There are many issues which are currently facing the automotive industry and numerous brands are now faced with increasing challenges. Problems such as emissions, changing market segments, fierce competition between brands and a tumultuous economic market are forcing car manufacturer’s to critically evaluate how they produce and sell their automobiles. Below, I will look at how current automotive industry issues affect the Italian brand Alfa Romeo Automobiles S.p.A.
Alfa Romeo’s origins date back to 1906, under the name of SAID, Societa Anonima Italiana Darracq. However, after only a few short years the company was reconstituted and renamed to Anonima Lombarda Fabbrica Automobili, or A.L.F.A. During the First World War, the company was directed by Nicola Romeo and was used to produce hardware for both the allied and Italian war effort, resulting in another change to the company’s name in 1920 to Alfa Romeo. After going bust due to the end of the war, Alfa Romeo was rescued by the Mussolini government who would also struggle to make the company profitable after the Second World War. The Italian government parent company Finmeccacina would end up selling Alfa Romeo to the Fiat Group in 1986, where it remains under their guidance. It is important to note Alfa’s continued struggle throughout the last century as it is a perfect reminder of the hardships faced by automobile manufacturers and responsible for some of Alfa Romeo’s recent difficulties.
Diversification and Changing Market Segment
Currently, Alfa Romeo’s model range consists of two vehicles, the two door hatch, named the MiTo and the four door hatch called the Giulietta. The other volume selling Alfa Romeos, the Spider, Brera and 147 were stopped in 2010. The compact executive salon, the 159, ceased production in 2011 which left Alfa with a very small share of the competitive European hatch market. It is also worthy to note the production of the 8C Competizione and Spider produced from 2007-2009 and 2008-2010 respectively. However, there was a limited production run of only 500 units per body type and can hardly be considered to have an impact on sales numbers.
Unfortunately for Alfa, they saw an approximate 30 percent decrease in sales between 2011 and 2012 from 130,535 cars to 101,000 cars respectively.
Alfa Romeo’s are currently sold in 52 countries around the world, with the top 5 countries (Italy, France, Germany, UK and Japan) accounting for 71 percent of their market share and Europe totalling 90 percent. Alfa’s are not currently sold in the United States of America, which is potentially a massive market for the brand. However, with the introduction of the low volume sports car the 4C, we will see Alfa Romeo return to the United States of America for the first time since 1995 (again, bar the limited production 8C variants). The 4C, a light weight 2 seat sports coupe, which makes extensive use of carbon fibre will be used to raise awareness of the brand in the US. However, as this is only a low volume model, initially producing 3,500 units worldwide; it will hardly have the market impact that will be needed to improve Alfa Romeo’s sales figures.
In April, it was widely reported by many automotive publications that Fiat CEO, Sergio Marchionne, planned to triple Alfa Romeo’s output of vehicles to 300,000 by 2016. It is an ambitious plan that involves the introduction of many new models, such as a mid size sedan which is crucial in the North American Market and another larger sedan slated to use the Maserati Ghibli’s underpinnings, these models would be targeted for a 2015 model release. Also in 2015, a collaboration with Mazda to create a rear drive two seat roadster named the spider, built along side the MX-5 in Japan. A mid-sized SUV is also on the cards to compete with the rapidly growing market segment currently dominated by other manufacturers.
However, it has recently been said that many of these models have been put on hold or have been sent back to the drawing board. The all important mid size sedan has been placed on hold, due to Alfa still determining which platform to derive the car from, meaning another delay. The premium saloon, purported to use Maserati parts has been deemed too expensive, therefore leaving Alfa Romeo with another uncertain platform on which to base the car. The impact this will have on Alfa is currently unknown but what is certain is that it will make reaching their 300,000 sales a year by 2016 incredibly unlikely. Several other mid-range and luxury car manufacturers’ already have a strong foothold in the European and American markets with a developed model range which serves almost all the market segment.
There is some very recent news related to Alfa Romeo’s diversifying market segment here: https://auto2014.wordpress.com/2014/01/24/future-of-alfa-romeo/
Economy, Manufacturing and Labour Costs
In May this year, both Sergio Marchionne and the Italian Minister of Economic Development, Flavio Zanonato, came together to emphasize the investment in the Mirafiori and Cassino plants. It is important as both these plants will be key to both Maserati’s and Alfa Romeo’s future line up. However, a dispute about local labour laws prompted Marchionne to hold out on a 2 Billion Euro investment plan for under utilized factories in Italy. He said that Fiat needs “clear and reliable rules” and “Italy should decide if they want it (Alfa Romeo’s revival) here or not as Fiat and Chrysler have several alternatives”. Thankfully, in early September Fiat CEO Sergio Marchionne, pledged 1 billion Euros of investment to the Mirafiori plant in Northern Italy. The Mirafiori plant is where the Alfa Romeo MiTo is produced and is one of Europe’s largest factories, with a capacity of 300,000 units per year. The factory has only been running 3 days per month since April 2012 and is vastly under used, as are many of the Italian factories due to the lack of demand for cars since the European financial crisis of late 2009.
Parent group of Alfa Romeo, Fiat, has recently been involved in lifting a ban on a union which would not sign a labour contract. Fiat has been locked in a dispute with union group FIOM-CGIL since 2010, when it invested in some of its Italian factories in exchange for concessions from labour unions on more flexible work conditions. However, they did not accept the new contract and Fiat barred them from their factory. A recent legal decision has ordered Fiat to return the Cgil union to the factory floor. A statement was released on September 2nd by Fiat, stating they could return to the factory floor. In Fiat’s statement, “Legal certainty on issues as sensitive as union representation and the effective application of collective labour agreements is also essential to Fiat’s continued commitment to its industrial presence in Italy.”
With the threat of global warming, pressure is being placed on car manufacturers to make their models cleaner. This means decreasing the amount of pollution, usually defined as, CO2 output in grams per kilometre. Car makers have downsized many of their engines while adding a turbo to increase power output while keeping emissions at a minimum. Alfa Romeo’s smallest model the MiTo (turbo powered) starts off the range with a CO2 rating of 90 g/km for the 1.3 litre, 85 bhp diesel variant and rising to 139 g/km for the 1.4, 170 bhp model. The MultiAir models, contain electro-hydraulic valve control system, which increases power and torque while decreasing consumption and emissions, also have stop/start mode as standard There is no vehicle excise duty for lower model but will cost the customer ₤120 for the higher model. The slightly larger 4 door hatch, the Giulietta (turbo powered) in 1.6 litre diesel spec outputs a total of 114 g/km of CO2 costing the consumer no vehicle excise. The 1.75 litre Cloverleaf with 235 bhp outputs 177 g/km of CO2 and costs ₤320 of vehicle excise duty. The average output of CO2 for a vehicle in the UK is 149 g/km. Vehicle excise duty can be a point of contention with consumers as some are unwilling to pay higher premiums for models which emit more carbon dioxide. Vehicle excise duty is only applicable in the UK, however, many countries around the world tax vehicles with higher emissions more heavily. This problem does not seem to affect much of Alfa’s fleet as they generally only output above average CO2 emissions at worst. However, Alfa Romeo will continue to make their new products as efficient and environmentally friendly as possible to avoid their vehicles being slugged with an unnecessary tax.
It is clear that Alfa Romeo is desperately trying to regain its place among the world’s volume car manufacturers. However, there are numerous hurdles it must clear before it can begin to mount its resurgence. It’s main road block being its diminutive and out dated model range. Alfa Romeo can not hope to sell cars if it does not have the cars that consumers want to buy. An unfortunate European economy and disputes with local labour laws does not help this, but if Alfa can secure a foothold in the American market where luxury car sales are on the increase they may be able to rescue their sales figures from steady decline.
Alfa Romeo’s have been known to rust, and this has become common knowledge, especially to those who are a bit older. A certain television show, featuring three gentleman has done nothing but to exacerbate this opinion of the brand. After the Alfa Romeo and Nissan joint venture, Alfa learnt a lot about Japanese production techniques and began to apply them to their own facilities. This meant that more rust prevention techniques were employed on Alfa Romeo’s. This was important because with cars now being imported into the UK, they would be dealing with the wetter climate and also the salt and grit placed onto the roads in winter. Later on, Alfa Romeo, in an attempt to remedy the brands image and maintain customer satisfaction began to offer an 8 year anti perforation rust warranty and a 5 year manufacturer warranty. Reliability is another factor that affect Alfa’s positive image. In the 2013 JD Power Survey, the Alfa Romeo Mito plunged 70 places to second last out of 116 cars. There were over 20 percent faults, mostly concerning the cars drivetrain. Alfa Romeo as a brand dropped 7 places to second last for ‘worst brand’. In 2013’s What Car? and Warranty Direct used car reliability survey, which surveyed 38 manufacturers and 50,000 cars, Alfa Romeo was once again down at the bottom end of the table coming 36 out of 38. Based on average mileage / reliability index / average repair cost, Alfa Romeo scored 47,095, 251, £385.54. An average score being approximately 100.
The 4C is a showcase for new technologies and innovation for Alfa Romeo. Its main feature being a carbon tub that weighs 52kg. Until the introduction of the 4C (BMW i3 as well) a carbon tub chassis was reserved for low volume supercars, like McLaren or Ferrari. Weighing in at 895kg, it is incredibly light, making use of panels made from high density plastic. The only metal structures on the car are the front and rear crash frames and the doors (metal frames inside to aid crash strength and to attach the hinges). The 4C is very frugal, returning 41.5 mpg which is remarkable considering its 0-62 mph time of 4.5 seconds. It also debuts the first double clutch gearbox on an Alfa Romeo.
Here is a video displaying the manufacture of the 4C’s carbon tub : http://www.evo.co.uk/news/evonews/289849/alfa_romeo_4c_tech_rundown_and_video.html
Future Line Up
Please refer to another post I have written concerning Alfa Romeo’s future line up. This should most definitely be considered a strength: https://auto2014.wordpress.com/2014/01/24/future-of-alfa-romeo/
Alfa Romeo’s strengths are its ability to design stylish cars that stand out from the crowd. It also uses its heritage and prestige to attract customers. It is starting a massive change with its investment in new vehicles and engines. Fiat understands the importance of the Alfa Romeo brand to many people, but also to new people. The expansion into the American market will help boost sales, and this is what Alfa Romeo needs more than anything.
Their weaknesses are much more prevalent at this current moment, with a lack lustre and ageing model range. However, with the introduction of a new halo model and a new range to be introduced in the coming years, Alfa Romeo will only go from strength to strength.