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Please Sergio, be more cautious

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Please Sergio, be more cautious

April 6, 2010 - 12:01 am ET

Fiat CEO Sergio Marchionne will announce his 2014 sales volume target for the Italian automaker on April 21 when the company's five-year strategic plan is unveiled. If I were Marchionne, I would be less ambitious than four years ago.

In November 2006, Marchionne surprised the industry when he predicted that Fiat would sell 3.5 million new cars in 2010. Fiat likely will sell about 2 million vehicles this year, about the same as the 2.07 million sold in 2006.

Marchionne has already said that Fiat and Chrysler will build a combined total of 5.5 million to 6 million vehicles by 2014 and that Chrysler's share will be 2.8 million. This means we should expect Fiat to produce between 2.7 million to 3.2 million units in 2014 to reach its share of the target.

We must wait until April 21 to know the exact targeted volume for Fiat and which products will be produced to meet the goal. If I were Marchionne I would be conservative and choose the lower number of 2.7 million.

The global economic recession hit automakers hard and it's no surprise that Fiat missed its auto targets last year, selling 2.3 million vehicles instead of the pre-crisis forecast of 3.15 million.

But even in 2008, Fiat had already fallen half a million units short of its original target. It sold 2.23 million vehicles rather than the predicted 2.75 million.

What went wrong?

What went so wrong to justify such a wide difference between the predictions and actual results?

In order of magnitude, these were the problem areas: China, Alfa Romeo and Lancia.

Fiat planned to sell 300,000 cars in China by this year as well as 300,000 Alfas and the same number of Lancias.

China seemed the most attainable target of the three. Fiat was nowhere in China in 2006 but was in promising talks with Chery Automobile. The automakers were discussing a new joint-venture to build 300,000 Alfa Romeos and Fiats in China – an ambitious goal, but not unattainable in the fast-growing car market.

The talks with Chery collapsed at the end of 2008 and Fiat has had to start again from scratch, this time with Guangzhou Automobile Group, a partner in China of Toyota and Honda. Fiat's joint venture with Guangzhou to build Fiat Linea sedans and some Jeep models starts only at the end of next year, so China is still a black hole for the company.

Alfa is another significant failure. The sporty near-premium brand didn't get all the new models it was promised in Fiat's current strategic plan: the C X-over crossover and a new flagship to replace the 166 large sedan did not arrive. The Giulietta, to replace the 147 hatchback, goes on sales this month, a full year behind the original schedule.

The new models it did get on time – the 159 sedan and station wagon, the Brera coupe and the Spider – sold poorly except for the MiTo subcompact hatchback.

Alfa was supposed to launch sales in the United States and sell 20,000 units in that key market this year, but the brand's return to North America won't happen until mid-2012 at the earliest.

Alfa sold 102,000 cars last year, less than the 152,000 sold in 2006, so the brand is even further from its 300,000 target for 2010 that it was when Marchionne unveiled his current plan.

Lancia is still where it was four years ago. It sold 112,000 cars last year, 5,000 fewer than in 2006. Lack of new models and new markets – a promised return to the UK never happened – hurt the near-premium luxury brand.

Sales of light commercial vehicles, a cash cow for Fiat, are below target. This downturn has had a huge effect on Fiat's financial results.

Brazil, where Fiat sold a record of 750,000 vehicles in 2009, was the automaker's only bright spot.

It's most unlikely that there will be another global recession in the next five years, but past experience should lead Fiat to look to the future in a more prudent way.

Read more: http://www.autonews.com/article/20100406/BLOG12/303319995/1317#ixzz0kPzK6XbS

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