Fiat SpA, the Italian auto maker that controls Chrysler, ended Paolo Mazzali’s American dream.
The car dealer near Milan spent the last 10 years selling customers “American lifestyle” as embodied in Chrysler cars and minivans. Now, he’ll need to convince them to buy Italian after Fiat’s decision to convert Chrysler dealers to Lancia.
“We used to sell an emotional American brand, as American as a Harley Davidson motorcycle,” said Mazzali, whose company owns three Chrysler showrooms. “It’s like giving up a piece of your heart to pitch something new.”
Sergio Marchionne, chief executive officer of Fiat and Chrysler, ceased sales of the US brand in continental Europe today after four decades. The combination of Chrysler and Lancia is part of his plan to end losses in Europe and cut costs by ¤1.5 billion ($2.2 billion) by 2014. Under Fiat, Chrysler’s sales slumped to about a quarter of their total with Daimler AG.
“We couldn’t maintain the two brands everywhere so we had to decide,” Olivier Francois, the Fiat executive who heads the Lancia and Chrysler brands, said in an interview. “Lancia has a higher awareness in Europe, while for the US and the rest of the world, Chrysler is a more global brand.”
The Turin, Italy-based auto maker will consolidate Chrysler Group LLC’s results starting this month, a sign of the rapid integration of the two car makers since the Auburn Hills, Michigan-based manufacturer exited bankruptcy in June 2009. Fiat, which was initially granted a 20 per cent stake by the US government, aims to acquire 57 per cent of the third-biggest US auto maker by the end of 2011.
Sales Slump
Europe is a weak link for Fiat, where it struggles to compete with Volkswagen AG and PSA Peugeot Citroen. The company, which doesn’t breakdown results by region, lost about ¤1 billion last year on its home continent, according to Max Warburton, a London-based analyst at Sanford C Bernstein.
“Fiat is unlikely to ever make Europe profitable,” said Warburton, who has a “market perform” rating on Fiat. “There’s little new product. In the next two years, market share will likely slide further.”
Fiat’s deliveries in Europe fell 17 per cent in the first fourth months of 2011, while industry-wide sales slipped 2.4 per cent and VW rose 5.3 per cent. General Motors Co (GM), which is expanding the Chevrolet brand in Europe, increased sales 2.1 per cent in the January-April period. Marchionne acknowledges that European operations suffered as he focused on the US.
Global Jeep
Fiat will continue to sell Jeep models in Europe alongside Lancia. Marchionne aims to expand Chrysler’s Jeep and Fiat’s Alfa Romeo into global upscale brands as he forges an auto-making group to compete with GM and VW. Lancia will be a local European brand bolstered by Chrysler vehicles.
Chrysler failed to win over European customers, unlike GM and Ford Motor Co (F), which both outsell Fiat in the region. The US car maker bought a stake in France’s Simca in 1958 and then sold its European operations to Peugeot in 1978. Under Stuttgart, Germany-based Daimler, the brand renewed its effort in Europe, with sales peaking at about 120,000 cars in 2007.
Last year, Chrysler’s European deliveries slumped 27 per cent to 36,900 vehicles, including Dodge and Jeep models. In the US, the group’s sales rose 17 per cent to 1.09 million.
Lancia’s takeover of Chrysler’s distribution network will boost the Italian brand’s locations by 40 per cent to 650 dealers. Chrysler will also provide more than sales outlets. The 300 sedan will be sold as the Lancia Thema starting in the fourth quarter, and other Chrysler models will be re-badged to give Lancia a broader lineup, including a version of the Grand Voyager minivan. The 200 may be renamed as the Flavia.
‘Right Direction’
The goal is to more than double Lancia’s sales to about 250,000 cars by 2014 from 99,400 last year. Overall, Marchionne aims to boost Fiat-Chrysler’s combined sales to ¤104 billion by 2014 from about ¤66 billion last year. The combination with Chrysler is critical for Lancia, which is too small to survive on its own, Marchionne has said.
“It’s going to be very difficult for Lancia to double sales as competition is very heavy,” said Massimiliano Romano, head of research at brokerage Concentric Italy in Milan. “Marchionne is moving in the right direction. Margins are tiny, so you need to optimise resources.” Lancia was founded in Turin in 1906 by Vincenzo Lancia, a Fiat race car driver. It has vacillated between luxury and mass market over the years. In the 1950s and 1960s, Lancia went head-to-head against Jaguar and Maserati with luxurious coupes such as the Flamina and Flavia. After being acquired by Fiat in 1969, its models veered between race-bred sedans such as the Delta and big-box sedans such as the Thema. In the 1990s, the brand dipped down market, with the compact Y.
Ypsilon Model
Part of Lancia’s makeover is the revamped Ypsilon compact, which will become a five-door hatchback in a bid to widen its appeal compared with the previous three-door-only version. The model, the brand’s best seller, is one of only three current Lancia products and marks a rare new offering.
Fiat postponed the introduction of new models until the second half of 2011 in hopes of a recovery in European car demand. That tactic led to a loss of market share to 7.2 per cent from 8.4 per cent. Fiat plans to introduce five new cars this year, compared with nine in 2012 and 11 in 2013.
The Poland-built Ypsilon goes on sale today at a starting price of ¤12,400. The target is to sell 120,000 Ypsilons a year, Francois said in a May 25 interview.
