Italian automaker Fiat (FIA.MI) is looking for partners to manufacture its Alfa Romeo brand and its 500 subcompact in North America. Although the company hasn't finalized plans for its return to the U.S. market, an announcement could come later this year, Fiat Group CEO Sergio Marchionne said Friday. "The U.S. market is very large, and we're not looking to occupy a premier position," Marchionne said. "But I think we do have a couple of brands and products that we can sell successfully there."
Marchionne didn't lay out any precise schedule for the return to the U.S., though he said he expects to be producing one of the brands by 2010 at the latest. "We need to make sure that when we enter the U.S. we're able to produce what we need," he said in an interview at a meeting of the Council for the United States & Italy in Venice.
Marchionne believes the only way to sell Fiats profitably in the U.S. is to build them in North America. He said he's "having discussions with everybody," though he also didn't rule out building a factory. While Fiat has an existing partnerships with Ford (F), another potential alliance partners is Mercedes-Benz (DAI), which is interested in building passenger cars in North America in addition to the SUVs it builds in Alabama. Nissan (NSANY) has excess plant capacity at its Mississippi plant, and seems interested in replacing some of the SUV capacity it has there with passenger cars. Fiat already shares engineering with Ford on the U.S. automaker's Ka minicar in Europe. Ford is expanding its small car manufacturing in Mexico to build the Ford Fiesta, and would also be a logical partner.
But it's not as though Fiat has to go begging for a partner. In fact, says David Cole, chairman of the Ann Arbor (Mich.)-based Center for Automotive Studies, with an established and successful small car platform in the 500, and U.S. automakers looking to increase their small car offerings as gas prices climb, "Fiat isn't having any problems getting a meeting." Cole says Chrysler and Ford are the most likely partners for Fiat among U.S. carmakers, since General Motors had a painful and expensive divorce from an alliance with Fiat a few years ago.
South America Stronghold
Fiat, though it left the U.S. market in 1983, has remained a powerful force in South America. In Brazil, the company has a leading 25% market share and last year produced 800,000 vehicles at one plant, making it the largest single auto plant in the world. (The plant receives 6,000 delivery trucks a day, and 240,000 loaves of bread every week for its cafeteria.)
But Marchionne said he'd be unlikely to export cars from there to the U.S., given the scale of the operation and the domestic demand in Brazil. "I have no space in Brazil, and I think it would be unwise to concentrate more production capacity on that site," he said. In any event, he said, the 500 and the Alfas will be built in different locations. Fiat also manufactures in Argentina, but it is focused on using those plants to build up its sales and market share in South America, Central America, Mexico, and the Caribbean to a combined 15%. Outside Brazil, it only has about 3% to 4% of those markets.
Europe's Import Challenge
One thing Fiat is unlikely to do is import its cars from Europe. Given the falling dollar, many European carmakers are seeing their margins squeezed on exports to the U.S. (BusinessWeek.com, 6/5/08) Volkswagen (VOWG) and Volvo (VOLVA) are losing money in the U.S. with no U.S. manufacturing. And BMW (BMWG), even with a plant in South Carolina that builds its SUVs and Z4s, is seeing profits evaporate in the U.S.
Marchionne said he doesn't want to find himself in a similar situation. "It's unwise to import from Europe," he said. "You could do it as an initial entry, but you can't do it long term."
The 500 has been a huge hit for Fiat in Europe. The car is a remake of the classic compact that Americans may recall from 1960s Italian movies such as Roman Holiday. For Italians, the car evokes a simpler era, and Fiat's revival was aimed at feeding that nostalgia. The company has sold nearly a quarter-million of the diminutive cars since its launch last July. Given the U.S. success of BMW's Mini Cooper—another car steeped in nostalgia—as well as the surge in small cars overall in the U.S., Fiat would like to get the 500 into the American market "as fast as possible," Marchionne said: "I think the 500 has the same charm as the Mini." He said he expects to sell several versions of the 500, including the current two-door coupe, a station wagon, and a convertible.
A Tough Sell
Alfa, meanwhile, offers a premium lineup of sporty sedans that go toe-to-toe with the likes of BMW and Acura. The company pulled the brand from the U.S. in 1995 after limping along with minimal sales for several years. The brand is slated for a partial return to the U.S. this summer, with a super-premium offering called the 8C Competizione, a 450-horsepower V8 coupe that will cost $200,000-plus. The company plans to make just 500 of the cars and export only 90 or so to the U.S.
When Fiat left the U.S. market 25 years ago, it had developed a reputation for fussy cars that needed frequent repair, a tough sell as companies such as Honda (HMC) and Toyota (TM) were establishing reputations for mostly worry-free cars. Fiat was pushed to achieve higher quality standards in Europe, especially after protectionist tariffs on imported cars were dropped and the Japanese could compete evenly there as well. Now, with profits and sales surging in Europe, as well as South America, Marchionne figures Fiat has unfinished business in America.