounting 13% of its global sales in 2017.

Despite its decreasing leadership among the developed economies and within FCA’s current structure, Italy is a key market for the position of Fiat as brand and the relaunch of the premium brands. It is also the biggest stronghold of FCA in Europe, the world’s second largest market behind China. Having a presence in Italy means having access to the EU trade bloc and a better understanding of its consumers.

The latest sales figures indicate that most of the brands of the group are having challenging times in Italy. Fiat and Lancia feel the consequences of the lack of new products, while Alfa Romeo still needs more models (SUVs) in order to keep the growth pace. A big part of the dropping sales is explained by the Fiat Panda and Maserati. While total European registrations of the group remained stable (-0,3%) at 682.100 units, the volume registered by the Italian made cars fell by 4,5% counting for 49% of the total.

It was the first time in many years that the made-in-Italy cars don’t count for the largest part of FCA sales in Europe. Italian labors must be very worried when they see these results, and when there is not yet a clear product plan for the coming years. The Panda, the top-selling Italian car is the biggest question as it is still not clear when the new generation will arrive and where it will be produced. Maserati is struggling and the D-SUV won’t arrive before 2019.

One of the solutions would be to bring more Jeeps to the Italian plants. The Renegade revived the production in Melfi thanks to the demand in Europe and North America, and even if its sale growth is cooling, due to its age, its localization in Italy proved to be the right choice. It is not enough. The Compass is a good candidate to occupy one of the production lines in Italy as it plays in a hot selling segment and is a very competitive product. Currently, the Compass available in Europe is coming from the Mexican plant, which is dealing with uncertain times following the NAFTA renegotiations.

Under the new deal, North American content in light vehicles will need to rise to at least 75% from the current 62.5% requirement. About 40% of passenger cars and 45% of pickup trucks would have to be built in areas with a minimum factory wage of at least $16 an hour. As the Mexican production doesn’t pay that amount, it is expected that a big part of the Mexican cars sold in USA will disappear from the dealers or will just get more expensive. This is not good news for the Compass, whose largest market is USA.

If the Mexican Compass gets more expensive following the new trade rules, then there would not be big differences between making this SUV in Mexico or Europe. If this is the case, Italy could become the best new production site for the Compass as both problems could be solved at once. First, the Italian plants could get a fresh and competitive product, and second, the American consumer wouldn’t feel the difference in terms of prices. Meanwhile in Mexico, the consumers could get the Brazilian-made Compass making use of the trade deal between those two countries.

What about the Mexican plants? Part of their success is explained by the low wages compared to the US and Canada. This is why Mexico is a big car exporter and gained so much traction among the consumers in USA. All of this changes and now these cars won’t count on the wages issue as an advantage. The Compass is part of the new scenario, which can be the perfect opportunity to localize its production in Italy.