Ambitious Alfa Romeo Plans Scaled Back

Mere months after unveiling the first of a wave of new products meant to transform Italy’s Alfa Romeo into a major global brand, parent Fiat Chrysler Automobile’s CEO Sergio Marchionne concedes the ambitious plan is “not achievable,” at least as planned.

The target was to boost sales to 400,000 by 2018, a nearly six-fold increase from the 70,000 Alfa products sold last year. To get there, FCA was planned to invest about $6 billion to roll out eight new models, including the Giulia sedan it unveiled over the summer. But the maker is now re-thinking that strategy, in large part due to the slowdown in car sales in China, which was expected to become a major market for Alfa Romeo.

“The expectations of volumes (for China) out of the total pool of 400,000 cars are, I think, given current market conditions, not achievable,” Marchionne told Wall Street analysts.

According to Marchionne, Alfa “still…belongs in China,” but it has to adjust its plans – including its proposed product line-up – to enhance its appeal in other key markets, notably the U.S. and Europe.

The Chinese car market has been one of the world’s fastest-growing since the turn of the new millennium – approaching triple-digit growth in some. But for the first nine months of 2015, sales climbed a mere 2.8%, and demand dropped three months in a row through August, with few analysts expecting a significant revival anytime soon.

(FCA posts Q3 loss. Click Here to find out why.)

Alfa could be particularly hard-hit, Marchionne apparently fears, because its products will all be produced in Italy, subjecting them to significant duties that Chinese-made competitors won’t be saddled with.

But industry analysts have warned that China isn’t the only reason for concern. Looking at Alfa’s planned expansion, a recent report from IHS Automotive warned, “This is an extremely ambitious plan, particularly with a brand that has introduced only two new products over the past eight years.”

That includes the little Alfa Romeo 4C sports car that went on sale in the U.S. in 2014 – a convertible version following early this year. The next on tap is the Giulia, a midsize luxury sports sedan that was launched in Milan four months ago during a splashy ceremony that included a performance by opera singer Andrea Bocelli.

(Alfa Romeo Giulia one of “Hottest Launches of 2016.” Click Here for more.)

Alfa plans to follow up with a midsize coupe, a large sedan, several sports cars and its first crossover-utility vehicles. But product alone may not be enough, analysts have cautioned.

“Brand rebuilding easily can take 15 to 20 years,” asserted the IHS report, “and there are no indications that Alfa Romeo has any advantage for short-circuiting the process.”

According to Marchionne, Alfa will hold to its overall plan, but will “rejig” the timing to reflect market demands in Europe and North America. And it may stretch out timing by a couple of years.

The concession that Alfa will fall short comes as an embarrassing personal setback for Marchionne, who has been struggling to turn several of FCA’s traditionally regional brands into true global players. The launch of the flagship Fiat marque has gotten off to a slower-than-expected start in the key U.S. market. And the longer than expected expansion of the Alfa Romeo brand could put further stress on the parent company’s bottom line.

One of the primary reasons for last month’s IPO of the Ferrari brand was to raise cash to cover Fiat Chrysler’s global plans.

(Ferrari IPO gets strong reception from investors. Click Here for more.)

On the other hand, the Jeep brand has been doing better than expected as it has gone global, last year topping the 1 million mark for the first time. But Jeep just launched a new plant in China after a decade-long absence and could also be facing trouble if that market were to continue slowing down after years of double-digit growth.