Fiat's Fall From Grace - Can Fiat Turn It Around?
Having done a SWOT /PESTLE analysis for Fiat, various alternative strategies and corporate level methods for its improvement have been stated and in comparison to some of its competitors it provides suggestions of benchmarking, adoption of cost-differentiation strategy for its growth and focus on important factors like market competition , current trends by doing a thorough analysis on their key competitors from time to time which will help them reduce risks .
Introduction
The Fiat Group (Fabbrica Italiana Automobili Torino), established in the year 1899 was one of the founders of the European Automobile Industry. It was developed under the leadership of Giovanni Agnelli and made a successful presence in the Italian market as well as the international market. The Fiat Group is now managed by Sergio Marchionne who is the CEO presently.
The Agnelli Family still controls Fiat by owning 30% of the shares for the Fiat Group.
Fiat also made acquisitions with Ferrari and Lancia in 1969 , Alfa Romeo in 1986 and Maserati in 1993 and considering this a decision was made to diversify towards the public transport .This was a crucial issue the company faced as it reduced the opportunities to make profit from its automobile sector which was their core business and the company faced heavy losses.
This report focuses on the problems faced by the Fiat Group in the year 2002 due to the decreasing sales and unnecessary diversification in other areas which resulted in low financial results of the company. Due to this financial crisis led to the company announcing staff reduction in order to reduce costs and also closure of some of its businesses. All this led to only further problems in the company like employee's dissatisfaction, low morale and loss of trust.
Other issues faced by Fiat during its crisis period to the various factors like poor management, lack of control on their marketing strategies, ignorant of the market needs/ competitions and so on, which led to the downfall of this world class reputed company.
Analysis/ Review/ Discussion
After having done a PESTLE analysis for the FIAT Group, mentioned below are some of the factors that are / would influence the company's strategies.
Political:
The past financial crisis of Fiat has made it take decisions to lay off some of its operations in certain countries which are not as profitable. Fiats decision of cutting down plants across the world has led to labour unrest in many countries as there are specific laws in regards to unemployment and downsizing or closure of some units in each country. This could affect the company's flexibility in implementing some of the new strategies.
Tougher car emission laws act as a risk factor as meeting the set CO2 emission of 120 g/km would mean increase in the prices of the cars. Current CO2 emission by FIAT cars is 140 g/km.
Economical:
The recession last year has resulted in increased unemployment which has decreased the purchasing power of the people, which would affect FIAT's overall sales in all sectors.
Following this the banks have started charging higher interests in the loans and have tighten their policies in giving loans to customers, which affects fiat's market as well.
The rising prices of the raw materials, especially Steel is an increased cost for any car company.
Social:
There has been a change in the consumer's buying pattern recently due to the recession, as a result of which customers are now looking for better deals and if a better deal in monetary terms in available from a competitor, costumers don't mind going for a different brand like Toyota.
Fiat has always had a small car image so the recent alliance with Chrysler is a challenge for FIAT as US market has a demand for bigger sized cars. Also in the past FIAT has had a bad reputation for its brand name due to the decreased sales so it is a challenge to make its place in the US market.
The current business strategy of mainly focusing on the European market to derive sales is not sustainable as they key players get an opportunity to explore emerging markets and establish themselves.
Technological:
The innovative Japanese technologies with rapid new developments are a factor affecting fiat's strategies. Competition from the german market with key players like BMW, Volkswagen, Mercedes with strong marketing strategies affect fiats strategies.
The upcoming 'Electric -cars' by Renault-Nissan, if successful might affect the sales and market.
The 'Peak oil' scenario expected in the year 2010 is a major threat for any automotive industry and so is for Fiat. As per research, the demand for oil in the coming years is going to exceed the production, hence there needs to be research done for alternative fuels.
Environmental:
With the environmental classification of cars nowadays, there is a tough market competition in place for FIAT as most automakers are aiming to make eco friendly cars with low emissions of CO2, something which only FIAT was manufacturing in the past.
In reference to the Porter's Generic Strategies, the Cost Leadership and Differentiation strategy combined together would prove fruitful for a company like Fiat.
Considering the recent alliance with Chrysler from the US, Fiat now has access to the US market. Fiat is well known for manufacturing eco friendly fuel efficient small cars, something that Chrysler doesn't have. This joint venture gives fiat an opportunity to make its place in the US market and access to the US suppliers, not only for its cars but also for the other products under the FIAT group.
Fiat needs to implement the cost leadership strategy by offering reasonable and low cost cars and fuel efficient , to the market, something that the customer's needs in the current financial environment. By offering this,it can make a global presence once it expands to the emerging markets like Asia, China & North America.
While still concentrating on the cost leadership strategy, the differentiation strategy combined would also be beneficial for the company as it would be profitable to offer cars in different markets as per the customer needs. E.g. In the US, the market is mainly for bigger family cars and Fiat is known for its small sized cars, so it might not be able to attract the US markets with the demand for bigger sized cars.
Similarly, in the European market, the demand has always been for small sized cars and also with the current rise in the fuel price people still are opting for small sized cars in this market. If Fiat does expand in the Asian market, the customer needs in those markets might be different to the European markets. E.g. In the Indian market, the demand for cars is emerging as per the status quo, people with a higher status often prefer small sized cars for style and status where as the middleclass people might opt for bigger sized family cars, keeping in mind their family so that it accommodates the whole family.
If the above two strategies are both combined and implemented successfully, FIAT would soon get back its position in the market as it had in the 1980s.
Considering the low economies of scale of the company currently, it needs to lay off brands which are not doing well which will cut down their costs and invest the money into global expansion.
Resource Implications:
Too much dependence on European market, ignorance and no significant development in the Asian market as they have a high demand for cars.
Further alliances in countries with higher demand for automotives, North American market, Asia.
Need to establish FIAT in US/Canadian markets - Largest auto markets in the world.
Come out from the small sized cars to bigger family cars while still keeping the vehicle environmental friendly and fuel efficient technology. Also try and meet the low emission figure set by the government as no other automaker has yet reached the target figure and Fiat is currently the lowest at 140 g/km. (target set - 120 g/km)
Establish an efficient supply chain network globally to meet the market requirements and handle the global competitions.
Knowledge Leverage- Using people and their ideas globally. Fiat is said to have involved approx 13,000 people at 116 centers across the world in research and development of technology. Based on this, the company can strive to compete with the rapid technology changes from other key players like Toyota.
Conclusion & Recommendation
Cut down on their sub brands which are not profitable and concentrate on manufacturing only certain models with good and latest technology as per current demands, considering the low capital in the business currently.
Expand the Fiat group in the uncovered markets like Asian / China market and establish itself as a global brand. Also expand in the fast emerging North American market.
Alliances with some of the Asian / Chinese car makers, which would act as a platform for promoting itself, thus resulting in gaining a market sector for Fiat in these countries.
Production of cars as per the requirements / location. US customers have a high preference for bigger cars; European market has had a demand for smaller cars for a long time, and in this current economy considering the high fuel prices and population growth, the demand is still for small cars in this region.
Increasing requirement for fuel efficient cars today. This is a crucial time for FIAT as they have been producing fuel efficient cars from the beginning and has the technology to manufacture the same; they now need to expand their market globally as this is the current requirement.
Focusing on the quality of the cars produced.
Downfall of some competitors like GM, OPEL due to the recent financial crisis, opportunity for FIAT to make its place in the market, with the strong management the company has. An opportunity for FIAT to restructure its strategies and productions to meet the current demand and requirements of the customers.
Exceptional marketing of their products, gateway to increased sales. Adoption of the Car Scrappage scheme, which gives a certain amount of discount to the buyers, gives way for attracting customers as it would mean paying lesser interest by customers if they have taken a loan for the vehicle. Such schemes would also prove to be profitable for FIAT as would result in increased sales as customers would be attracted to claiming the discount in exchange of their old cars.
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