MILAN (Bloomberg) -- Fiat Chrysler Automobiles is turning to the cachet and horsepower of Ferrari as part of its latest effort to transform struggling Alfa Romeo into a profit machine.
Fiat plans to develop a new line of rear-wheel-drive sedans and SUVs to bolster Alfa Romeo and take on carmakers like BMW Group, people familiar with the matter said. The models will start to hit the market in 2016, and high-end versions will be equipped with engines developed by sister brand Ferrari, said the people, who asked not to be identified because the discussions are private.
CEO Sergio Marchionne's plan to turnaround Alfa Romeo has been in the planning for some time. Since Marchionne took the reins at Fiat in 2004, Alfa Romeo's annual deliveries tumbled 56 percent to 74,000 cars. In 2012, he scaled back a sales target for the Italian nameplate by 40 percent as promised models were delayed by a spending halt in Europe.
Now, with auto demand in the region recovering and Fiat armed with more resources thanks to the takeover of Chrysler, it may be now or never for the sporty brand.
"This is the last chance for Alfa Romeo," said Giuseppe Berta, a professor at Bocconi University and the former head of Fiat's archives. "Marchionne's bet is a long shot. To beat the German premium brands, he needs to make Alfa unique. His best chance is Ferrari engines and Italian design."
Ditching MiTo
Fiat is considering ditching the current versions of Alfa Romeo's MiTo and Giulietta hatchbacks, which accounted for 99 percent of sales last year under the plan which is still being finalized, the people said.
The relaunch of the Italian brand, which became a cultural icon with the 1960s film "The Graduate," will be boosted by selling cars through Jeep's international dealer network, widening Alfa's reach, they said.
Fiat declined to comment on Alfa Romeo's past performance and future development plans. The carmaker will unveil its plans for Alfa Romeo in May as part of a Detroit presentation of the strategy for FCA, formed from the recent merger of Fiat Group and Chrysler.
The revival of Alfa Romeo is key to Marchionne's plans for the merged carmaker. With allure stemming from classics like the iconic Duetto spider of the 1960s, Alfa has the potential to help drive profit for the group, in the same way that Audi does at Volkswagen Group, by commanding higher prices than mass-market models bearing the Chrysler, Dodge or Fiat badges.
Audi, the BMW brand and Mercedes-Benz, which have benefited from a rebound in the United States and growing demand in China, have all posted global sales records in recent years, bolstering their parent companies' earnings with higher profit.
Six Alfas
The target is to roll out at least six new Alfas in the next five years, including two SUVs, to boost sales more than fourfold to 300,000 cars over that time frame, the people said. The underpinnings of the cars will also be used in Chrysler vehicles to spread development costs, they said.
Alfa's relaunch has to some degree already started with the 4C sports car, which went on sale last year in Europe and will make its U.S. debut at the New York auto show next month. The first model in the new push will be a mid-sized sedan that may be called Giulia, reviving a model name from the 1960s. "This is long overdue," said Roberto Ferrari, head of the Alfa Romeo dealer association in Italy. "We've been waiting for years for a clear and definitive strategy for the brand and a full lineup of products."
Jeep showrooms
To broaden its reach, Fiat plans to sell Alfa Romeo models through Jeep's 1,700 dealers outside North America, giving it a distribution network that better competes with BMW's 3,200 sales outlets worldwide, the people said.
Last year, 90 percent of Alfas were sold in Europe. The move is based on the idea that both brands appeal to consumers seeking alternatives to mainstream competitors and can co-exist because there's little potential that Jeep SUVs and performance-oriented Alfa Romeo cars cannibalize each other.
"The strategy to mix SUVs and sporty sedans in the same showroom makes sense," said Ian Fletcher, an analyst with market researcher IHS Automotive in London. "But success can't be taken for granted." The new models and the linkup with Jeep and Ferrari may not be quite enough.
IHS forecasts Alfa Romeo sales peaking in 2017 at 243,000 cars, 19 percent below Marchionne's goal. Still, that would be triple last year's sales and the highest deliveries in more than 10 years.
Unused capacity
The growth would help fill unused capacity at Fiat's Italian factories, a primary source of the manufacturer's losses in Europe of 520 million euros last year. Marchionne expects Alfa Romeo to anchor his strategy to build upscale cars in Italy for export worldwide to return to profit in the region. The new Giulia will be assembled at Fiat's Cassino factory near Rome, said the people. The engines, versions of the V6 powertrains Ferrari developed for Fiat's exclusive Maserati brand and adapted by Fiat engineers, will likely be produced at sites in Pratola Serra or Termoli in southern Italy, said the people.
"Alfa Romeos have to be produced in Italy with an Italian powertrain," Marchionne said this month at the Geneva auto show, where the brand debuted the spider version of the 4C. "Some things belong to a place, and Alfa belongs to Italy."
