Fiat Auto is growing rapidly around the world. Fiat expects half its worldwide sales to be outside Europe by early in the next decade. That compares with about one-third today.
Fiat Auto President Roberto Testore discussed globalization and other topics with Automotive News Europe reporter Luca Ciferri in Turin on 4 November.
Fiat Auto is on track to build 2.8 million units worldwide this year, a growth of 18.4 percent. That will make 1997 Fiat's best year ever. Will you achieve that?
We are confident of being able to do so.
Is Italy alone responsible for the growth?
Growing volumes in Italy due to the scrapping incentives gave us a substantial boost, but we also grew considerably in South America.
What will happen in 1998?
To repeat this level is a very nice target for 1998. Our plan is to build 3 million units a year by 2000.
What are your forecasts for the market and your share in Italy and in Europe?
This year the Italian market will reach around 2.4 million units, thanks to the incentives, and we plan to gain a 44.5 percent share. For 1998, we think that the market will stabilize at 2 million units and we will fight to maintain our market share.
For Europe, we forecast around 13.4 million units this year and 13 million next year. Our aim is to maintain 12 percent share in Europe for both 1997 and 1998. This year we were helped by the growth in Italy. Next year, when Italian volumes decrease because of the fading incentives, we hope to balance it by regaining share outside Italy. We will also introduce some new models, like the Alfa 156 and Fiat Seicento.
In 1996, Fiat's volume was roughly one-third in Italy, one-third in the rest of Europe and one-third in the rest of the world. What about this year?
Not much different. In 1996, Italy accounted for 34 percent of the total, this year it will represent 39 percent because of the incentives. The rest of the world will reach 800,000 units, accounting for 29 percent compared to 35 percent in 1996. In Europe outside Italy, we suffered a short supply of small cars because of booming sales in Italy. We will close at around 900,000 units, or 32 percent. That compares to 31 percent in 1996.
Will you sell more cars outside Europe in the future?
Early in the next decade, we expect our sales to be split evenly between Italy, the rest of Europe, South America and the rest of the world.
Will Fiat continue to sell about 2 million units a year in Europe?
This is what we plan.
If Europe accounts for 2 million units, representing half of your sales, will you then sell around 4 million units early in the next decade?
In theory it could be like that, but I don't think it will happen realistically. When you predict market growth and volumes over such a long time span, many things can happen. I will be very happy to see Fiat Auto selling 3.2-3.5 million units a year in 2004, one quarter each in these four different areas.
Your 178 world car program plays a leading role in your international growth strategy. Can you outline the investments and volumes planned for the world car?
The total planned investment at the moment is $2 billion, of which $1.1 billion is already invested and $915 million is still to be spent - mainly for the greenfield plant in India and joint ventures in Turkey and Russia.
We built 150,000 units in 1996, we plan 440,000 this year, 690,000 in 1998, 840,000 in 1999 and 930,000 in 2000. These figures do not include China, where we hope to begin activity in 2001.
Have you decided on a partner in China? Will it be Dong Feng, which already has a joint-venture with Magneti Marelli?
We have not made a decision yet, but I can tell you that our partner won't be Dong Feng. But the Magneti Marelli joint ventures are important footsteps for us to follow when it comes time to start our own car production in China.
Fiat Auto recently increased its stake in Fiat India Automobiles Pvt Ltd. from 74 to 100 percent. This company was created as a joint venture with the Doshi family, but is now a fully-owned subsidiary of Fiat Auto. Why?
As you know, very recently the Doshi family realized that its current automotive operation, PAL, had a number of problems that require substantial investment. Meanwhile, we wanted to accelerate the construction of our greenfield plant in India.
The Doshis were unable to face two major investments at the same time. For this reason we took over their stake in Fiat India, but our cooperation continues. PAL makes the Fiat Uno under license and the car has a backlog of over 100,000 orders in India. Production ramped up very slowly, 532 units in 1996, 2,876 sold in the first seven months of 1997. We will invest to help PAL reach the planned capacity of 40,000 Unos a year as soon as possible.
When the Palio world car goes on sale in India in late 2000, will you continue to build the Uno as an entry-level model?
At the moment we think yes, but many things could change in the next three years.
Does Fiat plan to be less vertical at the new plant in India, subcontracting the entire stamping, body-in-white welding and body painting to external suppliers?
We are currently evaluating it. Such an approach will reduce our direct investment for the new plant and increase the core competence for the individual operations. We also think it will be easier to manage three different, well coordinated, leaner entities than a single plant doing three different functions. This is a mega-trend for the entire automotive industry and we won't be the first. Smart already buys the painted body-in-white from outside. We think that a carmaker should always be innovative and such new formulas have to be evaluated when you start from a greenfield plant.
In July 1997, Fiat Auto launched its Piattaforma Servizi, a team dedicated to customer and dealer services. How is it going?
We have already started 38 projects. In general, Fiat Auto has a global approach to the services. Everything we create is offered first to our domestic market, which is western Europe, then extended to other countries where we have a significant market share. In the near future we will begin to offer our Piattaforma Servizi services in Brazil, Argentina and Poland. Later on we will extend them to Turkey, India and Russia.
In July you announced that Fiat Auto wanted to create a new insurance company to offer specially tailored products. What has happened?
We created Toro-Targa Assistance, which will begin to operate early next year offering innovative insurance programs for car buyers.
There is a lot of talk about lean distribution in Europe. But we are still far from North American standards. Do you think zero stock could become reality in Europe for volume manufacturers?
There are a number of substantial improvements to make to the distribution system. But to arrive at zero stock, I think a radical cultural change will be necessary for the buyer. In many European countries the buyer wants to touch the new car before signing the contract, so zero stock is impossible. On the contrary, we do not yet know the potential of the Internet and cyber auto malls. Maybe the Internet will represent a substantial evolution in customer habits, accelerating lean distribution practices. But this will probably apply only to the younger generations.
What about Fiat Auto and the Internet?
On our sites, in addition to brand information, products and dealer networks, you can make an appointment to test drive a car at your nearest dealer. We did it for the Fiat Coupe launch in Italy and we are repeating it with the Alfa 156 on a Europe-wide basis. In general, I would say that Fiat is still studying the Internet.
What about AutoExpert, your program for certified used cars?
After the pilot phase, it is fully operative and the sales results are promising. In the medium term we predict that dealers offering AutoExpert will at least double their used car business. This doubling will also mean a substantial increase in sales of financial products and insurance for used cars.
In addition, Stock Locator, a software we developed in cooperation with our dealers to search any used car on a Europe-wide basis, is also operative. We have just finished connecting Stock Locator to all Alfa Romeo dealers in Italy. By the end of the year we will link all Fiat and Lancia dealers in Italy. By 1998 we hope to link all dealers in Europe.
Stock Locator is part of our Dealer Communication System, which aims to completely integrate communications between Fiat Auto and its European dealers.
German and US carmakers are leaning toward fuel cells for their green cars, while the Japanese look to hybrids and ULEV vehicles. No one seems interested in electric cars anymore. What is Fiat's position?
I do not think the electric car is dead yet. When GM launched the production EV-1 last year, reading the press, it seemed that any company that didn't have a production electric car was technologically and environmentally outdated. But Fiat Auto was the first carmaker to offer an electric car, the Panda Elettra back in 1990.
The price of electric cars will continue to be the main problem, so I don't see real market potential for private buyers, unless someone rules that EVs are mandatory.
On the other hand, our experience with exchange parking in Turin is going very well. You can rent, for a nominal hourly fee, a Panda Elettra for use downtown. This could be the future of the electric car in Europe - more than a private vehicle, a service that the city community offers to de-pollute and de-congest its city center traffic. We will continue to offer new electric cars, launching in 1998 the Seicento Elettra, and later the six-seat Multipla Elettra.
We've just started to sell the CNG Marea, to be followed by a CNG Multipla and later by a hybrid variant of our new compact minivan.
As for fuel cells, we think this is a very promising technology. But it is still at the stage of pure research in our Centro Ricerche in Orbassano. We don't know yet when it could be on the market, nor have we decided which type of fuel cell technology to use.
The common rail direct-injection turbodiesel is based on patents of Centro Ricerche Fiat, Magneti Marelli and Elasis, all Fiat Group subsidiaries. The patents were sold to Bosch to develop and produce it. Fiat saved time and money in developing common rail TDI, but outsourcing removed the competitive advantage on such an innovative technology. Mercedes is about to launch it on the C-class and other carmakers will follow.
First of all the Alfa 156 is the first production car in the world equipped with this innovation. Period. Secondly, I think the decision to reduce development time and costs and to reach bigger economies of scale more quickly by working with a partner was right. I don't think in the future we will see many major new technological revolutions. The market will praise those who offer the innovations sooner and at the more competitive price. In addition, I am not convinced that the car buyer is that interested in knowing who first patented the technology.
Japanese makers claim that they have reduced product develop times to 18 months and are aiming at 15. Fiat Auto's record is the Lancia Y, which took 26 months and your goal is 24 months.
Yes, and we will reach that with the Punto replacement. We are discussing a new way to measure time-to-market.
Is the old system - from design freeze to production start - still the most effective way to measure the speed for a new project? What about a company that takes 24 months from the design freeze, but spends another two years in the definition of that design?
For these reasons we are thinking of starting a new type of measurement - from our Folder Zero, which includes preliminary investment evaluation, to the production start. We think that this approach will show the real speed and effectiveness of a car company better.
What is a realistic target using such a measurement?
We would be very happy with 36-42 months.
Lately, Volkswagen has begun a very aggressive pricing policy, particularly with the Golf IV. In Italy, the new Golf costs 9-10 percent less than a comparably equipped Bravo. How is Fiat coping?
The price war in Europe is unfortunately a constant. And it will continue. True, the Golf IV is aggressively priced in Italy, but so is our new Alfa 156. Carmakers are becoming faster and leaner and the same level of equipment and specifications costs less than before. This is not good news for the profitability of carmakers, but it is what the market today takes for granted.