Marchionne Goes All In update from October 2012

Fiat/Chrysler CEO Sergio Marchionne has been stumping for months about Europe’s need to cut auto-making capacity, but his proposal for returning the Italian car company to health takes a decidedly different tack.

In outlining his strategy to financial analysts yesterday, Marchionne is quick to point out that Fiat already has closed one assembly plant in Italy and taken out about 100,000 units in car-building capacity there, so that side of the equation hasn’t been ignored entirely.

But his solution for soaking up remaining underutilized production potential – Fiat’s Italian operations continue to run at half speed – is a much longer-term fix that is more about growing demand than right-sizing to current market conditions.

The game plan is a tricky one that calls for better performances out of Fiat’s Alfa Romeo and Maserati brands, which will be called upon to climb the luxury-vehicle pricing ladder and grow volume, plus further market penetration by Jeep in Europe.

Alfa in particular has been a money-losing disappointment for Fiat. Plans to enter the U.S. market have suffered repeated delays, and the marque has failed to catch fire elsewhere. Marchionne blames that in part on a string of vehicles developed before he arrived that were “non-Alfa cars.”

“We’ve lived through an incredibly painful process of expunging ourselves from the collection of mistakes that have been made architecturally and stylistically with Alfa,” he told reporters outside the Paris auto show in September. “The Alfa story is ready to be written again.”

By getting more higher-content Alfa and Maserati cars and Jeep vehicles into production at underutilized Italian plants such as Mirafiori and Melfi, Fiat believes it will make better use of its higher-cost labor there. The auto maker will rely more on operations outside Italy for production of more price-sensitive Fiat-brand models.

The home-market facilities will become bigger exporters, as a new small Jeep planned will be shipped to the U.S. and a new slate of Alfas and Maseratis make their way into other markets. Marchionne says North America and the Asia/Pacific will be key growth regions for the auto maker over the next few years.

To bolster the industrialization plan, Fiat will introduce four new Fiat-brand models, plus eight new Alfas and six new Maseratis over the next four years. Marchionne says the vehicle architectures and powertrain know-how already is in place to underpin product development, and based on financial projections funding shouldn’t be a problem.

The CEO admits conditions will remain rough in Europe for some time, so the fix rolled out this week amounts to an all-in bet that he and his team can develop the right products, reposition the brands and, ultimately, move enough metal to make the newly entwined Fiat/Chrysler the global player envisioned three years ago.

This is an undeniably high-risk move, but Fiat executives probably would rather not think about what will happen if it doesn’t work.

It’s clear this has been a gut-wrenching process for Marchionne, who told reporters in Paris having to decide the fate of individual assembly plants and the jobs that go with them was keeping him awake nights.

“There’s a view out there that we sit in our offices, move machines and springs somehow and stuff happens,” he said. “There are a lot of livelihoods that depend on the decisions that we make. So we take these decisions very, very carefully.

“Allow us the time to figure out the answers. Because it is not that easy.”

But analysts haven’t greeted the new jobs-saving recovery plan with much enthusiasm, chiefly because it’s the type of long-term payoff scheme that has tripped up many an auto company CEO in the past.

Whether it succeeds or fails, this latest business strategy could turn out to be the defining moment of the Marchionne legacy.

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