Marchionne targets a return to profitability in Europe ahead of increased volume. Fiat has lost 2.15 billion euros in the region in the past three years and aims to end losses by 2016. To do this, the company needs to build 1.3 million cars in the region, Chief Financial Officer Richard Palmer said. "Pricing is not a component if the plan," he said. "It's mix."
Fiat sees the market for mass market cars in Europe shrinking to 42 percent of the total in 2018, down from 56 percent in 2013 and from 70 percent 20 years ago, according to a presentation by Alfredo Altavilla, the company's Europe chief.
Budget brands are expected to account for nearly one third of the market in five years' time, up from 19 percent last year. Premium car brands such as BMW, Audi and Mercedes will grow to 30 percent in 2018, up from 25 percent in 2013.
These forecasts explain why Fiat and its competitors including Ford, General Motors, and PSA/Peugeot-Citroen have lost billions in Europe in the past six year slump.
Fiat has reacted to this mid-market squeeze by axing if poorly selling models and focusing on the Panda minicar and the upmarket Fiat 500 family. In July, Fiat will discontinue production of the slow-selling Bravo compact hatchback. The same month, Fiat will also stop building a Bravo sibling, the Lancia Delta. Lancia will remain an Italy-only brand centered on the Ypsilon minicar range, Marchionne said.
Fiat aims to reduce the amount of minicars and small cars in its portfolio to 27 percent and 22 percent respectively in 2018, from 27 percent and 46 percent in 2013. It plans to increase the small and compact utility vehicle portions if its portfolio in 2018 to 8 percent from 1 percent last year.
FCA sees its EMEA market share at 6 percent in 2018 from 5.2 percent now.
The company said it expects the European countries including its home market of Italy will account for about half the 400,000-unit growth in the next five years, with sales in the rest of the region, including Russia, doubling. More than two thirds of the projected unit increase come from the Jeep brand, which will see its dealer network grow by 25 percent to support the higher volumes.
The plan calls for using Italian plants more efficiently by raising capacity utilization to 100 percent in 2018 from 66 percent in 2013, largely by increasing exports to other parts if the world. As much as 40 percent of the company's European output will be exported in 2018, up from 7 percent last year.
Combined European sales of the Chrysler, Dodge, Ram and Lancia brands are expected to fall 20 percent from now to 2018 and account for just 5 percent of sales.
Fiat will reshape its dealer network. Fiat and Alfa dealerships will fall by about 15 percent.
Altavilla put a positive spin on the plan. "Fiat has its time to move upmarket," he said. "We were waiting for a tailwind, and the moment had come. Industry recovery has begun."
Analysts were more skeptical. "The lack of volume growth for Fiat 's core brand in Europe does once again raise the question, what are Fiat's intentions for its significant excess capacity in Europe?" wrote independent research firm ISI in a note.
Fiat brand will expand its global sales to 1.9 million vehicles in 2018 from 1.5 million in 2013. Latin America will remain the Fiat brand's biggest sales region with a target of 800,000 sales by 2018, 100,000 more than last year. The brand aims to triple sales in Asia-Pacific to 300,000 and double volume in North America to about 100,000 vehicles.
Luca Ciferri and Neil Bunkley contributed to this report