FIAT AUTO Managing Director Roberto Testore is busy implementing the company's strategic alliance with the world's biggest carmaker, General Motors. Signed in March, the alliance sees GM taking a 20 percent share in Fiat Auto. Meanwhile Fiat SpA, Fiat Auto's holding company, is now GM's biggest industrial shareholder with a 5.9 percent stake.
Fiat and GM's European and Latin American powertrain and purchasing operations have already been combined into two separate joint ventures. Soon the same will happen with the companies' back-office operations in financial services.
So far, the integration between Fiat Auto and GM has gone smoothly. But now the two partners are facing their biggest challenge: how to consolidate platforms while remaining fierce competitors in the marketplace.
Testore spoke with Automotive News Europe's Luca Ciferri at Fiat Auto's Mirafiori, Turin, headquarters on November 3.
Running Fiat Auto is more complicated than it used to be. Nowadays, it means overseeing three very different areas of the company's operation: Fiat Auto's own ongoing programs; the integration of Fiat activities with those of General Motors; and the possible GM/Fiat acquisition of Daewoo. How do you divide your time?
Daewoo is by no means an operative item yet. Fiat and GM are continuing preliminary due diligence to evaluate assets and related businesses of Daewoo Motor Company.
With GM, we started in March with a memorandum of understanding, which called for the creation of two upstream industrial collaborations: partners in costs, competitors in the marketplace. Nine months later, I can say we have come a long way.
We began by getting to know each other, which, for me, meant developing close relationships with more than 50 people inside GM - in particular people in Europe and Latin America. We established rules on how to create, run and interface the powertrain and purchasing joint ventures together, and decided on the management teams for these ventures.
To date, I have been spending at least a couple of days a week with GM people, but soon it will reduce as the two joint ventures are now operative with their own management boards, on which I sit.
The integration committee of some 40 people responsible for the working teams has been meeting twice a month, alternating between face-to-face meetings in Europe and South America, and conference calls. [But now the two joint ventures are operative] the meetings will, I think, become monthly next year.
In addition, the six steering committee members [Testore; Fiat Group CEO Paolo Cantarella; President, Fiat Latin America operations, Gianni Coda; GM CEO Rick Wagoner; GM Europe President Mike Burns; and President, GM Latin America, Africa and Middle East operations, Fritz Henderson] have been meeting every two months. Next year it should become quarterly.
After the recent moves to integrate powertrain operations into a single venture, there has been speculation that Fiat and GM could integrate their vehicle manufacturing operations into a single joint venture.
This is absolutely not part of our plans. The strategic alliance with GM covers purchasing, powertrains and retail financial services' back-office operations. As previously announced, we have also started to talk about possible cooperation on platforms, but we are still at the hypothetical level.
At Fiat we consider vehicle manufacturing to be a core activity and so I do not foresee any joint production of mainstream models. However, in the future we could consider building a low-volume Fiat inside a GM plant, or vice versa, to better utilize our respective capacities.
Which Fiat Auto models currently under development are too advanced to benefit from shared platforms with GM?
Let me divide the answer into two parts: traditional platforms and the new generation of our flexible platforms.
With traditional-platformed vehicles, we are now launching the Doblo compact minivan, which has its own platform. On the platform of the current Punto, we will launch the successor to the Lancia Y in late 2002, and in early 2003 a compact minivan for the Fiat brand.
The 2001 Fiat Ulysse and Lancia Z full-size minivan replacements are based on the traditional V platform we developed in cooperation with PSA/Peugeot-Citroen.
The Lancia 841, to replace the Kappa in the second half of next year, is based on an evolution of the steel spaceframe idea we created for the Multipla. Most likely, the Alfa Romeo 166 successor will also be based on this spaceframe concept.
As far as our new flexible platforms are concerned, the C-D-H will debut in October 2001 with the replacement for the Fiat Bravo and Brava. In spring 2002 it will also spin off a station wagon. In 2003 it will be the base of the next Alfa Spider.
The New Small project, to replace the Seicento in early 2003, will be based on the new A-B flexible platform. It will only be built in Poland - as is the case with the current Seicento.
To complete the picture, there is also the 2003 New Large project, the virtual successor to the Fiat Croma. Our original plan was to base it on the C-D-H modular platform, but we are currently reviewing the possibility of using it on GM's Epsilon platform.
So the first mainstream Fiat model that could be based on a common platform is the 2005 family of models to replace both the Punto and the 178 world car. Your original plan was to use Fiat's A-B flexible platform. And now?
Everything is still undecided, as the launch date is quite distant. It could remain on our new A-B, it could use the next-generation GM-Opel Gamma platform that will debut more or less at the same time, or it could come from a new, common platform developed with GM.
Reports on your new flexible platforms say they cut tooling investments by 30 percent and production costs by 20 percent. They are said to be so flexible that the same line can build all sizes of cars, from the Fiat Seicento to the Alfa 166. Is this true?
No. The two figures are correct, but the 20 percent production cost reduction is only partly due to the flexible platform. The biggest savings come from the way we designed the cars and the assembly process.
In terms of flexibility, we can vary length from about 4,000mm to about 4,600mm, and width from 1,700mm to 1,800-1,820mm. In other words, we can cover two volume market segments, the lower-medium - or C - where we put Bravo and Brava, and the upper-medium - or D - of the Alfa 147 and 156, Fiat Marea and Lancia Lybra.
On top of this there are niche derivatives such as coupes, spiders and cabriolets that we identify as the H segment, that use the C-D-H flexible platform.
But the flexible platform definitely does not apply to the entire market, i.e.: from the A-segment Fiat Seicento to the E-segment Alfa 166.
In the A-segment, is it true that the 20-year-old Panda will die at the end of the year, and that the New Small car's styling will be very close to the EcoBasic concept car?
No. The Panda will continue to be built as long as demand remains strong. The styling of the EcoBasic was really liked by the press and we are now evaluating it with potential customers. Anyway we have several styling models, and no decision has been taken yet as the design freeze will take place in early 2001.
What about Fiat's compact sport-utility, initially conceived as a spin-off of the Mitsubishi Pajero Pinin, and Lancia's future four-wheel-drive vehicle?
Despite the fact that we really like the design of our Fiat compact sport-utility, I don't think we will build it as it was originally conceived - as a vehicle with permanent rear drive and selectable front drive. I think we will move to a product concept that's closer to a crossover vehicle, more urban and less off-road, with front drive as standard and automatically engaged rear drive.
Also, for Lancia's return to the C-segment [the Delta was discontinued in summer 1999], we are thinking of a permanent four-wheel-drive sport-utility, although it is not the Nea concept car unveiled at the Paris show. The Nea is a possible direction, but we have other options.
In general, I would say we are considering the idea of creating a new platform for the C-D segment, to be used by Alfa Romeo and Lancia, featuring more sophisticated handling and ride solutions than on mainstream Fiat models, including specific suspensions and various four-wheel-drive options.
On the cost side, Fiat Auto has its ongoing efficiency program and incoming synergies from the joint ventures with GM. Can you give some numbers?
Our plan to cut Fiat Auto's overhead costs 20 percent in two years is proceeding well. We cut E250 million in 1999 and we are on track to save the same amount this year. We are currently setting the next target for 2001.
On production costs, we cut them 2.8 percent in 1999 and 2.5 percent this year. This has been done despite the growing price of raw materials together with the weakening of the euro, which have undercut our original target. A precise forecast for 2001 is difficult to make as we have no idea what will happen to the cost of raw materials and the value of the euro, but it won't be less than 2 percent.
You have identified some areas where quick savings can be made [in the second half of 2000]. Can you give a couple of examples?
They were mainly investments that were already planned, but were no longer necessary as the partner already had or is planning something similar at a lower cost.
From the Fiat side, I can say we canceled our plans to make a new family of V-6 gasoline engines and a small-displacement two-cylinder unit. For V-6s, we will have access to the vast GM-Opel range, while GM's 1.0-liter, three-cylinder Ecotec could be used instead of a brand new two-cylinder. We also halted planned developments to our 1.6-liter Torque engine in favor of GM's Family 1 unit.
Last year you predicted Fiat Auto would return to a net profit in 2000, after losing E293 million in 1998 and E506 million in 1999.
We will end this year with a small operating profit as we faced unexpected difficulties. Firstly, we continue to pay twice for the increasing cost of raw materials. We pay twice because the weakening of the euro adds costs as raw materials are generally traded in US dollars. This is further compounded by the continuing uncompetitiveness of Italy's industrial system.
Secondly, the price war in the European market has worsened and there are no signs that it will even stabilize. Thirdly, Argentina was much worse than expected given the country's dollar parity economic policy. The market in India stalled. In Poland, a drastic budget law depressed sales by 40 percent in the third quarter.
What are your forecasts for Fiat Auto's total worldwide sales for 2000 and 2001?
This year we will sell 2.5 million passenger cars and light commercial vehicles, up over 6 percent on 1999. For next year, we expect to sell 2.7 million units, but our real growth will come from 2002, when the replacement for the Fiat Bravo and Brava will be on stream.
And what about market share?
In Italy, I think we are capable of 40 percent. Currently we are at 36.8 percent, up from 34.1 percent in the first nine months of 1999. We could reach 40 percent, but it will be quite expensive in terms of incentives and, not being obsessed with market share, we prefer to pursue the quality of our sales.
For Europe as a whole, we are aiming for 11 percent [from the 9.3 percent of the January-September 2000 period], and that means achieving 7 percent outside Italy. Currently we are at 4.8 percent from 4.3 percent a year ago. This 7 percent target out of Italy is difficult but achievable. We are confident with our market share in Brazil, and we have a leading position in Poland.
At the Turin auto show in June, you announced Fiat Auto was entering Internet sales with a 'dealer-centric' approach. How are things going?
We are pleased with the dealer participation. In Italy, where we began this strategy with the Fiat brand in June, adding Alfa and Lancia in September, 94 percent of our dealers are participating in our Internet sales program. To date, the three Italian web sales sites have had 7 million page visits, 400,000 unique users and about 5,000 lead contacts. Our dealers contacted 80 percent of the leads within 24 hours and 26 percent of them were closed by selling a vehicle, in what is called the lead redemption rate.
In October Fiat and Alfa opened web sales sites in the UK, where 92 percent of the dealers are participating. In November we added used cars in Italy.
By the end of 2001, we will extend all our web sales services across Europe.