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WIKI ANALYSIS
FIAT S.p.A (BIT:F) is the world's sixth-largest automaker and the largest auto manufacturer in Italy.[1] The Fiat Group sells automobiles including luxury brands through Maserati and Ferrari, agricultural and construction equipment through CNH, trucks and commercial vehicles through Iveco, components and production systems, and publishing and communications through Itedi.[2] The company earned a trading profit of €3.2 billion on revenue of €59.3 billion in fiscal 2008.[3][4]
Fiat has aggressively embraced the use of a virtual engineering process that uses exclusively computer models, which are much cheaper than physical prototypes, for all aspects except the very final stages of development.[5] Using these new technologies, the company has subsequently revamped its tired fleet with largely smaller and more original designs. Overall these reductions in bureaucracy and renewed focus on original design and engineering have returned Fiat to profitability, allowing the company to pay off its outstanding debt.[6] In June 2009, Fiat bought a 20% stake in the new company formed from the assets of bankrupted Chrysler LLC.[7]
Despite this, Fiat's success depends on its ability to successfully penetrate emerging markets while at the same time selling the public on its unconventional designs to gain market share in developed markets. For example, Fiat's market share for passenger vehicles was 24.9% in FY2008.[8] This presents difficulties as Fiat's strategy would be split in two, as the desires of new consumers in emerging markets will likely be different from car dynamics and features necessary to attract buyers in Europe and North America to Fiat brands.
Company Overview
Fiat has industrial and financial operations in over 50 countries worldwide, and sells its products in more than 190 national markets.[9]
While the company does much of its production in house, like any large conglomerate, Fiat has complex relations with over 10,000 independent suppliers worldwide.[11]
2nd Quarter of FY2009 Summary
Fiat Group Automobiles posted revenues of €6.9 billion, which was down 11.1% compared to the 2nd quarter of FY2008.[13] The decrease in revenues was due to the significant contraction in global automotive markets, although 1/3 of the revenue decline was due to exchange rate fluctuations. However, the fall in demand was partially lifted by European government scrapping incentive programs. For example, in Germany, the introductions of incentives and reforms on the annual vehicle tax resulted in a 32.8% increase in demand for the period.[13] These increases in sales are temporary; as programs are expires, demand continues to decrease.
Reportable segment "Agricultural and Construction Equipment" posted revenues €2.9 billion, a decrease of 21.2% over Q2 2008, due to global construction equipment industry decline.[14] This factor was particularly exacerbated in developing regions such as China, where demand in the tractor market was satisfied by local, low-range products. As a result, CNH has begun to shed operating costs.
All other reportable segments also posted decreases in revenue. For example, Fiat's "Trucks and Commercial Vehicles" reportable segment posted €1.8 billion in revenue, a 43.2% decrease year-over-year.[15] Reportable segment "Components and Production Systems posted €1.3 billion in revenues, a 40.5% decrease year-over-year.[16]
Business Segments
Automobiles (43.2% of FY2008 Revenues)
Reportable segment, Automobiles, produces cars under the Fiat, Alfa-Romeo, Lancia, Abarth, Maserati, and Ferrari brands.[17] Fiat Group Automobile Financial Services, a 50-50 joint venture with Credit Agricole SA (ACA-FR), provides financing for Fiat automobiles.
Components and Production Systems (20.3% of FY2008 Revenues)
Segment is sold by a number of other subsidiaries.[18] These include powertrains developed for cars and commercial vehicles under the FPT Powertrain Technologies brand, engine blocks and cylinder heads by Teksid, and industrial automation systems for the automotive industry by Comau.[19]
Agricultural and Construction Equipment (18.7% of FY2008 Revenues)
Segment is sold under the Case New Holland (CNH) brand.[20]
Trucks and Commercial Vehicles (15.8% of FY2008 Revenues)
Segment is sold through the Iveco brand, and buses under the Maribus name plate.[21] Financing for these commercial vehicles is provided by Iveco Finance Holdings, a joint venture with Barclays (BCS).[22]
Key Trends and Forces
Fiat and Emerging Markets
Like all major automakers, Fiat's future growth lies in emerging economies, especially the BRIC countries. For example, as of October 2009, Fiat ranked as one of the top three largest automakers by sales.[23] In India, Fiat has entered into several agreements with Tata Motors (TTM), through which the two companies have developed new cars cooperatively and also established Fiat's Indian dealership network under Tata's management.[24] The company has recently signed an accord with China's Chery automobile, under which Chery will produce 175,000 Fiat designed cars beginning in 2009.[25] It should be noted that Fiat's production capacity of around 500,000 vehicles in South America far out weighs its annual production capacity in the potentially more lucrative markets, such as India: 100,000 vehicles, Russia: 110,000, or China: 175,000.[26]
Environmental Concerns and Fuel Prices Inspire Fuel Economy
As Fiat has never had a large exposure to North America, its cars have been in line with the smaller and more fuel efficient trends in Europe. This advantage has been enhanced by the company's development of two important new technologies that allow for considerably improved fuel economy for internal combustion engines. The first, "Multijet II," allows for fuel to be injected in cylinder-heads in a more efficient manner that reduces NoX emissions, without reducing performance or increasing engine noise.[27] The company will also produce a two-cylinder automotive production engine, which because of smaller displacement can significantly reduce fuel consumption, while at the same time provide sufficient power (80 horsepower) and reduced noise and vibration to be practical for daily use.[28] Last, the company has joined a number of joint ventures with other major automakers to develop more complex new technologies such as hybrid drives and hydrogen fuel cells.
Design Philosophy
A major part of Fiat's restructuring has been the wholehearted embrace of innovative and non-traditional car designs.[29] The president of the automotive division claimed: "We are trying to transform Fiat from a popular brand to a pop brand."[30] This philosophy is evident from the sharp angles and irregular shapes that distinguish the Fiat, Lancia, and Alfa-Romeo brands from other major automakers, who generally produce cars of very similar shapes. Fiat has so far been successful in stimulating sales largely by bucking these cookie-cutter designs, but the long-term sustainability of this strategy is questionable. In the eighties and early nineties, Fiat had a reputation for marketing its car designs as innovative, when many consumers found them simply ugly.[31] Similarly, BMW made an attempt toward more Avant-Garde design under the direction of Chris Bangle.[32] The company has since reverted to more traditional aesthetics as it alienated part of its consumer base.[33] If done correctly aggressive styling can be an effective stimulator of interest, but it also is riskier as the above examples show . As Fiat embraces more aggressive styling across all its models, the company is especially vulnerable to consumer tastes becoming more traditional.
Market Share
| Manufacturer | May-06[34] | May-07[35] | May-08[35] |
| GM | 25% | 24% | 19% |
| Toyota | 15% | 17% | 18% |
| Ford | 17% | 17% | 15% |
| Chrysler | 13% | 13% | 11% |
| Honda | 9% | 9% | 12% |
| Nissan | 6% | 6% | 7% |
| Hyundai | - | 5% | 6% |
| BMW | - | 2% | 2% |
| Volkswagen | - | 2% | 2% |
| Daimler | - | 1% | 2% |
| Manufacturer | Rank | 2007 | 2008 | Change in Production | Manufacturer | Rank | 2007 | 2008 | Change in Production |
| GM | 1 | 13.0% | 11.9% | -11% | Suzuki | 11 | 3.6% | 3.8% | 1% |
| Toyota | 2 | 11.8% | 13.3% | 8% | Chrysler | 12 | 3.5% | 2.7% | -25% |
| Volkswagen | 3 | 8.7% | 9.3% | 3% | Daimler | 13 | 2.9% | 3.1% | 4% |
| Ford | 4 | 8.7% | 7.8% | -13% | BMW | 14 | 2.1% | 2.1% | -7% |
| Honda | 5 | 5.4% | 5.6% | 0% | Mitsubishi | 15 | 2.0% | 1.9% | -7% |
| PSA | 6 | 4.8% | 4.8% | -4% | Kia | 16 | 1.9% | 2.0% | 2% |
| Nissan | 7 | 4.8% | 4.9% | -1% | Mazda | 17 | 1.8% | 1.9% | 5% |
| Fiat | 8 | 3.7% | 3.6% | -6% | Avtovaz | 18 | 1.0% | 1.2% | 9% |
| Renault | 9 | 3.7% | 3.5% | -9% | Faw | 19 | 1.0% | 0.9% | -6% |
| Hyundai | 10 | 3.6% | 4.0% | 6% | Tata | 20 | 0.8% | 1.1% | 36% |
Competition
67% of Fiat's sales are in the European Union. Although the company sells its construction and agricultural equipment and commercial vehicles in North America, the only cars it markets there are Ferrari and Maserati. Management hopes to return Alfa Romeo to American showrooms by 2009, and even take advantage of the weak dollar to manufacture Alfa's there by 2011 or 2012.[38]
Because of the diversity of its products, Fiat competes with a variety of automotive and other industrial firms. Its European competitors include both the premium brands Bayerische Motoren Werke AG (BMW) and DAIMLERCHRYSLER AG (DAI), along with european mainstream producers such as Volkswagen (VLKAY), PSA Peugeot Citroen (EPA:UG), and Renault. Similarly, while not active in North America, the company competes internationally with General Motors (GM) and Ford Motor Company (F), and also internationally with Honda Motor Company (HMC) and Toyota Motor (TM).
References
- ↑ Fiat Forms Sixth-Largest Carmaker on Chrysler Assets
- ↑ The Fiat Group's business
- ↑ 2008 Fiat Group Annual Report, page 20
- ↑ OICA 2007 World Ranking of Manufacturers
- ↑ The Economist: The rebirth of Fiat
- ↑ Fiat 2007 Annual Report
- ↑ Fiat becomes sixth largest carmaker with Chrysler assets
- ↑ 2008 Annual Report, Pg 28
- ↑ Fiat Group at a Glance
- ↑ FY2008 Annual Report, Pg 11
- ↑ Fiat Group Purchasing
- ↑ FY2008 Annual Report, Pg 37
- ↑ 13.0 13.1 FY2009 Second Quarterly Report, Pg7
- ↑ FY2009 Second Quarterly Report Pg9
- ↑ FY2009 Second Quarterly Report Pg11
- ↑ FY2009 Second Quarterly Report Pg13
- ↑ Fiat Group Structure
- ↑ Fiat Group Structure
- ↑ Fiat 2007 Annual Report, page 18
- ↑ Fiat Group Structure
- ↑ Fiat Group Structure
- ↑ Fiat 2007 Annual Report
- ↑ Fiat's Presence in Brazil
- ↑ Automote: FIAT's Building BRIC's
- ↑ Automote: FIAT's Building BRIC's
- ↑ Automote: FIAT's Building BRIC's
- ↑ Fiat 2007 Annual Report, page 22
- ↑ Fiat 2007 Annual Report, page 22
- ↑ Businessweek: Fiat's Sexy Designs on Success
- ↑ CNN Money: A car company can make a turn around - Look at Fiat
- ↑ Businessweek: Fiat's Sexy Designs on Success
- ↑ The Irish Times - Monthly Business Magazine: INNOVATION
- ↑ Businessweek: BMW's Spin Through Controversy
- ↑ [http://oica.net/wp-content/uploads/world-ranking-2007.pdf OICA - World Motor Vehicle Production, 2007]
- ↑ [http://oica.net/wp-content/uploads/world-ranking-2008.pdf OICA - World Motor Vehicle Production, 2008]
- ↑ [Auto Observer: Alfa Romeo - Returning to America]
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