Case 16.1: Will Fiat Be Successful in the United States This Time?
The launch of the Fiat 500 has created a great deal of excitement around the Fiat brand in the U.S. automobile market. This new sporty subcompact car is available in several variants including the high performance Abarth and luxury Gucci special edition models. While the recent U.S. launch of this eye-catching car is news, neither the 500 moniker nor the presence of Fiat in the world’s largest automobile market is new.
Fiat left the U.S. automobile market almost 30 years ago and it was not on the best of terms. Its cars were known for having mechanical issues and customers complained of poor service support. The company’s abandonment of the American market as other foreign manufacturers such as Toyota and Honda were rising in prominence not only highlighted Fiat’s quality issues but also their lack of infrastructure and organization in the country.
The adage that “time
heals all wounds” may apply to Fiat’s reputation in the United
States. Most potential buyers of the recently launched 500
will have never seen a Fiat from the company’s previous
unsuccessful foray into the American automobile market that ended
with the Italian car company folding up shop in the ’80s.
In fact, Fiat’s recent reentry into the United States was one of scale and strength and as a potential savior for Chrysler Group LLC. In 2009, the struggling American automaker largely emerged from a government-brokered bankruptcy procedure through an alliance with Fiat. The agreement gave Fiat a 20 percent ownership interest in Chrysler that has since grown to well over 50 percent ownership. Fiat is not just another foreign car company selling its automobiles in the United States; it is the company that is helping to revitalize Chrysler’s sales and long-term viability.
When the Fiat-Chrysler strategic alliance was initially announced, industry pundits projected that Fiat designs would be offered in Chrysler dealerships while Fiat exploited a relatively weak dollar by manufacturing in the United States. The rollout hasn’t quite happened as expected.
Fiat has entered the American market as a separate brand with a single model, the 500, a car that was launched several years ago in Europe. In many ways the 500 launch in the United States was similar to the introduction of BMW’s Mini Cooper. Both of the cars were stylized based upon the iconic shapes of their predecessors, and like Mini’s formation of a separate dealer network from its parent BMW, Fiat has formed a separate network of dealers from Chrysler.
While there are several variants of the 500, Fiat dealers have only a single car model to sell and no firm timeline for the introduction of future models. Chrysler dealerships have three cars of their own: the 200, 200 convertible and the 300, along with a minivan in their showrooms. Although current year Chrysler sales have increased, largely attributed to pentup demand, the intentional separation of the Fiat brand into independent dealerships has limited any direct benefit from the Fiat-Chrysler partnership for Chrysler dealers. Meanwhile, Fiat sales have begun to take off. The 2012 Abarth sold out less than one month after its launch, leaving potential customers to choose another version of the 500, be put on a waiting list for the next model year, or leave the dealership in search of another vehicle. The addition of the new car is having only a marginal impact on Chrysler’s U.S. workforce; the engine of the Fiat 500 is manufactured in Michigan, but the transmission is made in Italy, and assembly of the vehicle is performed in Mexico.
While the Chrysler brand may not yet have benefitted from the partnership with its new co-owner, Chrysler’s sister brand, Dodge, has done so. The newly launched Dodge Dart, a model name reintroduced after a 36-year absence, has been designed on a modified Fiat platform allowing for significant savings in engineering costs and reduced time to market. This vehicle, which gets 40 miles per gallon (MPG), exemplifies the potential success of the Fiat-Chrysler partnership.
CEO Sergio Marchionne merged the two companies into Fiat Chrysler Automobiles in late 2014, reducing the total number of vehicle platforms and brands sold by the new firm. The merged company began trading on Wall Street under the ticker FCAU that same year as a way to establish itself as a leading global player in the auto industry. More recently, Marchionne talked up a possible consolidation in the U.S. auto industry, with Fiat Chrysler joining up with one of several suitors rumored to include Ford, Toyota, and Volkswagen. He believes consolidation in the industry would help reduce the prohibitive costs of developing more technologically advanced vehicles.
Answer the following questions.
Which model of organizational design is more likely to be effective in Fiat's reentry into the U.S. market?
Delegation of authority is critical to the success of any business. Which is the wiser course for Chrysler/Fiat, centralization or decentralization?
Does a matrix model offer hope to Fiat's future?
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