Fiat will push its rivals. The CEO says
his successor as boss of automaking division must be
fearless: Sergio Marchionne expects Fiat Auto to win more
than 570,000 sales from its European competitors between now
and 2010. In the past, a bold statement like that from a
Fiat Auto CEO would have caused the industry to collectively
roll its eyes. Not anymore. The automaker has been on a roll
since February 2005, which is when Marchionne added
responsibility for Fiat Auto to his job as Fiat Group CEO.
The 54-year-old chief executive recently told Automotive
News Europe Chief Correspondent Luca Ciferri that Fiat
Auto wants to be chased by its competitors rather than the
other way around. The two spoke at Marchionne’s office at
Fiat group’s Turin headquarters.
You predict western European sales
will be flat until 2010, but you expect Fiat Auto to
increase its sales from 1,329,000 units this year to
1,900,000 by 2010. Which competitors will give up the
largest portion of those sales to you?
We are not targeting someone specific, we are only
looking for space in the market. How it gets surrendered, I
really do not care. The competition will pay the price for
success, which is what happened to Fiat Auto. We were
pummelled between 1997 and 2005. I think we need to get it
Even if you reach your 2010 targets,
Fiat Auto will remain one of the group’s weakest performers
in terms of operating margin. Is this because of the
structural weakness of Fiat Auto or because of the sector’s
overall low profitability?
It is undoubtedly true that (Fiat Auto)
has historically had a very poor track record of earning a
decent return on capital. It has been a destroyer of value
for a long period of time. We are playing in a box, which is
structurally not used to generating adequate returns. It is
not just my issue, but one that affects everybody in the
Is it nearly impossible to generate
big profits making cars today?
I look at the other carmakers and I say
to myself, okay, it may be true that eight other guys look
like me, but there is one guy who does not, and he looks
phenomenally different. This guy is Toyota. Toyota can play
this game differently. I think we have to learn from what
Toyota has done and to close the competitive gap. Over the
next four years, I think we are going to make a significant
dent in that gap. What we have that Toyota does not have –
and I say this with all modesty – is the great historical
heritage of the brands. If we play this the right way, there
is probably a competitive advantage over their product line.
However, I still think that, from a manufacturing and
engineering standpoint, Toyota is miles ahead. I call them a
flawless-execution machine and they are – it is scary to
watch them. They have not missed a beat.
If Toyota remains miles ahead, where
will Fiat Auto and other European automakers be in the
If Fiat (Auto) can get to the point where
it can start earning returns that are commensurable with the
capital commitment that it is making, you will have a
tendency to push the other guys to do the same. If we are
successful, we will also drag the others along. This is all
going to become a level playing field sooner or later. This
industry cannot continue destroying capital at this level.
A year ago, you said the best
investment Fiat could make would be to buy its own shares.
Since then, the company’s shares have more than doubled in
value to about €15. Would
you give the same advice again?
I would still do it. I think Fiat group
is on its way to making the 2010 numbers. The market will
eventually recognise what we are doing. When you look at the
(projected) earnings for 2010, we are going to make €3.5
billion net (But) I never worry about valuation. I worry
about what drives that valuation. What drives it
fundamentally is the delivery of what we commit to.
You say that next year you will name
one of your ‘kids’ to succeed you as Fiat Auto CEO. What are
the main characteristics you want in the future CEO?
Fiat Auto is still an underdog, and
underdogs need special care, since the leadership team that
runs that business cannot know fear. If it knows fear, it
will do nothing. The kind of leader who can ensure this mass
of leaders continues to function properly has a unique set
of qualities. These are people who are very good at running
what I call ‘creative collaborations’. They are, at least
visually, rather messy collections of relationships that
make the organisation thrive and that need to be looked
after constantly. It is a continuous maintenance process –
and it will take a while for Fiat Auto to institutionalise
that kind of management style as part of its DNA. It is not
there yet. In regard to the question of whether I will leave
in 2007, I will try to find a successor. I will only do so
if I can find someone who ensures that what we started is
How is Fiat Auto’s relationship with
Fiat and its suppliers have had a very
strange relationship for a long time. We over-promised and
under-delivered. The over-promise was not just to the press
and the markets, but also to suppliers, which got used to
thinking: If you say 100, you really mean 50. From now on,
when we say 100, we mean 100. If you deliver 50, you are
out. It will, therefore, take them a while to get rid of
their bad habits.
Will your B-compact architecture
underpin your family of low-cost cars?
It is the lowest cost to make. That does
not mean we will not do any other (low-cost models). This is
the least expensive of our platforms.
Are the B-compact models Fiat’s answer
to the Dacia Logan by Renault?
In broad strategic lines, the answer is,
Yes. But I do not want to comment on whether they are the
anti-Logan or not. The Logan was designed to be a spartan,
limited-choice vehicle by definition. I think ours have
greater potential than that, but I do not want to be
derogatory about the Logan. It was a gutsy call to introduce
Part of your plan to boost Fiat Auto’s
sales from 2.12 million this year to 3.5 million by 2010
calls for a nearly three-fold volume increase to 332,000
units in ‘the rest of the world’. What markets are in this
Eastern Europe, Japan, South Africa and
the markets where we are represented by private importers we
have neglected historically. We have just launched Fiat Auto
brands in Mexico and Australia. Our competitors have done a
very good job of positioning their brands outside of the
traditional ‘grazing’ zone. We have done nothing, so we need
to go play in those markets.
You want Alfa Romeo, Lancia and China
each to reach 300,000 sales by 2010. Which is the toughest
China, by far. The market is there, but I
am not sure we are. That is why I spent so much time
building resources in China. The remedial work we are doing
in China is significant. That market was neglected for a
long period of time.
Between 2006 and 2010 you plan to
spend €1 billion to fix
your dealer network in Europe. How much will you need to
spend on network development starting in 2011?
million a year, probably closer to €150
Fiat Auto will reduce its number of
vehicle architectures from 19 today to 11 by 2010 to 6 by
2012. That means you will go from building 1.7 models and
150,000 units a year per architecture to 3.7 models and
450,000 units by 2012. How much will this save the company?
About 25 percent to 30 percent both in
R&D and capital investment. It is much more difficult to
give a realistic and reasonable range for the cost of
components, because that also has to do with manufacturing
and the commonality of the components coming off the
architecture. My suspicion is that, engines and
transmissions excluded, (the saving) would be about 10
percent to 15 percent in production costs.
Fiat Auto will base seven models on
its small architecture and produce more than 900,000 units a
year off the platform once all the models are launched. Are
you looking for a partner for this architecture?
We have discussions going on, not just in
connection with this. To the extent that I own the platform
and want to allow people to come onto the platform and do
things with us, I am also willing to go onto theirs. We have
already seen the benefits of this sharing with the mini
architecture. It was born for the Panda and planned in
200,000 units a year. With the new 500 and the other model
(the Ford Ka successor), we will reach 400,000 units a year.
Your B-compact architecture will
underpin six models. What is the anticipated volume for that
About 500,000 units a year. That is
enough to be profitable using it just for Fiat Auto but, as
said before, we will be more than happy to share it with
Could you tell us more about the new
It is structurally a scaled-down (small
architecture), so we are not starting with a clean sheet of
paper. It is designed to replace the Palio (world car
family) and the Uno in the long term, being built and sold
in western Europe and in emerging markets. Initially, I
rejected the idea of creating our own architecture. Before
we go spend a buck, let us find out whether we can join
forces with somebody else. I told my guys to talk to other
people and they did. We ran the numbers and the volumes; we
looked at what the architecture had. But it did not have
enough for us to go ahead and provide us with the solidity
of a platform that would have allowed us to do what we
wanted. Economically, therefore, it was not worthwhile. So
we will build it alone, but there is enough volume in that
to be profitable.
A year ago, you said you were 20
percent complete with your work to fix the Fiat group. Where
do you stand now?
Not much further. The problem is that the
objectives a year ago were different compared with today. We
set 2010 targets, so the amount of work and the way in which
we measure what has been spent in terms of resources is all
in relation to the ultimate objective of the endgame. A year
ago, the 2010 targets were inconceivable. If I stood up and
told you that we would make a €5
billion trading profit in 2010, many of you people would
have laughed out loud. We certainly lacked the credibility
in 2005 to talk about 2010.
In the past, good times at Fiat Auto
meant good times for Turin-based design houses and
engineering centers. Why is this not happening anymore?
Interesting question, but I was not here
when this parallel development was going on. First, our
in-house design capabilities have been strengthened
significantly. Thus the reliance on external designers for
our brands today is important, but not crucial. Second, when
you look at our engineering capabilities, they are much
stronger than they have been since I have been here and are
getting progressively better. Our need to rely on others,
therefore, is decreasing.
Fiat Auto used to outsource much of
its engineering work. Can you now do everything in-house?
With 23 new products and face-lifts
coming in the next four years, we will be able to handle
roughly two-thirds internally in terms of engineering and
development. When I say internally I mean Fiat Auto in
Italy, our engineering resources at Fiat Brazil and Comau
Engineering (part of Fiat group’s production systems
subsidiary). We are taking a large chunk of Comau
Engineering’s resources, which in the past had been
available to third parties, and redirecting them toward the
needs of the group. It is also a much better utilisation of
Where will Fiat Auto look to get the
remaining third of its engineering work done?
We will look at the Italian engineering
houses, as well as others. We have just gone through a total
restructuring of our Chinese operation from a management
standpoint. We are now investing in the resources required
to run an infrastructure out of China, which is designed to
serve not only Asia but also Europe. Tata will be helping us
Supplier strikes forced Fiat Auto
plants to work on Saturdays recoup the loss of 25,000 units
this year. What is being done to prevent future
Actually you never recover them
completely! There is a physical recovery of units that are
lost. But economically I lost two days because I ran
overheads while these people were just unable to produce
cars. We are hopefully getting to the tail end of this
unfortunate distribution of suppliers. We have worked our
way through a whole pile of them in the first three years
here. We have a couple left that we need to fix. We still
have a few of what we call ‘critical’ suppliers that are
impacting us negatively, but (problems with them) will be
totally worked out by mid-2007.
The Bravo is the first car fully
conceived under your leadership. Did you get what you
What I wanted is what I got: The car will
be on the market in 18 months.
Is it true the Bravo’s production
start was delayed a month?
No, we will begin production for
customers on December 1 and have the first units at Italian
dealerships for the January 29 launch.
Everyone is saying 120,000 units of
the new 500 minicar will not be enough. If demand peaks, how
many units can you produce?
To 160,000 units easily, to 180,000 units
with minimal investment, to 200,000 units taking some
decisions on the Seicento.
Isn’t the Seicento planned to exit
production next summer?
We need an entry-level car and the
Seicento’s current transaction price is about €6,000. The
model has a good following, so we are going to maintain it
in production until 2009.