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Fiat brave with Golf rival

2007-01-31 09:42

Fiat pitching its success on the new Bravo

Gilles Castonguay

Milan - Italian carmaker Fiat takes its first step towards meeting ambitious growth targets for 2010 with the launch of a new car for the most important segment of the western European market.

The five-door Bravo not only marks Fiat's return to the compact car segment, but also its effort to keep up the momentum gained from its quick recovery from the brink of collapse.

Although strong sales of models like the Grande Punto led its key auto division to its first annual profit since 2000 last year, Fiat still has to prove sceptics wrong.

Analysts like Sanford Bernstein's Nicla Di Palma doubt it can repeat this success in a segment where it has failed to develop much of a presence in the last six years.

"It will be difficult for the Bravo," she said.

"A disaster could repeat itself," she added, referring to the failure of the Bravo's predecessor, the Stilo.

By reporting strong results quarter after quarter last year, Fiat has nevertheless won the confidence of investors, whose renewed demand for the stock nearly doubled its price in 2006.

Fiat has confirmed targets set under an ambitious growth strategy for 2007-2010, including a group trading profit of 2.5 billion to €2.7bn.

Bigger margins

The compact car segment of the market, known as the C Segment, is important because carmakers make more money from them than the smaller cars in their line-up.

Sales in this segment have margins of 4-5% against a loss of 1% to a profit of 3% in the A and B Segments, according to Di Palma at Sanford Bernstein.

The A and B segments comprise the smallest cars on the market, for which the Fiat brand is best known.

Fiat Chief Executive Sergio Marchionne has estimated the C Segment to be the biggest part of the European market, accounting for roughly 25% of total sales.

Fiat's share of it has been paltry, however.

In western Europe, it ranked 15th with 1.6 percent in 2006 - excluding its Lancia and Alfa Romeo brands -- far behind market leaders Volkswagen, GM's Opel, and Ford, according to J.D. Power preliminary estimates.

"Fiat has lost large amounts of C-Segment share in Italy and is largely irrelevant in this segment in other European markets," read a research note by Max Warburton at UBS.

"The new Bravo will be key to demonstrating that Fiat has anything approaching a sustainable future," he said.

The Bravo, essentially a revamped version of the Stilo, is also important for Marchionne because it is the first car to have been developed under his watch.

Lessons learned

Fiat unveils the Bravo at an event in Rome on Wednesday.

In a bid to avoid the mistakes made with the Stilo - such as overly ambitious sales targets - it aims to sell a modest 120 000 units a year, in tandem with Marchionne's view of never exaggerating the potential success of a new car.

"(It) is a realistic number (that can) be achieved," he told a conference call last Thursday.

Fiat brand head Luca De Meo has said the carmaker had overcome Stilo's electronic problems and reduced the number of built-in extras that had priced it out of the segment.

Fiat has also made only one version of the Bravo compared with the Stilo's two, which cost €900m to develop - an investment the group hopes to recoup with the new car.

Hailed in 2001 as the car of Fiat's future in the C Segment, the Stilo was supposed to be its answer to the Volkswagen Golf.

But it was a flop.

Its publicity began soon after Sept. 11, 2001 when people's minds were focused on the attacks in the United States.

It later missed an overly ambitious sales target of 350 000 units for 2002 and 400,000 for 2003, becoming one of the catalysts that led to the group's worst crisis in its history.

"(The) Stilo was not up to class standards in terms of quality, safety or dynamics," said Warburton at UBS.

"The new vehicle needs to be better in all these areas despite being based on an old chassis," he said.

Fiat will have some luck on its side.

It is rolling out the Bravo at a time when few new models or significant upgrades by Volkswagen or other competitors in the same segment are coming on the road.

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