Chrysler Group has announced they will add more work force to their Toledo Assembly plant to increase production of Jeep Wrangler. Chrysler wants to maintain the enormous success of this Jeep but is struggling to rise production as Toledo plant is the only one that produces it in the entire world. Currently there are 500 people working there, but they are now expanding the capacity and 1100 more workers will be hired by 2013. The Wrangler and Grand Cherokee are Jeep’s chosen products to make Jeep a global brand, according to Marchionne. Last year the old style Jeep sold more than 150.000 world wide from which 122.460 were delivered in the US market, up 30%. This year the success continues as it has sold 56.410 units in the first 5 months of the year, up 35%, making of it the 5th best selling car of the group in America, after the Ram, Jeep Grand Cherokee, Chrysler 200 and Dodge Caravan. Since the 5 door version (called Unlimited) was introduced in 2007 sales have been always rising and now that American car market seems to be recovering, it’s time to gain more market share and go abroad.
Today is a special day for Fiat-Chrysler Group. After some years dealing with unsuccessful joint ventures, the group has finally began its new age in China. Sergio Marchionne, Olivier Francois, and Mike Manley, among several others, have inaugurated the plant with their Chinese partner, Guangzhou Automobile Group in Changsha in central China. It is the place where from today the ‘Fei Xiang’ model (aka Viaggio) will be produced reaching in the first year 140.000 units in a plant that can produce 400.000. Fiat has a lot of expectations about this product because it will be the last opportunity to finally sell a competitive car and get an important part of Chinese sales. Last year the brand sold only 991 cars while GM or VW sold more than 2 million units. Although the group has arrived late in this important market there is a good mood about Italian cars and therefore they expect interesting results to reach 200.000 units by the year 2014, not bad, but very far from its European competitors. The Viaggio (aka Dodge Dart) is part of a new model that will be sold globally and is expected to arrive in Europe in 2013 with other body type to replace the bad sales figures of Fiat Bravo. Therefore it belongs to Chinese C-segment, the country’s largest: almost 5 million units sold that represent 20% of the market.
But it is not the only news coming from China. Today they also began official sales of Chrysler 300 imported from America. That’s why the car will have a very high price in a unique version at 486.900 yuan or $76.000. The price will certainly affect its sales to become a car only for real fans as all its competitors from Europe (Audi-BMW-Mercedes) offer cheaper versions of their E-Segment cars. It means the official comeback of Chrysler but if they want to get an interesting piece of this important segment (6% of Chinese market) they must consider building it in China. Meanwhile Jeep is considered the brand with highest potential in China and that’s why Fiat may be considering building them in the same plant of Changsha (close to Hong Kong). In the other hand there is also Alfa Romeo, that according to Dunne & Co, a specialized company in Asian car markets, Chinese consumers love Italian fashion and Alfa could benefit from that feeling only if they offer the best products. A lot of opportunities that only confirm what Marchionne said: “We have a lot of work to do.”
Fiat’s headquarters will close for 8 days, 4 in June and 4 in July, saving the company $1 million euros per day. This means all staff members: Centro Stile, engineering and manufacturing operations, sales and marketing, purchasing and administrative functions. The people working in these fields will go home and get payed 80% of their salary to be funded by Cassa Integrazione, Italian temporary layoff program. The source says that these days will be June 14-15 and 20-21, and 4 more days in July, besides the regular vacations they all have during August. This move intends to reduce costs as car sales continue to drop in Italy and Europe, and consequently profits. Nevertheless overall results are being well supported by America’s operations (Chrysler Group) and Brazilian car market.
Meanwhile Marchionne is looking for help in European Commission to face the problem of overcapacitiy in production most of European car makers are dealing with. Marchionne, who is also president of ACEA, European auto lobby group, said this week that the EU should create an extraordinary plan for a common framwork for factory closures across countries, as he identifies serious overcapacity problems in Germany (Opel), France (Renault and PSA) and Italy (Fiat). According to IHS Automotive, the excess of production may be about 2 million cars in 2012 while sales fall with an estimated cost of $7.4 billion euros, according to UBS estimations. In the other hand there are VW, Daimler and BMW that oppose to this European intervention as they are using around 90% of the capacity of their factories selling their cars not only in Europe but in China also, while the rest of Europeans car makers are using 60-75% of capacity.
Source: Bloomberg and Automotive News
After the presentation of Fiat Viaggio in Beijing Auto Show 2012, the Group is getting ready to enter the Chinese market with some of its brands. The Viaggio will be the, by the moment, the only product to be produced locally, but more products from Fiat brand as well as Dodge and Chrysler will soon join Jeep in world’s largest market. Fiat will be initially present with the C-segment sedan, and will import both, the 500 and Freemont from Mexico. The small one will be offered with some specific changes while the large MPV will be offered with the 173hp 2.4 engine. It is also expected the return of Chrysler with its big sedan, the 300C imported from Canada. After being produced in China during Daimlers era, this sedan will go back to China with its facelift and much better interiors to compete with of Germans in D-segment in large version configurations. Its launch will take place in June 26th and its price should be 500.000 yuans (US$79.000). Dodge is also getting ready. Some spy shots reveiled by the site CarNewsChina.com showed its Journey (is the Dodge version as the logo can be seen in the steering wheel). It means that China will be, as it is Brazil, another market to have both models available, Fiat Freemont and Dodge Journey. Nevertheless, it is expected the Journey to be more expensive as it will have a better engine of 283hp 3.6 V6. Its price is not expected to be far from Freemont which starts at $250.000 yuans (US$39.000). All of these models will join the only brand of the group that has not interrupted its presence in China, Jeep.
Jeep models are available in China in 120 dealers. They are all imported from North America and it makes them really expensive SUVs. No matter its representation in the country has changed a lot during the last 30 years (its owners were always changing) the brand still has a good reputation among Chinese. Last year they sold 19.013 units, up 63% compared to 2010. Is a small number compared to competition but it can be seen as a good starting point for future sales with local production. In fact Fiat-Chrysler’s plan include the start of production in 2014. In the meantime, Jeeps will continue to be well recognized, and its sales will rise without reaching the big numbers local production means. It is because imported cars are highly taxed by Chinese authorities and it makes Jeep products really expensive: the Grand Cherokee starts at $576.000 yuans (US$91.000). All of that means that Fiat has a lot of potential but they need to start local production as soon as possible if they want a respectable place in this important car market.
Fiat-Chrysler said they are ready to increase cooperation with Mazda and build their cars in Fiat and Chrysler plants worldwide. After this week announce of making a Joint Venture to produce the next generation of Mazda MX-5 and a future Alfa Spyder, this time people from F-C went forward to talk about more future plans together. Possible negotiations with a partner is something Fiat guys are working on as part of their plan to become more global and reach at least 6 million units by the year 2016. Mazda, as an independent manufacturer is one of the few available for a merge as they are looking also for a partner to develop new platforms and low costs of development.
Fiat has already some cooperation agreements with other car makers such as the manufacturing of Ford Ka sharing platform and body with Fiat 500, the twins Suzuki SX4 and Fiat Sedici, the common platform that share the Fiat Punto with Opel Corsa, and the Fiat Doblo and Opel Combo. This new intention of bulding Mazda cars could solve the extra production problem that Fiat and general car industry is facing nowadays in Europe. Mazda is mid size Japanese car manufacturer with strong presence in Australia and Israel and interesting numbers in Japan, Thailand, Colombia, the US and Canada. They are now introducing their new SkyActive technology, which is a efficient direct-injection gasoline and diesel engines that achieves, according to Mazda, the world’s highest compression ratio and achieves a 15% improvement in fuel economy.
Mazda and Alfa Romeo have announced Wednesday they have signed an “intention” agreement to share a platform for their next MX-5 and Spyder, both with rear wheel drive. The press release indicates that by the year 2015, Mazda Hiroshima’s factory would be ready to start exporting both cars while both companies could be sharing costs of development and production. It is well known that Mazda, as indepent car group, is facing financial problems and needs urgent help from other car manufacturers to develop its future platforms. On the other hand, Mr. Marchionne from Fiat has said Fiat needs an Asian partner to become more global or at least to share costs for the development of future models. As Alfa Romeo needs urgently a small and sportive car, and Mazda has been doing it pretty good with its successful MX-5, both companies could join forces to get the next generation of both models. Of course, engines and final design should be indepent as most of production of this new Alfa is suposed to go to America, where this kind of cars is more popular (C Sport segment sold 5.674 cars in 2011, while D Sport one sold 225.939 units). A good start for a possible future alliance.
“There will be more Italy in the world”. A promise made by Fiat’s president, John Elkann and Fiat’s CEO, Sergio Marchionne, in April 2010 when ‘Fabbrica Italia’ was presented as part of Strategic Plan 2010-2014 for the group. The main point of that plan was to increase Italian car production in order to become of it one of Europe’s largest. In fact, by the year they confirmed the plan, Italy’s output was only of 800.000 cars per year, very far from its neighbors Spain, Germany and France. Main features of ‘FI’ were: to double production of cars (up to 1,65 million), while 70% of Fiat’s investments would be located in Italy. The plan included also the goal to increase the number of Italian cars to be exported from 44% to 65%, or in other words, 65% of the Fiats produced in Italy would be sold in foreign markets. Nonetheless the good intentions, real situation 2 years later is very different. In 2011 there were produced 790.000 cars in Italy, 5.7% less than in 2010, when Italian output was 838.000 units. Certainly the results have not been the ones planned, as Italian car market is facing one of its worst years, while the economic crisis in the continent along with labor and strike problems in Italy are definetely affecting Fiat’s output. For 2012, when Panda’s production was moved from Poland to Italy, final numbers of cars produced will be even worse. So, were Mr. Elkann and Mr. Marchionne wrong by saying production should be increased by the year 2014? how useful is it for Fiat to increase production in its native Italy?
Part of ‘Fabbrica Italia’ had been complied: Fiat finally decided to bring the production of its best selling mini car, the Panda, back to Italy. The second generation of it was produced in Tichy, Poland, and it allowed to offer a very competitive product thanks to low labor costs. The Panda became Europe’s ‘A’ segment best selling car. The decision to build it again in Italy was not easy as it is a core product and Italian labor costs are higher. Nevertheless they rebuild Pomigliano factory making of it one of Fiat’s best factories in the world. In exchange they moved Lancia Ypsilon’s production from Italy to Poland as Tichy factory was only going to produce the successful 500 and its step brother, the Ford Ka. Nowadays the Italian Panda continues its success in Italy and Europe but the car is not as cheap as it was, while Italian economic crisis and continuous problems with Union of workers have affected initial targets. The situation was even terrible in March/12, when transportation strike did not allow Fiat to transport its cars from the factories to the dealers, something that was terrible for the new Panda, that had its first weeks in European dealers and was part of a nice introduction campaign.
All those problems would be enough to conclude that Italy is not the best country to produce cars especially now when emerging markets are becoming powerfull in terms of sales and production and labor costs. In terms of units produced and people employed/labor costs, all Italian factories (Mirafiori, Melfi, Pomigliano and Cassino) would not passed the exam. Brazil, Argentina, Poland and now Serbia are more efficient. But even like that, it is not enough to think that Italy is not a good place to produce cars for Fiat Group. Italy is and has been part of Fiat. It is not only the country were it was born but it is also part of its personality, of its moves around the world. Italy is a high valuable asset for Fiat as it projects its great image all over the world with its history, culture and what is known as the ‘Italian touch’. Fiat is what is has become thanks to Italians. Therefore the heart of the group must be always in Italy no matter where the brain will be located (Auburn Hills?). It means that production must go on with better perspectives in that country, along with better labor practices to make it more flexible and allow more efficient production. This would allow to have a more efficient Italy but at the same Fiat should not point all of its attention in just this market. In 2011, Italy represented 13% of Fiat-Chrysler’s worldwide sales, 26% of Fiat Group sales, and 55% of European Union sales*. To concentrate sales in few markets result in a dangerous task. Italy is important but can not be the whole. Meanwhile, Fiat’s guys must continue to open new markets always keeping in mind 2 things: productivity and Italian touch.
*FGW data base