Fiat revealed its third-quarter financial results this week and informed investors of its future plans. Hidden in the fine print were some startling developments
Buried in the financial documents released this week by Fiat Auto were a number of very striking admissions.
One note dryly says the company has an ‘inability to leverage the Fiat brand into the C-segment and above’. In non-financial speak, Fiat has decided it can’t compete in the Golf segment and above, so it’s given up trying. That’s a pretty big move, but possibly not as big as the next one.
Fiat also says that core new car segments have become ‘commodity purchases with limited ability to return capital employed’. Translation: You can’t make any money from selling mainstream mass-market cars in Europe, such as the Punto, especially if they’re built in Europe. So Fiat has also killed the conventional supermini hatch.
And that’s not the only sacred cow put to the sword. ‘Lancia-Chrysler integration hindered by market conditions and limited brand appeal outside Italy’. So Lancia will probably - over time - shrink back to one model, the Ypsilon. And Lancia will probably wither outside Italy.
As an outside observer, I’m a big fan of Fiat boss Sergio Marchionne, because he seems to be prepared to think the unthinkable. At last, somebody has realised that endlessly re-launching into a market, as Fiat did with Bravo and Stilo, is ultimately a waste of time and money.
Admitting that building commodity cars built in European factories is all but over as a business proposition should also have been a tremor that rocked the EU car industry. But it didn’t because nobody, outside Fiat, seems to want to listen.
This week we also got Q3 financial reports from GM and Ford, both losing big money in Europe. And we saw the same ‘solutions’ repeated: more cost-saving, sharper design, more platform and component sharing, more expectations of the European market reviving in a couple of years. GM assured market watchers that it will also drive its brands upmarket, in an attempt to escape the commodity car slaughter.
It’s about time that the car industry got a grip and looked hard into the corporate mirror, as Fiat Auto has just done. First off, most established brands will never be revived or significantly grown. Rover and Saab proved that, short-term blips aside, by never consistently rising above their long-term average annual sales. Jaguar is in the same position, as is Lancia.
Secondly, it’s now clear that the only mainstream European-built cars with any chance of making money over a lifecycle are, in general, SUVs or option-laden ‘premium’ character cars such as the Fiat 500 and Mini. Peugeot is already selling versions of the new 208 for slightly less than the old 207. Making £80 per car - rumoured to be the case for some mass-market superminis - is not a business case.
Thirdly, trying to send an established mass-market brand ‘upmarket’ is pointless. Renault has tried and failed. BMW wasted hundreds of millions on Rover. Punters won’t write the cheque and the brutal used car market will slaughter the promised residuals. And, fourth, you need a global footprint for your product.
On top of this, the average European consumer, if they are willing to buy a car, are driving a very, very hard bargain. We consumers also need to understand that European-built cars are too sophisticated for the showroom price we’re willing to pay. These bargain buys are killing the companies making them
The European car industry is approaching the abyss and conventional thinking is steering it straight down the hole. I have no doubt that it’s all over for the mainstream European car industry that we have today. It’s time for both the manufacturers and punters to go back to basics, starting with simpler cars made in fewer factories.