VW has been lusting after owning historic Italian automotive brands Alfa Romero and Fiat Group brands for over 20 years.
No to the bulk of the automotive analysts and trade journalists, this is lust to own Italian flagship brands is best underscored by
the reality of Audi buying Ducati Motorcycles of Bologna or the fact that they already own Bugatti and Lamborghini luxury super car brands. The success of both Bugatti and Lamborghini became reality after the infusion of massive amounts of capital and also have the world greatest car designer "Giugiaro / Italdesign". Creating stunning automotive high art models like , Passat, Golf, Scirocco, Jetta, just to name a few. The key to the appeal of VW automotive designs to consumers world wide for many years.
VW swallowed Porsche, after Porsche's senior management made a totally inept effort to buy VW several years ago.
For VW the ability to grab Fiat, Alfa Romero, Dodge, Chrysler, Jeep brands would give VW a major stake in both the world consumer truck market and the 4 wheel off road consumer market with Jeep. So even if VW has to pay a premium to buy fiat Chrylser Auto group. The benefits to VW are like buying gold at $300 an ounce and having Wall Street telling you how the precious metals market is over priced, several years ago. You remember those cable news channel "talking heads".
Back in 2012, FIAT's patron "saint" Sergio Marchionne very publicly directly accused VW of causing "a bloodbath of pricing." The created a public confrontation where Volkswagen to demand for Marchionne's resignation as president of the EU auto trade group know as ACEA. The head banging between VW and Fiat Group ended when Marchionne delivered a successful merger with Chrysler. Also to those who are actually privy to the inside traffic of industry communication that VW was openly lusting after all of the Italian automotive brands for the last 25 years.
The friction between FIAT and VW had been difficult a best by Ferdinand Piech and FCA's testy boss Sergio Marchione due to the repeated and very public offers to take over the very troubled Alfa Romero. Each time Marchionne issued stern public rebuffs. While at the same time Marchionne has been making the public mistake of complaining of Alfa Romeo's disappointing under performance to automotive and business press…over and over.
Marchionne has at the same time over and over pounded on his chest that " as long as I am CEO of Chrysler & Fiat, "Mr. Peich will never have Alfa Romeo." So we have a dialing ego's that have been tilting at each other for several years. Yet, neither Marchionne or anyone else can seem to get Alfa Romeo to get anything accomplished to change culture inside Alfa. Personally I think Marchionne is the perfect knight to defend the legacy of Alfa Romeo. Most American's have no clue the importance of Alfa Romeo to the history of the automotive world. There would be no Ferrari if not for Alfa Romeo. Alfa Romeo's influence on the design of performance piston engines for both automotive and aviation is seminal.
Those of who know remember that Alfa was going to be coming to USA, any moment. That rumor was being offered up as far back as 2006. That the Alfa's "Brera" model coupe a stunning design from Giorgetto Giugiaro with a V8 and 390 Hp. Body Built by Pininfarina, this "Hot Hatch" won several "best" car design when show at the important auto shows.
This was the model that was going to be the first Alfa to be introduced in the USA that model went out of production 2010! After several postponed promised launch dates for the return of ALFA. Then it was the Alfa "Mito", then Alfa 147, then it was going to be the Giulietta. The Alfa 8c, did make it to the USA in very limited quantity's. Now the some 7 years late we will see the ALFA ROMEO 4C. The 4C will be at a US price that is almost double the original forecast introduction pice estimates.
Pricing in the USA for the FIAT 500 has also been disappointment as well. The FIAT 500 was supposed to come in well below the Mini Cooper base model and that need less to say has not happened. Original publicly floated promised prices were going to be in the 12K to 14K range. The FIAT 500 is a great car, but does not have a value added price to make it truly a world beater. But despite the higher price is selling well and a great competitor to Mini Cooper.
Bigger Challenges for FCA & Marchionne in 2015
So the next challenge for Marchionne is to be able to fight off VW massive threat of writing the big check. Volkswagen has time on it's side. As today VW has over $24 Billion in cold hard cash and if we look at the total of cash and equivalents the have actually closer to $35 Billion, if you look at the balance sheet of Q1.
The real risk to Marchionne and FIAT is that all that has to happen now is that any type of consumer spending burp hit the sales of Dodge Ram trucks, or Jeep sales. The other even greater risk that a lack luster couple of quarters hit the automotive market in the USA. Then FCA group would be racing around to generate sale through deep discounts. Chrysler only has less than $15 billion in cash liquidity when it got to year end for 2013. Marchionne's investment in Alfa Romeo and other FCA project must be funded by cash flow from operations. To make all this work it will demand at massive jump in world sales of almost 60%!
That will also mean to make that massive increase in sales world wide for FCA, the sales increase in USA sales must be about 39% in US market share. Which translates into a pop from the current 11% to 16%…..then attach to that a "Blue Sky" increase of over 70% in profit margins during the next 5 years…and all this is according to FCA's own estimates. FCA has no real margin for safety in this business "high wire" act. So if FCA slips even the slightest bit then it all ends in tears.
VW will be able to pick off brands it wants , even if FCA's plans work out. The truck market will be prize plum. For VW the whole idea of buying any or all of FCA's brands is a win-win. Economic tensions will be the leverage that will eliminate FCA's choices should a softening of world sales in the last half of 2014 or even 2015 push FAC's ability to fund just ALFA ROMEO promised 5 new models by the end of 2015, for the USA.
Those of us how have had a long and close relationship with the luxury automotive brands also know that Ferrari-Maserati is struggling to push up volume of cars sold and profitability to meet the needs of profits. Maserati's growth is very good but may not be strong enough to reach goals that Marchionne has promised.
Marchionne has a passionate vision for Alfa Romeo's future. His ability elevate Maserati to the role on the world luxury stage is shown in the very strong year over year increase in sales. As well as the success of the each of the new models introduced during the last 10 years. The new Maserati "Ghibli" has been on fire with luxury consumers world wide. The next Maserati will be a 5 door SUV known as the "LevaIs net" in 2015. Should have a strong and ready luxury preorder based on rumors.
VW will maintain the same business course that has allowed them to acquire the italian brands they own now. This means they will push FCA group by using discounting and very aggressive incentives to entice USA consumers. But VW's own weak spot is the overall lack of consistent quality of cars delivered. VW is getting very negative reviews from consumers in the USA for shoddy build quality. So VW has had this problems for several years. So if VW keeps shooting it's self in the foot then maybe FCA can stave off the unwanted efforts to strip brands away from FCA. Only time will tell.
Mr. Marvin has been an european automotive industry writer for over 25 years. As well as written over 100 auto drive reviews and is also recognized as an expert on the european motorcycle industry. Former editor & publisher of Motorsportscenter.com