Fiat 500 Strategy Mimics BMW’s Mini

Chrysler Group LLC dealers grousing over new requirements and potential costs associated with landing a Fiat franchise should take a look at the nearest Mini showroom.

Chrysler's plan, revealed in broad strokes this week, closely follows BMW AG's Mini blueprint – a model that is working, several dealers say.

About 125 top-performing Chrysler dealers will be offered the opportunity to apply for a Fiat franchise, but there are conditions. For instance, exclusive showrooms will have to be erected, though the facility could be located on a dealer’s existing property.

Full details are scarce. But to qualify, dealers will have to be in specific markets identified by Chrysler as having high growth potential for small-car sales. Only dealers meeting performance bogeys on volume, capitalization and overall customer-satisfaction scores will be eligible.

Franchisees also will have to adhere to specific Fiat standards that are unique from existing Chrysler Group requirements. Dealers will have to demonstrate the financial wherewithal to support a Fiat franchise.

Chrysler officials are mum on the total monetary outlay that will be required, but several reports indicate it could be more than $1 million, a figure that has left some dealers rankled.

“I feel they should test the waters for the appetite of the line first before dealers invest money on a separate facility and employees,” Michael Villani, owner of Garden City Jeep Chrysler Dodge in Garden City, MI, tells Ward’s.

“Not to mention, they haven’t given any idea of how many cars will be produced and what car lines they would be (with the exception of the 500),” he adds. “So I have to make a million dollar decision on the 500? How many do they expect to sell? What is the price point?”

Fiat 500 to be sold through stand-alone stores.

All questions must be answered before dealers will be willing to embrace the Fiat franchise model, Villani predicts. “It’s disappointing how they are approaching this.”

But Mini dealers say the formula is working for them.

When Mini returned to U.S. shores in 2002, dealers had only the Mini Cooper and S performance versions of the car to sell. A convertible was added in 2004, followed by the larger Clubman in 2008. Due in January is the Countryman, the first 4-door, all-wheel-drive Mini that will be followed by a Mini coupe and roadster.

The auto maker also leases Mini EVs to a limited number of customers.

As with Mini, potential Fiat dealers initially will have one product to sell, the sub-B segment Fiat 500.

But Fiat has said the 500 cabrio and performance-oriented Abarth-branded versions of the 500 also will come to the U.S., and reports are an EV version will make it to the market, as well.

In product plans Fiat released in April, no other derivatives were indicated for the 500 line between now and 2014, but a refresh of the existing standard and Abarth models are planned for 2012.

Despite the uncertainty surrounding the franchise agreements, the guidelines appear similar to those outlined by Mini when it set up its dealer network.

Only top-performing BMW dealers initially were allowed to apply for franchises, and separate showrooms were required for the new model, Mini spokeswoman Nathalie Bauters says.

“We pay particular attention to finding dealers that understand the uniqueness of the brand, that understand Mini customers are different than BMW customers,” Bauters says.

They must “embrace a creative, progressive marketing approach that can cut through the clutter to appeal to those predisposed to the Mini brand,” she adds.

There are currently 96 U.S. Mini dealers, but plans call for the addition of about four more this summer.

Last year, Mini sales in the U.S. totaled 45,225 units, roughly 470 per dealer on average.

Mini dealers contacted by Ward’s say acquiring the franchise was a savvy business move.

“We were a BMW dealer first, and then got to the point where we thought Mini would be great – and it has been,” Ian Miller, manager of Herb Chambers Mini of Boston. “We got new buyers that normally wouldn’t buy a BMW.”

Chris Turner, general manager of Prestige Mini in Mahwah, NJ, says his dealership also attracts different customers than his BMW store. And while overall sales are brisk, the dealership makes additional profit on accessories, he says, noting the Mini brand “lends itself to customization.”

“In our BMW store, customers accessorize a car when they first purchase it and don’t do much down the line,” Turner tells Ward’s. “But Mini customers (accessorize) over time; it’s part of the ownership experience.”

On average, Turner’s store does about $780 per unit in accessory sales, which is on the low side according to Bauters, who notes Minis retail for an average $4,000-$5,000 over the sticker price.

“Customization is big for Mini in general,” she says.

While some Chrysler dealers are wary of taking on a Fiat franchise, others are ready to sign on the bottom line.

“Overall, I agree with Chrysler’s decisions regarding Fiat,” says Ralph Mahalak Jr., co-owner of Monroe Dodge Chrysler Jeep in Monroe, MI. “We think it will be beneficial to the health of the new corporation. And if it is, then it’s beneficial to the entire dealer body.

“We’re applying at two of our four stores,” he says. “We think the requirements are quite reasonable.”

Chrysler spokesman Ralph Kisiel says select dealers will be sent a Dealer Application Guide within the next several weeks outlining specific requirements for a Fiat dealership.

Sales launch is planned for later this year, with the cabrio version of the car arriving in 2011.

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