FCA, it’s time to get yourself together. By staying together
The automotive group is considering breaking itself up in order to revert its financial situation. But in the long run, would that really be helpful?
The manufacturer currently led by Sergio Marchionne isn’t exactly secretive about its plans. Over the past months, it has made news by establishing partnerships to develop autonomous cars and by developing new generations of best-selling models with important changes but, also, by the constant indecision about what to do with its brand portfolio and about whether to merge with a competitor and with which one. While automakers have always been vocal about its plans in general, the stream of announcements FCA has made in the recent past encourages one to believe that its financial struggle is nothing but the symptom of other problems.
FCA was created after Fiat acquired Chrysler and made them a single company. The union was established in order to make both participants more competitive and profitable but, sadly, things are not fond of happening the way one wants. The group is, indeed, doing better than before the merger, but that is still far from “well”. According to the latest events, it believes that one of the reasons of its low profitability is its large number of brands, and that one possible solution is yet another merger with a bigger automaker. While these ideas are perfectly valid, the repetitive failure to make them work suggests FCA should start looking the other way.
Shuffling brands around is always problematic. While companies tend to see them merely as assets which can be bought and sold, customers remember that they are also entities filled with history and character. Every time a brand (or an entire company) switches hands, it will have to adapt to its new context. Its lineup will be designed in order not to compete with its new siblings and its car models will be developed in such a way to maximize the use of parts which the parent company already produces for its own models. In the rare cases when an automaker becomes independent, it suddenly needs to start offering vehicles of several kinds to attract as many customers as possible.
In all those cases, it can be highly difficult to preserve the brand’s character. Customers will see the new models and even admit that they have good specifications, but they won’t recognize them as members of that particular brand. In some cases, the new vehicles will be seen as the exact opposite of the values for which the brand has always stood, so its image might end with an impact negative enough to affect the sales performance of future models. In conclusion, the least a brand portfolio is disturbed, the healthier it remains. Respecting that does bring some problems, but these are certainly smaller than the ones derived from doing the opposite.
Besides all that, the idea of spawning off individual brands is simply self-destructive. As soon as part of its assets is sold, virtually anyone can buy it. This means that a competitor can gradually take ownership of that brand, then invest in making it stronger and, in a few years, turn it against its former owner — which will no longer have a similar brand with which to properly respond. The biggest benefit of this strategy is raising expressive capital rather quickly, but it definitely should remain the last resort. Manufacturers can deal with multiple brands in countless ways, so it’s more prudent to try as many of these as possible before thinking of letting brands go.
In a first moment, it can be difficult for FCA to accomplish that because it has many brands: the alphabetical list would be Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia, Maserati and RAM — SRT is Dodge’s sporty division and Mopar is FCA’s branch for parts and accessories. Nevertheless, it also has some qualities which can come in handy: each region has a lineup highly independent compared to the others, and several of those brands have strong images. It’s possible to obtain expressive improvements on sales performance simply by making better use of the abstract assets which FCA already has.
Fiat Professional and RAM are both focused on commercial automobiles. The former specializes at panel vans and the European market, while the other prioritizes pick-up trucks and the North-American market. Those characteristics make them very different, so it’s even possible for them to be offered together in countries of other regions without lineup conflicts. On the other end of the spectrum, Ferrari’s departure made Maserati FCA’s single competitor on the high-luxury market. Maserati has expertise with sports cars as well as luxury sedans, so it should gradually increase its lineup in order to become strong against the most expensive models of BMW, Mercedes-Benz and the likes.
Chrysler and Alfa Romeo stay on the frontier between generalist and luxury markets. However, they aren’t likely to attract the same customers because the North-American brand is focused on elegance and innovation, while the Italian has always focused on high performance; Alfa has a long list of victories in competitions. Today, Chrysler could concentrate all FCA’s investments regarding new technologies, such as those related to autonomous driving. Alfa Romeo, in turn, could continue to expand its lineup as an emotional counterpart, with vehicles capable of satisfying wealthier families with a typically Italian penchant for style and sportiness. This way, FCA would compete at the bulk of the luxury market with two brands.
Jeep is a particular case. By using a particularly strong design language and focusing on one particular type of customer (off-road enthusiasts) and on satisfying it as much as possible, it has transformed into a true global brand of excellent image. As a result, it’s safe to say this brand is capable enough to hold an entire lineup alone and to make it successful. FCA is doing a great job expanding it without dissolving its character, but at some point it’ll be necessary to stop and work on the models it’ll have at the moment. Through the correct use of style renovations and changes to the list of trim levels, it’ll be possible to accentuate each model’s personality and its relation to the brand.
Moving on to the generalist market, it’s better to use regional strategies. Fiat is rather strong in Latin America and in some Eastern countries, so it should remain the group’s main brand there. In North America, however, this portion of the market is better suited by Dodge, which sells several kinds of family cars perfectly tailored to the local taste and with a sporty character which distinguishes itself from all its competitors. In that region, the Fiat brand is more useful in a secondary role, offering models such as convertibles and superminis for those customers who do not enjoy mainstream options. The region which might be the most difficult with which to deal is Europe.
Since Chrysler’s brands have limited market share there, FCA should rely on the Italian branch. While the European market has always been open to innovative models of all sorts, most of its sales still come from traditional ones, such as midsize sedans and station wagons. Since the Fiat brand has specialized in compact vehicles over the past years, it should focus on the first of those groups. The other one, which is currently dominated by the likes of Ford Focus and Volkswagen Golf, should be explored with a solution which would certainly obtain massive praise from car enthusiasts in general: through the Lancia brand.
The division which is currently limited to a single model, the Ypsilon, features fascinating history, strong image as a conservative maker, and a market position between Fiat and Alfa Romeo. FCA could use it to sell the aforementioned cars of traditional conception, borrowing technologies from more expensive ones and using the company’s experience with different regions in order to make these models meet global standards of style, comfort and performance. Depending on how well this strategy went, FCA could even consider selling those cars in other regions, which would represent an expansion Lancia has never experienced.
Yes, executing plans for all those brands at once wouldn’t be easy. On the other hand, when the details are considered, the truth is it shouldn’t be excessively difficult either. By developing any new models on the platforms which it already uses, FCA can minimize the costs associated with production and maintenance. The sales network can be adapted somewhat easily by persuading dealers to offer models of two or more brands at their stores. Finally, marketing shouldn’t offer much trouble because all the brands of this automotive group have existed for decades, in one way or another, so they are already widely known by their respective target audiences.
Strategies like that propose a different way to use resources, whether material or not, which the automaker already has in order to make itself more competitive. FCA can enter more market segments and make a solid attempt to increase its profits while strengthening all its brands and satisfying their enthusiasts. To be honest, the idea of turning some of its divisions into independent companies to sell them is also capable of reaching that goal. But this idea requires working with FCA’s brand portfolio in ways whose effects are likely to be much more negative than the opposite, especially regarding consumer perception. This is a case where the conservative solution is usually the best.