Resurgent Fiat sets sights higher

Fiat's chief executive, Sergio Marchionne, has ended losses of more than $2 billion a year and tripled the carmaker's share value since taking the helm in 2004.

Now, Marchionne wants to catch up with Fiat's European rivals, Volkswagen and Renault, and he is banking on bringing back a 1950s-era Italian "people's car" - revamped by the man responsible for Ferrari's F430 - to help drive earnings and share prices even higher.

"The positive news from Fiat isn't over yet," said Patrizio Pazzaglia, a fund manager at Bank Insinger de Beaufort in Rome. He projects that the carmaker's shares will rise another 18 percent by the end of this year.

The company, based in Turin, is already nipping at the heels of its competitors. Fiat passenger car sales in Europe surged 17 percent last year, making it the fastest-growing carmaker in the region.

Sales may gain further with the reintroduction in July of the much-hyped Fiat 500, which was originally released in 1957 with a half-liter engine.

Jazzed up by the former Ferrari designer Frank Stephenson, the three-door subcompact is aimed at copying the success of small "fashion" cars like the Mini and Volkswagen's new Beetle.

Fiat said it received 12,000 orders from dealers for the car in one day, more than a month's planned production, when it began taking them this month.

When Marchionne, 55, joined Fiat, the company was losing $5 million a day. In 2005, it turned its first profit in five years.

A main plank of his turnaround strategy was replacing top managers, giving younger executives central responsibilities. He put Luca De Meo, 40, a former marketing manager for Fiat's Lancia brand, in charge of the Fiat brand and made Stephenson, previously design chief at the Ferrari unit, head designer for the main brand.

Marchionne also cut costs by sharing production lines and components among different models and entering alliances with carmakers including Suzuki Motor, Tata Motors of India and Ford Motor to share investment costs.

A focus on lowering spending for development remains. Fiat's new Bravo compact car, which went on sale in February, shares more than 60 percent of its components with its predecessor model, the Stilo. The new 500 is based on the platform of another subcompact, the Panda, and will also share the platform with the successor to the Ka model sold by Ford, to be built in the same factory in Tychy, Poland.

Cost-cutting helped Fiat's operating margin widen to 4.35 percent in the first three months of this year, beating Volkswagen, the largest European carmaker, which had a margin of 4.07 percent.

Last year, Fiat made a profit of €1.07 billion, or $1.4 billion. On May 31, its long-term corporate debt credit rating was upgraded by Standard & Poor's to BB+, the highest non-investment grade level, from BB.

While Fiat sells fewer passenger cars in Europe than five other automakers, its market share rose to 7.5 percent last year from 6.5 percent in 2005. Its sales in the region shot up to 1.16 million cars from 989,269 the year before, helped by the success of the Grande Punto hatchback, released in September 2005.

A renewed focus on design under Marchionne has helped drive the sales, said Eric-Alain Michelis, an analyst at Société Générale in Paris.

Fiat says it will gain further on the competition as it introduces 23 new models under the Fiat, Alfa Romeo and Lancia brands and at Fiat Professional, its light commercial vehicle unit, by the end of 2010.

The company expects to sell 2.8 million cars and light commercial vehicles in 2010, or 3.5 million including production by joint ventures.

The new 500 is central to meeting that goal. While annual production will be limited to 120,000 units, the model is meant to improve Fiat's image among consumers who still joke that the four-letter brand name stands for "Fix It Again, Tony."

Fiat aims to carve a new niche in the small-car segment by making the model a fashion item, pricing it higher than other subcompacts, though not as high as the Mini, said Adam Jonas, an analyst at Morgan Stanley in London.

"The idea is to build a fashion car, to create an icon," Michelis added.

Renault's newly redesigned Twingo subcompact, considered a competitor, goes on sale this month at a list price of €7,990. Analysts expect the 500 to range between €10,000 and €11,000, with the typical customer spending an extra €2,000 on optional features.

The original 500 already has iconic status among Italians, who know it as the Cinquecento. The first version, which had a small bench as the back seat and a rear-mounted engine, went on sale July 4, 1957, and started at 465,000 lira, the equivalent of €5,750 today.

Jazzed up by the former Ferrari designer Frank Stephenson, the three-door subcompact is aimed at copying the success of small "fashion" cars like the Mini and Volkswagen's new Beetle.

Fiat said it received 12,000 orders from dealers for the car in one day, more than a month's planned production, when it began taking them this month.

When Marchionne, 55, joined Fiat, the company was losing $5 million a day. In 2005, it turned its first profit in five years.

A main plank of his turnaround strategy was replacing top managers, giving younger executives central responsibilities. He put Luca De Meo, 40, a former marketing manager for Fiat's Lancia brand, in charge of the Fiat brand and made Stephenson, previously design chief at the Ferrari unit, head designer for the main brand.

Marchionne also cut costs by sharing production lines and components among different models and entering alliances with carmakers including Suzuki Motor, Tata Motors of India and Ford Motor to share investment costs.

A focus on lowering spending for development remains. Fiat's new Bravo compact car, which went on sale in February, shares more than 60 percent of its components with its predecessor model, the Stilo. The new 500 is based on the platform of another subcompact, the Panda, and will also share the platform with the successor to the Ka model sold by Ford, to be built in the same factory in Tychy, Poland.

Cost-cutting helped Fiat's operating margin widen to 4.35 percent in the first three months of this year, beating Volkswagen, the largest European carmaker, which had a margin of 4.07 percent.

Last year, Fiat made a profit of €1.07 billion, or $1.4 billion. On May 31, its long-term corporate debt credit rating was upgraded by Standard & Poor's to BB+, the highest non-investment grade level, from BB.

While Fiat sells fewer passenger cars in Europe than five other automakers, its market share rose to 7.5 percent last year from 6.5 percent in 2005. Its sales in the region shot up to 1.16 million cars from 989,269 the year before, helped by the success of the Grande Punto hatchback, released in September 2005.

A renewed focus on design under Marchionne has helped drive the sales, said Eric-Alain Michelis, an analyst at Société Générale in Paris.

Fiat says it will gain further on the competition as it introduces 23 new models under the Fiat, Alfa Romeo and Lancia brands and at Fiat Professional, its light commercial vehicle unit, by the end of 2010.

The company expects to sell 2.8 million cars and light commercial vehicles in 2010, or 3.5 million including production by joint ventures.

The new 500 is central to meeting that goal. While annual production will be limited to 120,000 units, the model is meant to improve Fiat's image among consumers who still joke that the four-letter brand name stands for "Fix It Again, Tony."

Fiat aims to carve a new niche in the small-car segment by making the model a fashion item, pricing it higher than other subcompacts, though not as high as the Mini, said Adam Jonas, an analyst at Morgan Stanley in London.

"The idea is to build a fashion car, to create an icon," Michelis added.

Renault's newly redesigned Twingo subcompact, considered a competitor, goes on sale this month at a list price of €7,990. Analysts expect the 500 to range between €10,000 and €11,000, with the typical customer spending an extra €2,000 on optional features.

The original 500 already has iconic status among Italians, who know it as the Cinquecento. The first version, which had a small bench as the back seat and a rear-mounted engine, went on sale July 4, 1957, and started at 465,000 lira, the equivalent of €5,750 today.