Fiat and Suzuki: a new opportunity for a partnership

Fiat Punto and Suzuki Swift

Photo by Motorbeam.com

While Fiat struggles in Europe, it has become more and more evident that it needs a third partner to become a real global player. Chrysler makes its part with awesome results in USA, but by the time the merge will be completed, both groups will need a third-party to conquer the next step: Asia. The presence of the group is still very small: 57.000 units were sold in China (+45%), and market share in India dropped from 1.1% in 2009 Q4 to 0.1% in 2012 Q4*. India and China are vital markets for the future of any independent car maker. In India, Fiat aims to double its market share by doing 3 mains things: opening more dealerships (up to 65 by March 2013) and increase the presence in mid-size and small cities; launching new models such as the coming locally built Abarth Punto or the imported Jeep Grand Cherokee and Wrangler; and finally, Fiat is working hard in terms of social events and marketing campaigns such as the ‘Coffee Festival’ in which the brand is promoted as part of public events. In China, the Viaggio is doing its work but it is expected the start of locally built Jeeps to increase the good demand these SUVs have already. At the end all this work will serve to reduce the big gap there is between Fiat-Chrysler presence in Europe/NAFTA/South America and Asia.

In the other side there is Suzuki. It is a strong player in Asia but is very weak in the Americas and Europe. Last year they announced they are leaving US market after some years of very low demand, and last week Suzuki Europe chief, Takanori Suzuki, said that the brand has been profitable in that market since 2008. These two facts must be analyzed carefully. First of all, leaving world’s second largest market is not a good move specially now when Americans are buying cars again. It only shows how bad the position of the brand is in terms of products, which is the main reason for its extinction over there. In Europe, the situation is also bad: no profits and a Hungarian factory working at 50% of its capacity (in 2008 they produced 300.000 vehicles compared to 155.000 units last year). Suzuki sold more than 154.000 units in Europe in 2012, down 13.4%, and half of the way of its 2016 target. But, as it happens with Fiat-Chrysler, Suzuki’s results in the other side of the world are completely the opposite. They sold more than 670.000 units in Japan (+22%) and had a record year in India with more than 1 million cars sold (1.063.599), up 7%. The result in these 2 markets count for 87% of Fiat Group’s sales (without Chrysler).

Both car makers know they need to produce more to survive as independent players. Both companies are good making small cars. Both of them need to balance their worldwide operations. And now, when Suzuki struggles to survive in Europe and closed in USA, isn’t the right moment to proceed? I’ve talked so many times about the advantages of a possible alliance with Suzuki (together they would produce around 6.3 million units, taking them to the second level of world’s largest auto makers). When two companies complement each other like that, and at the same time they deal with similar problems and challenges, then is time to think of going deep in cooperation. Suzuki problems in Europe should become an opportunity for both groups: Fiat could get in charge of the production of its models for Europe, while Suzuki could boost Fiat operations in India. Of course, they must first solve their own problems (such as Suzuki’s lawsuit with VW, or Fiat-Chrysler merge process), but the difficulties they have now should be the start for making of an opportunity a reality in the coming years.

Fiat and Suzuki

* Q4 & FY 2012 Results review

Japan: when a threat becomes an opportunity

Japan-Europe FTALast week some auto news talked about the coming negotiations between European Union and Japan looking for a Free Trade Agreement. Both economies could sign a deal in which their exports could access to each market without paying taxes. Europe needs to increase the number of destinations for its goods while Japan could benefit from having free access to one of world’s largest markets. This would be the ideal scenario: both parts could strongly benefit from the deal. However it is not always like that every time a trade agreement is signed, a part of the economy is not necessary a beneficiary of it. This time it seems European car industry could have problems in case Japanese car industry gets free access to Europe. According to ACEA the industry could lose around 73.000 jobs as a consequence of more cars coming from Japan. They say that by eliminating 10% tax to imported Japanese made cars, Japan could become the ideal place to build cars and therefore the current situation of over capacity production in Europe could get even worse. Certainly a scenario like that is not good for any European auto maker, but looking at it closer, some opportunities could arrive to specific car companies. The challenge is to make this big threat an opportunity and Fiat with its small cars and its possible alliance with Mazda, could be a big winner of the agreement.

Last year the Golf occupied place # 30 among best-selling cars in Japan. Japenese sold more units but had less market share as they produce a big part of their cars in Europe. Source: bestsellingcarsblog.net

Last year the Golf occupied place # 30 among best-selling cars in Japan. Japenese sold more units but had less market share as they produce a big part of their cars in Europe. Source: bestsellingcarsblog.net

Currently Japan does not charge any taxes to regular cars coming from Europe, while Japanese made cars must pay 10% of taxes to enter European market. However when it is about small cars (Kei-cars) the legislations is completely different. Every imported kei-car must pay 35% of taxes to access Japanese market and that is the big deal of the agreement. Kei-cars are a category of small vehicles that must comply some requirements in order to benefit from fiscal incentives. The idea was born just after WWII when most Japanese people did not have enough money to buy a car but a motorcycle. It is why since 1949 the government created this segmentation in which any car under 2.8 m length and 150 cc engine could benefit from fiscal incentives. More than 60 years later Kei-cars are Japan’s most popular segment with almost all Japanese auto makers making part of it. Now Japanese legislation indicates that only those cars under 3.4 m length, 1.48 m width, and maximum 2 meters tall, with a maximum engine of 660 cc and 64 HP, can apply to become a kei-car. They are charged with 3% VAT against 5% for other cars. Besides the owner of a kei-car pays less total weight taxes (30% less than regular cars). Insurance cost is about 187 euro every 2 years, while regular cars must pay 222 euro. As this kind of cars are powered by small engines, their owners have to pay less displacement taxes. In other words driving a kei-car in Japan means money-saving*.

This year Kei-cars increased their market share up to 36.7%. This kind of cars makes of Japan the world's largest market for A-Segment cars. A good opportunity for a possible kei-car Fiat. Source: Autoblog Español, bestsellingcarsblog.net

This year Kei-cars increased their market share up to 36.7%. This kind of cars makes of Japan the world’s largest market for A-Segment cars. A good opportunity for a possible kei-car Fiat. Source: Autoblog Español, bestsellingcarsblog.net

That is mainly the reason for their success. Kei-cars are so popular in Japan that last year they made 36% of total sales, with more than 1.5 million units. This year sales are up 36% till October with more than 1.7 million units sold, 36.7% of total sales. Daihatsu and Suzuki have been traditionally the leaders, but Honda, Nissan, Toyota, Mitsubishi, Mazda and Subaru are part of the segment. As it is an important part of Japan’s car market, Japanese do really protect it from imports. Therefore all imported kei-car must pay 35% import tax, which is really high and explains the lack of offer coming from abroad. No foreign auto maker sells a specific car for this segment as it is not profitable for them to develop a car under those conditions. A possible free trade agreement with European Union could solve this problem. One of the things European auto makers ask is to eliminate this tax for imported kei-cars, and that is where the opportunity appears. Though it is not really probable Japanese authorities will open their kei-car market to European imports, a possible scenario like that could really compensate the increase of sales of Japanese cars in Europe, and Fiat would be for sure a clear winner.

In case Europeans have access to Japanese Kei-Car market, Fiat could start production of a new version of the Topolino in its Italian factories (not Serbia as it is not part of the EU). In the 70's they already tried with the concept 'City Car'. Mazda's position in the segment is still small. Source: bestsellingcarsblog.net

In case Europeans have access to Japanese Kei-Car market, Fiat could start production of a new version of the Topolino in its Italian factories (not Serbia as it is not part of the EU). In the 70’s they already tried with the concept ‘City Car’. Mazda’s position in the segment is still small. Source: bestsellingcarsblog.net

At the same time all this was happening, Mazda’s CEO, Takashi Yamanouchi, said at LA Auto Show that both companies, Fiat and Mazda, are analyzing what other models they can build together, besides the Alfa Spyder and next Mazda MX-5. Mazda is not Japan’s leader but is an important auto maker over there and now is looking for partners to develop its future cars. Its position in Europe is not quite good, but it knows it must do more in order to get more. A possible alliance with Fiat could mean to produce jointly developed cars at Fiat’s Italian factories. But Fiat could gain too. Having a deal with a Japanese car maker means to have a better position in that market in case FTA negotiations succeed. Besides, Fiat is Europe’s leader in A-Segment, with its popular Panda and 500. Though both models are longer than 3.4 meters, just the fact of having free access to a market of more than 1.7 million units/year would make Fiat to consider or accelerate its plans of a future mini A-Segment car. For some years press has speculated about a possible arrival of a mini citycar such as the Smart made in Serbia, and called to be the successor of the extinct Fiat Topolino. Launching a car like that under current European scenario would be a disaster, but taking into account the possibility of exporting it to Japan paying zero taxes, would be certainly a good move. If the alliance with Mazda is also considered, then a big and stable market could be just right in the corner. Besides, Fiat’s position in Japanese car market is not bad at all. The 500 is not as popular as in Europe but has sold more than 18.000 units since it was introduced in 2008. If this small Fiat reaches these numbers, and not being included as a Kei-car, then Fiat has a great potential in kei-cars if the tax is abolished.

 

 

*Revistadelmotor.es