Former senior principal correspondent at Forbes (India). Since 2008, I have been writing on corporate strategy in the automobiles, clean technology and supply chain space. Before I got onto this assignment, I was part of the team that covered feature articles at The Economic Times. I actually started out as a trainee journalist on the ET desk in 2006. I graduated in commerce from Shri Ram College of Commerce in New Delhi and now live in Mumbai. I love automobiles and spend hours reading up on them and then devote painfully long hours to work on old cars that attract my fancy. Right now I own four cars (my colleagues call them fancy, junk or whatever) and a bicycle which outside my work hours get most of my attention.
Yesterday Fiat announced its new roadmap for India. At the press conference, Enrico Atanasio, Fiat's India managing director said, "We are optimistic about our prospect for growth in the Indian car market, which grew 12 percent in 2011 and is rapidly becoming one of the major markets in the world. With the launch of the Jeep brand, new Fiat products, an expanding dealer network and upcoming marketing initiatives, we will be in a strong position to capitalize on this growth.”
Except that for people following this sector, this announcement comes as no surprise. In the last decade alone, Fiat has said it twice that it is going to get its act together in India. But none of those announcements have borne fruit.
Let’s look at where Fiat India stands today. The company sells just under 600 cars every month. That’s a very low number for the 7th largest car company in the world in the 5th largest automobile market in the world. To put things in perspective, other multinational companies which have seen far less of India, like Volkswagen and Renault-Nissan among others are doing more than 5 times Fiat’s volumes. So yes, things are bad at Fiat.
A quick recap: so it has happened after Fiat bungled its partnership with Premier Automobile group back in the 1990s. It happened after they came in all alone in the late 1990s and soon exited the market. It happened after Fiat found a new partner in Tata Motors way back in 2005. And now it is happening all over again in 2012 when Fiat wants you to believe that Chrysler, the US auto maker that Fiat Group bought a couple of years back will play the rescue act in India. At the press conference today, Enrico Atanasio, managing director of Fiat India said, “We are at a much lower level today. But we know that we have a long way to go.”
Let us get to the most important points of this new roadmap.
1. Fiat says it is a company in a transition phase. They will spend a good amount of time in setting up their own distribution channel in terms of dealerships and service outlets. Which means you won’t see any more of Tata Motors. To quote Atanasio, Fiat will offer you a real Italian experience into the car world. Their target is to set up 120 independent dealers by 2013.
2. Fiat wants to increase its market share from a paltry 0.7 percent today to 5 percent in 2016. Tarandeep Singh, principal at Boston Consultancy Group says this number looks ambitious. “To reach there, Fiat will have to fight multiple competitors looking at 5 to 10 percent share,” he adds.
3. Fiat will be launching two new brands from the group; Chrysler and Abarth.
4. As a part of this growth strategy Chrysler will launch the Wrangler and the Grand Cherokee sports utility vehicles in 2013. Two other SUVs will be launched from the Jeep stable in 2015 and 2016. Most likely they will have very little localization levels and will be sold through Fiat’s distribution network.
5. Fiat will launch a car called Linea Classic in 2013. A new Grande Punto and a new Linea in 2014.
My sense is this roadmap doesn’t have much to offer. Here’s why.
Fiat’s current crop of cars, the Grande Punto and the Linea are not selling. In 2012, Fiat should have sold about 9, 000 cars in a market of 2.6 million vehicles. Now if they have to increase their market share to 5 percent by 2016, here’s the number of vehicles they will need to sell. The Indian automobile market in 2016 is expected to be about 3.7 million vehicles. 5 percent of that number is 1, 80, 000 vehicles. Yes. From 9, 000 to 1, 80, 000 in 4 years is a very big climb. Let’s understand why.
In India, more than 50 percent of the market is still made up of small cars. That’s where Maruti Suzuki and Hyundai are strong players. Fiat doesn’t have a single small car in its product pipeline till 2016. “The only way Fiat can make a comeback is by offering a car below the Grande Punto. Because if you look at it then they have already lowered the price of the Linea to a great extent and perhaps are losing money on it,” says Deepesh Rathore, managing director of IHS, an automotive consultancy firm.
The Jeep is not a mass market vehicle. There is no doubt that it is the world’s most well regarded SUV. Mike Manley, the COO for Asia and the president and COO of the Jeep brand had all the right words for the Jeep; styling, functionality, capability and extreme off road. What it will get Fiat is the halo brand effect. “From a strategy point of view, this is the right message. Some bit of the Chrysler image will rub on to Fiat,” adds Ghai.
But it will not get you the numbers. That’s because it will be launched in a segment and at a price range where it will compete with the premium car makers – like BMW, Audi, Mercedes and Land Rover. Despite the fact that the SUV market in India grew at a rate of 17 percent last year, in actual volume terms the segment is small. As of today, not more than 3, 000 cars per year. Experts believe that there is not much that Fiat can do in the localization department either. There is little chance that the 3 liter diesel engine (for the Jeep) will be made out of Fiat’s current facility in Ranjangaon, Pune.
So this is where the new roadmap falls flat. Fiat needs mass market cars from the Fiat brand. And it needs them quick. That’s because other multinational companies have upped their game here. Right from Ford to Honda. Rathore says that is the last chance for Fiat. “If they don’t make it this time, then they will find it extremely difficult to come back,” he adds. Unless of course there is a partnership with a major car maker in India in the future.