Alfa Romeo Finalizes First SUV in $6 Billion Expansion

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Alfa Romeo is finalizing the development of its first crossover, following a new sedan, as the revival of the sporty brand takes shape.

The compact sport-utility vehicle will be built at the Cassino plant near Rome, Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne told reporters today at the Detroit auto show. A new mid-sized sedan is slated to premiere this year as the company starts to fulfill its promise to expand Alfa Romeo.

The two models will both be based on rear-wheel-drive technology dubbed “Giorgio,” which has been developed by an engineering team led by former Ferrari managers, said people familiar with the matter, who asked not to be identified because the plans are private. The SUV will likely be introduced in 2016, the people said.

The two cars are critical to Marchionne’s strategy to transform Alfa Romeo from a niche Italian manufacturer into a luxury brand capable of challenging BMW AG and Volkswagen AG’s Audi. Fiat Chrysler plans to spend 5 billion euros ($6 billion) on Alfa Romeo’s overhaul to tap into the cachet that lingers from cars like the Duetto Spider driven by Dustin Hoffman in the film “The Graduate.”

With a plan to roll out eight new models by 2018, including two SUVs, the brand is seeking to increase sales more than fivefold to 400,000 cars. The expansion will come mainly from China and North America. As part of its return to the U.S. market, Alfa Romeo presented the open-top spider version of the $53,900 4C sports car at the Detroit show. U.S. dealers say demand is strong.

Sales Target

“We’re delivering Alfas as fast as we can get them,” said Chuck Eddy, a Fiat Chrysler dealer near Youngstown, Ohio. “We’re excited. We’re looking to build a new facility, and we wouldn’t do that if we didn’t feel positive about the brand.”

Alfa Romeo’s expansion is part of Marchionne’s plan to boost Fiat Chrysler’s sales to 7 million cars in 2018. Marchionne said today that the manufacturer is in line to meet its 2014 profit targets and will sell more than 5 million cars this year. By comparison, Volkswagen AG, the world’s second-largest automaker, sold 10.14 million vehicles in 2014.

Still, Alfa Romeo may only reach half its target. IHS Automotive forecasts 2018 deliveries of about 200,000 cars versus fewer than 70,000 last year.

The goal’s “pretty ambitious,” said Michelle Krebs, a senior analyst at Autotrader.com. With U.S. sales growth plateauing, “the pie isn’t growing, so they’ll have to take that share from somewhere. But where?”

New Hires

Alfa Romeo’s revival is critical to London-based Fiat Chrysler’s upscale strategy, which calls for vehicles to be made in the company’s under-used Italian factories for sale worldwide. Operations in Italy contributed to 141 million euros in European losses at FCA in the first nine months of 2014.

Marchionne’s turnaround plan is showing signs of gaining traction. The company said today that it will hire more than 1,000 workers at a factory in Melfi as well as temporarily transfer 350 employees there from other plants. That’s in addition to bringing back the 5,418 people who have been on furlough at the southern Italian site. The factory makes the Fiat 500X crossover and the Jeep Renegade compact SUV.

Alfa Romeo’s new SUV will probably be produced alongside the brand’s upcoming sedan at the Cassino plant near Rome, the people said. By basing the two cars on similar technology, Fiat Chrysler aims to reduce spending, as a new model costs about $1 billion to develop compared with investment of less than $300 million to adapt existing technology, Marchionne said last year.

The division plans to present the sedan, which has been referred to as the Giulia, on June 24 to celebrate its 105-year anniversary. The presentation will be held at the Alfa Romeo museum outside Milan, where the carmaker was founded.

“There’s room in the U.S. consumer’s mind for another luxury brand, if done well,” said Richard Hilgert, a Chicago-based analyst with Morningstar Inc.