By Sneha Shankar - Fiat Chrysler, the world's seventh-largest carmaker, will invest billions to develop its Jeep and struggling premium sports car brand Alfa Romeo to compete more effectively against the world's biggest carmakers in a $12.5 billion initiative that CEO Sergio Marchionne will describe Tuesday.
The company, which is announcing a five-year plan, may introduce as many as six models in 2015-16 to compete with global brands as Audi AG (FRA:NSUG), BMW (FRA:BMWG), Cadillac and Lexus. According to the new plan, minivans will be sold only by the Michigan-based Chrysler while the company's Maserati brand is expected to announce plans for more high-end luxury models.
“Key points of the investor day will be the strategy for Alfa Romeo and whether it can be funded with existing resources,” Philippe Houchois, a London-based analyst at UBS AG, wrote in a report, according to Bloomberg.
Fiat Chrysler plans to split Alfa Romeo into a separate company by investing nearly 5 billion euros ($6.94 billion) and plans to even upgrade the production plants, news reports said. For the Italian automaker Fiat, which acquired full control over Chrysler in January, this would be the third such plan in eight years and follows similar plans in 2006 and 2010, which had ambitious revenue forecasts and margins. Both those plans missed their targets.
"Fiat Chrysler has got to stop saying they will do it and just do it," Stephanie Brinley, a senior analyst at IHS Automotive said, according to Reuters, adding: "We are waiting for the execution."
Alfa Romeo, which currently has three models, has seen its sales drop more than half in the last 10 years; by last year Alfa Romeo sales had fallen to 74,000, far lower than the target of 500,000 that Marchionne aimed to have achieved by 2014 -- in a previous plan.
The investors reportedly want to know more in detail from Marchionne on how the company will tackle players like Toyota Motor Corp. (TYO:7203) and General Motors (NYSE:GM) in the space where the European markets have just started seeing some improvement. According to Reuters, Jeep, which is a globally recognized brand in the segment of fast-growing sport utility vehicles, or SUVs, is expected to be the best bet for Fiat to boost margins and get sales in Europe and fast-growing markets like Brazil and China.
Renegade, a compact model of Jeep, will also begin production in Italy later this year and Brazil next year, becoming the brand’s first model to be produced exclusively outside the United States.
"It can be done, but it will require sophisticated and unique ideas for how to translate 'American Muscle' to a broad audience," Bill Visnic, a senior analyst at Edmunds.com, said according to USA Today. "If they do it well, Dodge could reach out to a group of buyers nobody else is speaking to," Visnic said.