When Fiat decided to re-launch the old and iconic Fiat 500 Cinquecento in July 2007, they were faced with two major problems;
a) Apart from ensuring the success of the car in its home country, where the reserve of goodwill for Fiat is strong, is whether non-Italians will choose the new 500 over rival models made by Renault, Volkswagen and BMW. b) Will the consumer perception be that the car is special enough to command a market premium over the other entry-level cars?
The company is a well-known and established brand in the motoring sector. Founded in 1899 by a group of investors led by Gianni Agnelli, the company established itself as a market leader, especially in Italy. Fiat also incorporated other famous brands e.g. Ferrari, Lancia, Alfa Romeo and Maseratti into its stable, which further enhanced the brand appeal.
The company diversified into other non-automobile fields, e.g. banking, telecoms, pharmaceuticals and energy. This led to the core business (automobiles) to be deprived of the necessary capital to extend the product range. This damaged the firm’s reputation for quality and reliability in the markets outside of Italy. Fiat and Lancia withdrew from the US market in 1984 and Australia in 1989. Alfa Romeo also exited the US market in 1995. This paved the way for motor manufacturers from the East (Japan and Asia) to infiltrate the gaps left by Fiat in these markets especially in the small car segment.
Even in its own country, Fiat lost market share. In 1990 market share dropped from 52% to 28%. By 2002 a bank bailout of $2.8 billion was needed to save the group from bankruptcy. Fiat sales decreased at a rapid rate as shown in Exhibit IV.
In 2005, a new CEO, Sergio Marchionne was appointed. He was the fifth CEO in five years. His main aim was to “fix the car business “of the Fiat group. He implemented a variety of initiatives to remedy the group’s financial position. The success of the re-launch of the Cinquecento was pivotal to drive up earnings and share prices of the Group.
The success of the retro models for MINI and VW Beetle proved that there was a market; the biggest threat though was how to differentiate from these successes that were seen as the biggest competitors. There was also the threat from the Japanese and other Asian manufacturers who saw the gap in the market when Fiat diversified into other ventures thereby depriving the core business the capital it required in its product range.
The competition came up with new ways of cutting manufacturing costs for an example floor-plan sharing and joint venturing. For Fiat to succeed, they would have to do well in the Italian market first where their reputation was also at stake. The small car segment was rapidly growing and therefore required product development that would match the needs and wants of the customers.
2. SWOT Analysis
• Reputation of Fiat in Italy – ‘heritage’
• Established iconic brand since 1899
• Fiat’s traditional specialization – small car segment • Proven concept ( “peoples car” ) in Italy
• Online concept – “ The Fiat 500 wants you “
• New CEO – Sergio Marchionne and new management structure • MINI designer on board – Frank Stephenson
• Environmental consciousness
• Reputation (outside Italy) due to lack of quality and reliability in their vehicles • Diversification into other ventures depriving the core business of capital • Mindset of the consumers ‘Fix It Again Tony’
• Financial position
o Recent bail-out
o Huge losses
o Core business (cars) fading
• Battling even in the Italian market
• Priced better than the MINI and the VW Beetle
• Emerging markets outside Italy e.g. Asian markets
• Utilization of European markets where other Fiat brands are making their mark • Production through joint...