A few weeks ago I wrote a column suggesting there won’t be a better time to buy or lease a new car for some time. In there I mentioned the fact that there are some European manufacturers struggling to balance supply, demand and profits, with at least one at death’s door.
General Motor’s woes are well documented, with the US behemoth having to take a $49.5 billion bail out. Their European arm is still losing money, with Vauxhall/Opel making losses of circa £10 billion a year, leaving just Chevrolet as a profitable brand.
Over at Ford there’s losses throughout Europe, with their report suggesting the sustained drop in sales as being “structural, rather than cyclical”.
Looking at Italy, things are even worse. Fiat as a whole has done reasonably well, supported by increasing sales of the Chrysler brand in America. Car sales for the domestic brands, Fiat, Lancia and Alfa Romeo, are down to levels last seen 40 years ago.
The third quarter financial documents do not make pleasant reading. One note, picked up by Autocar’s Hilton Holloway, says that the company has an ‘inability to leverage the Fiat brand in to the C-segment and above’ and that the ‘Lancia-Chrysler integration [is] hindered by market conditions and limited brand appeal outside Italy’. Finally, it says that mainstream cars have become ‘commodity purchases with limited ability to return capital employed’.
This all sounds disastrous for Fiat. The first phrase effectively throws in the towel for their desires to ever compete alongside the Vauxhall Astra, Ford Focus and Volkswagen Golf, let alone anything bigger.
However, the last bit of phraseology means that they can’t make any money out of the mainstream models below, such as the Punto.
If Fiat can’t compete in the larger family car classes, and can’t make any money out of the supermini end of the market, what options are there? The 500 and, possibly, the Panda are about the only models left that could survive, which doesn’t leave Fiat with a great deal to work with.
They could try to move upmarket, but then they’ve got the Lancia brand to cover that. It’s just that Fiat themselves admit that they can’t sell many outside of Italy. Demand in one country is not enough to sustain a car company – just ask Rover.
The only European cars making any sensible level of profits these days are either the premium volume brands (I’m looking at Audi, BMW and Mercedes-Benz), SUVs (those three again, with Land Rover and a couple of others thrown in) or individual premium cars across the market such as the MINI.
So where does this leave Fiat? For all the vitriolic abuse thrown at boss Sergio Marchionne in Italy, he has at least realised that you cannot simply continue to do the same thing if that thing is losing money. That means it is almost certain that Italian factories will close and model ranges cut.
Renault did a similar thing in the UK recently, realising that we simply won’t buy either large or quirky French cars, so they canned the Laguna range, the Wind, the Kangoo, the Espace and Modus ranges. That left just the Clio, Twingo, Megane and Scenic ranges left, but then they introduced an electric range of cars (the Fluence and Twizy, and soon the Zoe) and will be bringing over an entire brand in the form of Dacia. Dealers are actually quite positive now, a huge turnaround from the despair of December last year when the cuts came.
Sadly, Fiat don’t have a spare brand kicking around. They could try to move upmarket, but that rarely works. It’s been tried and tested in the past, and failed almost every time. Renault gave it a go, as did Rover. Lancia themselves came up with the Dedra in 1989 to compete with the BMW 3 Series, but soon gave up on the idea and left the UK market entirely in 1995.
They could switch to making SUVs, and already sell a rebadged Dodge Journey called the Fiat Freemont, but the badge engineering won’t work outside of Italy.
If the model range is cut down, confidence in the brand will take a knock too. Once that’s gone, it’s virtually impossible to get back as buyers look elsewhere just in case the company collapses after they’ve spent £20,000 on a car. Just look towards SAAB and Rover to see what an effect that can have.
That leaves very few options for Fiat. Their partnership with Chrysler is the only saving grace, in that the US side of things is making money despite the huge troubles they’ve faced. Will that be enough to keep the triumvirate of Italian brands alive and kicking?
I fear not.
The mainstream European car industry is dead in the water, and nobody seems to know how to resuscitate it.