China slowdown alters FCA’s plans for Alfa Romeo

Michael Wayland
The Detroit News

Changing market conditions in China, including a slowdown in car sales, is causing Fiat Chrysler Automobiles NV to rethink its global growth plans for Alfa Romeo.

Fiat Chrysler CEO Sergio Marchionne told investors and news media on Wednesday that expanding the famed Italian car brand’s sales to 400,000 by 2018 is still “achievable,” but the weakness in sales due to regulations increasing costs to import luxury vehicles in China has forced the automaker to reassess its strategy on where the growth will come from.

“One of the things that we will be doing is looking at the basing of our Alfa Romeo development on a global scale,” he said during a conference call to discuss third quarter earnings. “A relatively significant portion of our volume ambitions for 2018 for Alfa were China-driven.”

Marchionne confirmed the company is re-evaluating the sequencing of the product launches for Alfa Romeo. “The sequencing will change, and I think the number itself of 400,000 will probably hold,” he said.

Fiat Chrysler last year unveiled plans to invest 5 billion euros ($6 billion) in Alfa for eight new models to spur sales from 74,000 in 2013 to 400,000 by 2018. The plan was one of the most daunting parts of a five-year strategy outlined by Marchionne and other top executives for Fiat Chrysler in March 2014.

Many analysts have been critical of the plans for Alfa – particularly around the June unveiling of the Alfa Romeo Giulia, a midsize sedan slated to be the first all-new vehicle under the plan.

“Talk of a dramatic improvement in FCA profitability, driven by Alfa – or attributing a big value to the brand – is misguided in our view,” wrote Bernstein Research analyst Max Warburton. “Despite our love of Alfa's past, we're unconvinced by its future.”

Warburton questioned if the Giulia midsize sedan was “the beginning of a genuine rebirth” or “just vaporware” – referring to products announced and promoted, but never actually appearing in stores.

The Giulia unveiling followed the introductions of the low-volume 4C Coupe and 4C Spider. The mid-engine 4C Coupe has been on sale in the U.S. since December. It combines aggressive Italian styling and carbon-fiber monocoque and aluminum chassis structures with a host of powertrain and technological features.

Head of Alfa Romeo Harald J. Wester told media at the beginning of this year that a midsize SUV smaller than the Grand Cherokee will follow the Giulia. According to the company's five-year plan, the vehicle is anticipated to launch between 2016-2018.

Alfa Romeo prior to last year was non-existent for two decades in North America, where the company plans to sell 150,000 Alfas by 2018. The brand helps fill a hole in the company's North American operations, which include mass-market brands Chrysler, Fiat, Jeep and Ram Truck, as well as luxury Maserati.

The slowdown in China also is expected to heavily impact Fiat Chrysler’s Maserati brand, which has experienced declining sales and earnings this year compared to a record year in 2014.

Marchionne did not expect the changing conditions in China to impact its Jeep sales in China, as the company is now locally producing SUVs for the brand domestically instead of importing.

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