Fiat's New Uphill Climb in the U.S.
With the 500 subcompact, it makes an auspicious return to the States—but it's a crowded market
By Tim Higgins
Sam Germana, a lawyer who bought his first Fiat in 1982, still has fond memories of la dolce vita behind the wheel of his Italian import. So he jumped at the chance to plop down $500 to reserve a special first-edition version of the 500, the tiny car Fiat hopes will make a big splash as the brand returns to the U.S. market this winter. Germana, who lives on New York's Long Island and commutes to New Jersey for work, has driven the European version and figures it will be perfect for his daily commute. "The Fiat is put together like a Toyota (TM), it is really solid," Germana says of his test drive. "It was a blast to drive."
Fiat hopes there are many more customers who fondly recall the sporty Fiat image of bygone days—and are willing to forget reliability problems that plagued the automaker (some owners said its name stood for Fix It Again, Tony) before it pulled out of the U.S. market in 1983.
The Fiat 500 subcompact, known as the Cinquecento in Italy, has already sold 500,000 units since 2007 in other parts of the world. Its U.S. starting price is expected to be about $15,000. Fiat hopes to sell 50,000 of the tiny fuel misers in its first year in the U.S. (no mileage rating has been determined yet), mostly in urban areas where traffic and scant parking make small cars attractive.
The Fiat brand's return to North America comes about 18 months after the Turin-based automaker gained control of Chrysler Group. The U.S. company's infrastructure is key to the effort: The 500 will be built at a Chrysler factory near Mexico City, starting in December, and it tapped existing Chrysler dealers to open new Fiat showrooms.
Chrysler has hired a marketing executive from Volkswagen, Laura J. Soave, a first-generation Italian American, to help translate the feeling of the Fiat brand to U.S. car buyers. Soave, who has a picture of herself visiting Italy as a small child, standing atop a Fiat, has been working on a grassroots marketing campaign to build support among longtime Fiat fans. She showed up in July in Asheville, N.C., for an annual gathering of Fiat-Lancia Unlimited, which claims to be the largest Fiat enthusiast group in North America. She's since donated a Fiat 500 to the National Italian American Foundation for a fundraiser.
Chrysler declined to make Soave available for an interview in advance of the Los Angeles Auto Show later this month, where the Fiat 500's U.S. version will be displayed. Two people familiar with her efforts say she'll concentrate on developing "experiential" marketing of the car, mostly in showrooms through high-service selling that focuses on adding options to let buyers personalize their cars. Rather than broad advertising pitches, they say she's likely to use social media and other grassroots approaches to target likely buyers and lure them into showrooms for individual treatment. "My ultimate goal would be not to spend one dollar in traditional advertising," says Phil Bivens, a Tacoma (Wash.) dealer who will open a Fiat store.
Fiat faces plenty of obstacles, analysts say. The small car is being introduced into a market crowded with competitors, including the new Ford (F) Fiesta and General Motors' upcoming Chevrolet Spark. While researcher IHS Automotive (IHS) predicts the U.S. subcompact market will grow 150 percent to more than 1 million by the end of 2015, IHS analyst Rebecca Lindland cautions that the growth is being pushed not by consumer demand, but by automakers' beliefs that small cars will become more popular. "Everyone is tooled up for this, and everyone is all excited about consumers buying small cars—except consumers," Lindland says.
European competitors such as Daimler's Smart and BMW's Mini small cars have seen sales fall lately. Smart sales have plunged 61 percent so far this year from the year-earlier period. Mini sales are down 1.6 percent, according to researcher Autodata.
Fiat decided to eschew selling Fiat vehicles next to Chrysler's Ram pickups and Jeep SUVs and now must quickly and smoothly open about 165 showrooms. "You had to get into a building, a separate establishment" for a Fiat dealership, where somebody could come in and truly feel like they were at an Apple (AAPL) store, says Fred M. Diaz, Chrysler's lead sales executive. Adds Tacoma dealer Bivens: "The Italian style and design and fashion will all play a clear role in who we hire and how we train them and how they communicate. It will not be a traditional car dealership experience."
The bottom line: A quarter-century after it pulled out of the U.S. market, Fiat is back with a small car built and sold with the help of its partner, Chrysler.
"You're not a proper petrol head until you've owned an Alfa."