FIAT S.p.A. (BIT:F)

TOP CONTRIBUTORS

J.D. Thornton

Lawrence Gu

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]

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.^[3] 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.^[4]

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. 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.^[5]

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.^[6]

Business Segments

Automobiles Reportable segment, Automobiles, produces cars under the Fiat, Alfa-Romeo, Lancia, Abarth, Maserati, and Ferrari brands.^[7] Fiat Group Automobile Financial Services, a 50-50 joint venture with Cre6dit Agricole SA (ACA-FR), provides financing for Fiat automobiles.

Components and Production Systems Segment is sold by a number of other subsidiaries.^[8] 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.^[9]

Agricultural and Construction Equipment Segment is sold under the Case New Holland (CNH) brand.^[10]

Trucks and Commercial Vehicles Segment is sold through the Iveco brand, and buses under the Maribus name plate.^[11] Financing for these commercial vehicles is provided by Iveco Finance Holdings, a joint venture with Barclays (BCS).^[12]

Key Trends and Forces

Fiat and Emerging Markets

Like all major automakers, Fiat's future growth lies in emerging economies, especially the BRIC countries. 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.^[13] 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.^[14]

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.^[15] 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.^[16] 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.^[17] The president of the automotive division claimed: "We are trying to transform Fiat from a popular brand to a pop brand."^[18] 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.^[19] Similarly, BMW made an attempt toward more Avant-Garde design under the direction of Chris Bangle.^[20] The company has since reverted to more traditional aesthetics as it alienated part of its consumer base.^[21] 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.

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.

In 2012, Fiat will launch a new 'retro' 500 model in the United States, based on the popular design cues of the original 500. ^[22]

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

1. ↑ Fiat Forms Sixth-Largest Carmaker on Chrysler Assets
2. ↑ The Fiat Group's business
3. ↑ The Economist: The rebirth of Fiat
4. ↑ Fiat 2007 Annual Report
5. ↑ Fiat Group at a Glance
6. ↑ Fiat Group Purchasing
7. ↑ Fiat Group Structure
8. ↑ Fiat Group Structure
9. ↑ Fiat 2007 Annual Report, page 18
10. ↑ Fiat Group Structure
11. ↑ Fiat Group Structure
12. ↑ Fiat 2007 Annual Report
13. ↑ Automote: FIAT's Building BRIC's
14. ↑ Automote: FIAT's Building BRIC's
15. ↑ Fiat 2009 Annual Report, page 22
16. ↑ Fiat 2009 Annual Report, page 22
17. ↑ Businessweek: Fiat's Sexy Designs on Success
18. ↑ CNN Money: A car company can make a turn around - Look at Fiat
19. ↑ Businessweek: Fiat's Sexy Designs on Success
20. ↑ The Irish Times - Monthly Business Magazine: INNOVATION
21. ↑ Businessweek: BMW's Spin Through Controversy
22. ↑ [1]