Fiat Beats Mini in Boost to Marchionne’s U.S. Strategy
Cruising through southeast Texas in his Fiat 500, Scott Ruczko used to stick out among the hulking pickups and sport-utility vehicles. He’s starting to get more company after sales of the diminutive Italian car doubled last year, making good on Fiat SpA (F)’s expansion strategy.
“Rarely a day goes by that I don’t see one,” said Ruczko, who runs a pet-supply store in Houston. “‘Bigger is better’ still rules the road here, but people are becoming more open- minded.”
The growing acceptance of the $16,000 subcompact, even among large-living Texans, helped it outsell Bayerische Motoren Werke AG’s rival Mini in January and February, and four of the last seven months.
After a lackluster debut in 2011, Fiat Chief Executive Officer Sergio Marchionne, who also runs Chrysler Group LLC, added dealers and recruited Jennifer Lopez and Charlie Sheen to promote the 500. The result was a surge in U.S. sales to 43,772 cars last year from 19,769 a year earlier, helping beat an internal sales goal for North America by more than 25 percent and narrowing the gap to Mini, which sold 66,123 vehicles to U.S. drivers in 2012, including the Countryman crossover.
“The 500 was launched as too much of a niche vehicle when it really isn’t,” said Jesse Toprak, vice president of market intelligence at TrueCar Inc. “It’s perfect for big cities. That was underplayed and its cool factor was overplayed.”
Marchionne is effectively turning the 500 into a brand of its own, a strategy BMW (BMW) used to great effect with Mini. The British compact, a leftover from the Munich-based manufacturer’s failed takeover of Britain’s Rover, has expanded beyond the base hatchback and convertible to include a wagon, coupe, roadster and even a delivery van.
For the cash-strapped Italian manufacturer, that means cutting development for the main Fiat line. Cars like the next- generation Punto hatchback have been put on hold with the European car market in the midst of a six-year slump. Unlike virtually all of its competitors, the Fiat nameplate won’t introduce any new models at the Geneva Motor Show this week (though Alfa Romeo and other Fiat-owned brands will).
General Motors Co. (GM)’s Opel will show the Cascada four-seat convertible. PSA Peugeot Citroen (UG) and Renault SA (RNO) plan to premiere compact SUVs. Volkswagen AG (VOW) will present a sporty diesel-powered version of the Golf hatchback.
Fiat expects to expand the line in the U.S. with the bigger 500L wagon this year as part of a plan to stem losses in Europe’s slumping auto market by exporting Italian cars around the world.
“In the U.S., Fiat is the 500,” said Lorenzo Ramaciotti, design chief for Fiat and Chrysler. “The 500 has an emotional and aspirational value that other products in the lineup don’t have. If you don’t have this plus, the small-car market is a pure commodity.”
The 500X crossover will be exported to North America from a plant in southern Italy by 2015, according to three people familiar with the plan, who requested not to be identified because the details aren’t public. The carmaker is working on an overhaul of the 500 to sell from 2015, the people said. A Fiat representative declined to provide details of any planned expansion of the 500 line.
Fiat scrapped its 2012 dividend to preserve cash after losing 704 million euros in Europe last year. Its net industrial debt rose 18 percent to 6.5 billion euros in 2012.
“Fiat’s strategy with the 500 brand makes a lot of sense,” said Ian Fletcher, an analyst with IHS Automotive in London. “It’s an attractive looking vehicle and people who want it are willing to pay a little bit extra to get it. It’s a little luxury.”
Marchionne’s turnaround plan calls for exporting upscale cars, including Maserati and Alfa Romeo models, from under-used European plants. The 500 is made in Poland and Mexico, and the 500L is produced in Serbia. The 500X will be built alongside a small Jeep at Fiat’s Melfi plant in southern Italy.
Fiat designer Ramaciotti said the 500X has potential to compete internationally with vehicles like Nissan Motor Co. (7201)’s Juke. With the ongoing expansion of the line, IHS forecasts that the 500 could close the gap to Mini globally. The market researcher estimates sales of the 500 will increase 9.2 percent this year to 258,900 cars, versus Mini’s 3.1 percent gain to 308,300.
Fiat has a lot riding on the tiny urban car, which was inspired from the 1950s original. Fiat sold almost 4 million 500s from 1957 to 1975, making the model a national icon as recognizable as Italian movie stars like Sophia Loren and Gina Lollobrigida. Fiat has sold more than 1 million of the larger, modern version since introducing the redesign in Europe in 2007.
“The product was never an issue,” said Tim Kuniskis, head of the Fiat brand in North America. To boost sales, Fiat beefed up its ads, expanded its sales network and gave dealers more leeway over incentives and promotions.
Fiat, based in Turin, now has about 200 stores open and plans to add locations in San Francisco, Washington, D.C., Baltimore, and near Chicago, Kuniskis said.
BMW introduced the retro-styled Mini in 2001 as an upscale compact to appeal to urban drivers. The car starts at $20,400 in the U.S. for the entry-level hatchback and runs as high as $36,400 for the John Cooper Works performance version of the roadster. The Fiat 500 tops out at $26,000 for the sporty Abarth convertible.
Both Fiat and BMW are benefitting from growing demand for small cars. U.S. deliveries of subcompacts and smaller cars are expected to rise to 1.02 million this year, a 37 percent increase from 2011, according to IHS.
Back in Houston, Ruczko had his eye on a Mini after its 2001 introduction. Then came the 500, cooling him on the brand.
“The 500 has retro cues, but I don’t think they went overboard like the Mini people did,” said the 56-year-old, who last month traded in his moss-green 500 for a sportier Abarth version in gunmetal gray. The Fiat is “more of a car and not so much a cartoon.”