Alfa Romeo Revival Plan Unlikely To Reach FCA Targets

Alfa Romeo Revival Plan Unlikely To Reach FCA Targets.

New Giulia Starts Alfa Revival Programme But Faces Uphill Struggle.

Nobody seems to think Fiat Chrysler Automobiles’ (FCA) €5 billion euro gamble to breathe new life into tottering Alfa Romeo has much chance of success, although the launch of the new Giulia captured headlines around the world.

The plan – overall Alfa Romeo sales of 400,000 by 2018 with 150,000 in the U.S. – is said to be too ambitious. And FCA’s overall target of selling seven million cars by 2018 could end up nearly two million vehicles short.

The new Giulia must compete head on with the BMW 3 series, Mercedes C class, Audi A4 and Jaguar XE. The top of the range Giulia will have a 510 hp V-6 twin turbo-charged gasoline engine based on a Ferrari and Maserati design. That sounds as though it might grab the attention of sports car enthusiasts at least for a while.

Alfa Romeo sold only 68,000 cars last year, and has lost an undisclosed amount of money over the last 20 years. Max Warburton, analyst with Bernstein Research, doesn’t hold out much hope.

“Is this the beginning of a genuine rebirth of the brand with a profitable future? Or is the Alfa plan just “vaporware”,” Warburton said.

Vaporware describes products like computer hardware or software announced and promoted, but which never actually appear in the stores, says Warburton.

“While the product may look spectacular, we remain unconvinced that it will be followed by a significant expansion of the model range. We’re dubious that FCA will invest the €5 billion in Alfa that it has promised. We believe the distribution network remains insufficient. We doubt that FCA will meet its volume targets for Alfa,” he said.

“Talk of a dramatic improvement in FCA profitability, driven by Alfa – or attributing a big value to the brand – is misguided in our view. Despite our love of Alfa’s past, we’re unconvinced by its future,” Warburton said.

Risky
Milan-based IHS Automotive analyst Pierluigi Bellini agrees that the Alfa Romeo plan is risky, reckons the plan for eight new models will eventually be met, but the sales targets are too high.

He sees total sales of 220,000 by 2018 with 45,000 in the U.S. As for FCA’s overall seven million target for 2018, he believes this will reach 5.1 million then, rising to 5.5 million by 2020. The hugely ambitious new Alfa Romeo model plan will be met, in full but at a slower pace. After the Giulia will be a full-sized saloon, two SUVs, a coupe version of the Giulia and a roadster, and two smaller models replacing the current Giulietta.

“These will all be rear-wheel or all-wheel drive, no front wheel drive. That’s a bit risky but at the same time a strategy for creating premium, performance niche cars. I think this is a last resort to try and re-launch Alfa Romeo. If they fail, that will be it (for Alfa). There will be no more attempts. It’s a big gamble to try and bring in all rear-wheel drive, it’s all a bit risky going against what the industry is doing now. We’ll see if (FCA CEO Sergio) Marchionne was right. He’s said he doesn’t want all of BMW’s sales, but just a bit of it with these purely performance cars,” Bellini said.

Morningstar Equity Research of Chicago analyst Richard Hilgert thinks 200,000 sales for Alfa by 2018 will be a stretch, but sees close to 75,000 in North America. Financing the plan will be possible because of the Ferrari sell off which will generate €3 billion with the rest coming from operations. Hilgert is slightly more optimistic that IHS for FCA generally, forecasting 5.6 million sales by 2018.

Not much time
Professor Ferdinand Dudenhoeffer from the Center for Automotive Research (CAR) at the University of Duisberg-Essen doesn’t have much time for the Alfa Romeo plan.

“I don’t believe in the plan because they (Alfa Romeo) have come up with quite a lot of plans in the last five years. Where are they going to sell 400,000 cars? The competition is very strong from Jaguar Land Rover and the Germans,” Dudenhoeffer said.

He did concede that maybe 200,000 was possible.

Dudenhoeffer thought the fact that Marchionne has been scouring the world for a merger candidate or alliance partner reflected the weakness of FCA plans for the future.

“Marchionne has been looking for new partners. I think he approaches another car maker each week seeking to merge, otherwise he would invest and go straight to the plan. But it looks as though he doesn’t believe in his own plan,” Dudenhoeffer said.

Equities research company Evercore ISI finds Alfa Romeo’s overall sales targets exagerrated, and suggests FCA’s investment would need to be much higher than €5 billion if it seriously wanted to achieve the target.

JLR comparison
Evercore ISI compared Alfa Romeo with JLR’s Jaguar. Jaguar sold about 80,000 cars in 2014, compared with Alfa’s 68,000, yet it targets about half of Alfa’s target by 2020.

“However, its revival is years ahead of Alfa Romeo’s, with a complete product portfolio expected as early as the middle of 2016, which includes the XE, XF, XJ, F-type and F-Pace,” Evercore ISI analyst George Galliers said in a report.

“We also note that JLR spends over €4 billion in product per annum today and has total vehicle sales of 462,000, not that far ahead of Alfa Romeo’s target. This compares to FCA’s €5 billion investment in Alfa Romeo over the course of the business plan, 2014-2018, equating to about €1 billion per year,” Galliers said.

“In this context, Alfa Romeo’s targeted volumes appear to be even more ambitious and questionable,” he said.

Evercore ISI said Alfa Romeo was seeking to sell into what it called the near-premium segment, currently populated by Jaguar and Volvo and which is in “structural” decline. It reminded investors that Fiat has had ambitious plans for Alfa Romeo before. In 2010 it suggested sales could achieve about 500,000 by 2014, but actually reached just 68,000.

“To get anywhere near the 400,000 unit target it is imperative that Alfa Romeo brings all eight models to market on time. Whether FCA can successfully execute on such an aggressive plan remains to be seen.” Galliers said.

But despite its past failures, Alfa Romeo has never been short of admirers, led by former Volkswagen board chairman Ferdinand Piech who has openly discussed his admiration for the idea of Alfa, and how he would like VW to own it one day.

IHS Automotive’s Bellini said Alfa still has a strong brand.

“The unbelievable thing about Alfa Romeo is it still has strong brand awareness around the world, despite two decades of mismanagement. There’s a wealth of goodwill if they can get at it,” Bellini said.