Fiat will debut with the basic 500, then add models like this electric car. But can Chrysler support five different brands?
American automakers have been downsizing, especially when it comes to brands.
General Motors abandoned four of its eight North American marques as it emerged from bankruptcy, last year, and Ford Motor announced, earlier this Summer, that it would write off its struggling Mercury division after years of dithering over its role in the company.
Chrysler was one of the first to downsize its divisional tally, doing away with the once-powerful Plymouth brand, back in 1999. So why is the smallest and most troubled of Detroit’s Big Three suddenly moving in the opposite direction? Despite the near-collapse of its sales and market share since it began discussing the possibility of bankruptcy, in 2008, Chrysler is actually expanding its brand count, with a major launch due for late this year.
The decision to buck the industry trend began late last year, new CEO Sergio Marchionne confirming at a November 2009 conference for media and analysts that Dodge would split off its big trucks to form the new Ram division, the first all-new American marque since GM’s abortive experiments with Saturn and Geo.
But an equally big surprise came when Marchionne subsequently detailed plans for the U.S. version of Europe’s popular Fiat 500. The minicar will be one of a variety of Fiat products and platforms brought into the U.S. by Chrysler’s new Italian parent. But it was expected that most, if not all, would be rebadged under the various Chrysler nameplates – with the likely exception of some upscale Alfa-Romeo products.
The 500, Marchionne subsequently declared, is so distinctively Fiat that it made no sense to call it, say, the new Dodge Neon.
The problem: there are no Fiat dealers in the U.S. The brand abandoned the market two decades ago, plagued by massive quality problems and fast-falling sales, walking away from its established distribution network.
That’s about to change. On August 30, Chrysler will bring together 600 finalists who’ve been pitching to join an all-new Fiat network. The meeting will lay out the requirements for obtaining a franchise. The maker is laying out some tough demands. Don’t expect to see retailers simply stick a Fiat 500 in the corner of an existing Chrysler store, says Peter Grady, Chrysler’s network development chief.
Though they’ll be able to get by with a separate sales and display area at launch, those who make the cut will be required to set up a completely separate facility as Fiat sales grow. That includes the service side, as well.
Not all of the 600 will get to handle the brand, but the Italian maker is hoping to have itself set up and ready to go in as many as 200 U.S. markets.
It will re-launch itself with the debut of the 500, which is set to go on sale in December.
Fiat is looking to build about 120,000 copies of the little car annually at its plant in Toluca, Mexico – a facility that used to handle the once-popular PT Cruiser, which went out of production earlier this summer. Half of the 500s are earmarked for Latin America.
“The 500 will be a real Mini fighter, including the customization capabilities,” says Aaron Bragman, of the consulting firm IIHS. He projects initial sales to run about 20,000, well short of capacity, and significantly behind Mini, which IIHS projects to hit 70,000 next year, a big jump from the 47,000 IIHS forecasts in 2010 – driven largely by the addition of the new Countryman and two other new products, as well as the ongoing recovery of the U.S. auto market.
Fiat also hopes to tap the reviving market, and if the economy does pick up in time it could also ride the wave of rising fuel prices, a trend most forecasters expect as global demand for petroleum picks up.
But Fiat also will be adding more products to its North American line-up. It has confirmed three additional 500 variants, including the high-performance Abarth edition, a convertible and another model powered by battery.
Beyond that, no one is saying, though it’s quite possible the showrooms might handle the return of another Italian marque, Alfa-Romeo, which Marchionne last November said Fiat hopes to revive in the States.
But more will almost certainly be needed. Observers believe the Fiat franchise will need more to justify the cost of setting up and operating a new Fiat network. According to industry analysts, such an investment won’t come cheap and could run to several million dollars for showrooms set up in mid to large markets, particularly for those dealers who don’t already have enough land available. Since most or all of the new Fiat franchisees will also handle Chrysler products, they’ll have to make the investment even as they’re being told to upgrade their showrooms for the U.S. side of the company.
It will be costly for the automaker, as well. The Fiat 500 had to be heavily modified to meet U.S. safety and emissions standards, a challenging effort for something so small. But the real bills could come from establishing an all-new product and an all-new brand at the same time.
According to long-time auto analyst Dan Gorrell, it can take as much as $100 million to build marketing buzz for a new mainstream model, and then there’s the cost of getting the Fiat name back into the public consciousness.
With its relatively modest sales aspirations – at least initially, Fiat will likely spend less, at least initially, according to sources. And the maker is reportedly preparing a digitally-based strategy that would emphasize viral and event marketing to get maximum bang for little bucks, but it won’t be cheap.
And, going forward, it will leave the Euro-American maker having to support five divisions – one more than GM now has after its bankruptcy. In fact, Chrysler will operate more individual brands than any other maker operating in North America. It’s a risky strategy and one that runs counter to prevailing industry logic, but considering the maker’s long slide in sales and share, CEO Marchionne and his team are betting it will be a necessary part of rebuilding.