The five-year plan unveiled last week by Fiat and Chrysler CEO Sergio Marchionne revealed his intentions for far greater cross-continental production and export exchanges than had previously been expected between the two carmakers, with implications that the Italian-American alliance could become a more active player in deep-sea vehicle shipping than ever before.
In Italy alone, Marchionne wants to increase the amount of cars built for export to 1m vehicles by 2014–from around 290,000 units in 2009–with 300,000 units sent to the US under Fiat and Chrysler Group badges. That would be an enormous increase; according to data provided to Automotive Logistics News from IHS Global Insight, Fiat exported a total of 4,960 vehicles to North America in 2009 from Europe, including 2,654 units to the US. IHS expects this figure to grow this year to 6,416 in North America, with fewer than 3,900 units to the US. Gaurav Anand, an analyst at IHS, said the firm is currently reassessing its future forecast based on Fiat’s new plans.
Fiat also plans to import to Europe numerous models from Fiat brands, particularly Lancia and Alfa Romeo, as well as Jeep and Chrysler marques, built by Chrysler factories in North America.
Marchionne’s grand plan (or fantasy)
Marchionne’s first step will be to make Fiat and Chrysler, together with the group’s other car component divisions, a pure automotive entity by the end of this year, with truckmaker Iveco and agricultural equipment maker CNH spun off into a separate industrial unit. Partly buoyed by the capital the companies hope to raise in this way, Fiat and Chrysler are unleashing a highly ambitious product launch and dealer expansion drive. By 2014, Marchionne wants sales around 6m vehicles, which is around the current size of the Volkswagen Group. Last year the two OEMs sold a combined 3.5m units.
But Fiat’s grand plans depend on substantially increasing market share and on sustained recovery in the US and European markets. Some analysts, such as Max Warburton of Bernstein Research, have questioned Fiat’s ability to grow nearly 65% in Europe by 2014, as well as Chrysler’s sustainability, despite it posting an operating profit in the first quarter.
While the cross production would add significantly more deep-sea tonnage between Italy and North America, such a plan would also require support and compromise from unions, notably in Italy. Sources at Italy’s Grimaldi Group, a major shipping line, said it would be too early to comment on potential growth for deep-sea vehicle exports until there was more discussion with unions and more concrete information on volume.
Other issues include how competitively priced an Italian-built Fiat can be in North America, considering currency, labour and shipping costs. Fiat already plans to build a version of its 500 model in Mexico.
A global distribution network
Between new models and updates, Fiat and Chrysler plan 51 products over a period of five years to 2014, with Fiat producing around two thirds and the remainder being made by Chrysler. While Fiat has not yet given full details on powertrain production, there is likely to be a high amount of component exchange across the Atlantic, particularly as Fiat and Chrysler reduce the number of platforms they use. There also tends to be higher frequencies of airfreight during launch periods, which the alliance will see on a near-continual basis while introducing its new and refreshed products.
Assuming production plans are realised, finished vehicle exports look even more certain to rise, as almost every brand among the two carmakers will see some cross-continental export from Fiat’s European plants and Chrysler’s North American plants.
The Fiat brand, for example, will see a new entry-level B-segment model exported to North America from Italy, among other models. A new SUV crossover based on the Dodge Journey platform will be produced by Chrysler in North America.
Lancia will be integrated with Chrysler and will see six new products based on Chrysler models. Alfa Romeo will also see several new products exported from Europe to North America, and will have two new SUVs produced by Chrysler.
Jeep, which sees its last models roll off the production line this week at contract manufacturer Magna Steyr in Austria, where it had been produced for the European market, will expand its European line-up to six models, all to be built by Chrysler in North America.
To accommodate this growth, Fiat will increase its dealer network in Europe by 30% by 2014, including more than 1,000 dealerships for Lancia and Chrysler.
Focus on capacity use
Marchionne also announced expansion plans in so-called BRIC markets, including sales of 330,000 units by 2014 in China, but the crux of Marchionne’s plan appears to be centred on rebalancing Fiat and Chrysler’s existing production capacity in Europe and North America. Fiat has suffered from chronically low capacity use in its Italian plants, including Giambattista Vico, Termini Imerese and Sevel, which each had capacity use rates at or below 25% in 2009. Under the new targets, which would double Italian production to 1.4m units by 2014 from 650,000 last year, these rates in Italy would move back to around 90%. Fiat production in Poland and Turkey has traditionally had higher capacity use and will not substantially increase production, while production in Serbia is projected to rise to around 170,000 units.
To achieve this rebalance, Termini Imerese will stop production at the end of 2011 as planned, but Marchionne warned that there would be further “sacrifices” necessary to secure the Italian manufacturing base. “To achieve this, discussions need to be opened now with the unions to renegotiate agreements, either at the national or local level, that are no longer adequate to the current requirements and, in fact, would prevent realisation of the plan,” Marchionne said.
Shared logistics and best practices
Other areas of supply chain cost saving will be through shared purchasing, which Fiat expects to reach 65% by 2014. And while Fiat is spinning off its commercial vehicle and equipment, Marchionne said that the companies would continue to combine purchasing for scale. Given the different outlay of production and distribution networks of these products, the potential for shared logistics purchasing is this area is likely to be relatively small. However, there could be opportunities in purchasing ro-ro space, particularly as Fiat ships more vehicles.
The alliance is also looking more closely at reducing costs and improving operations in spare parts logistics. Marchionne pointed specifically to introducing further lean supply chain methods as well as the ‘World Class Logistics’ programme, which he says will increase productivity by 4% per year. “In this area, we will also be able to leverage synergies offered through sharing best practices with Chrysler,” he said.