Fiat, Ford plan to build small cars together
ROME (AP) – Fiat Auto SPA has found a new partner in Detroit seven months after breaking off a broad alliance with General Motors Corp., announcing a more-limited agreement Friday with Ford Motor Co. that envisages the two working together on new models of their small cars. Fiat and Ford both said they signed a memorandum of understanding to develop two small cars: a revival of Fiat’s iconic “Cinquecento” and a new version of Ford’s “Ka.” Both would be two-door hatchbacks at “entry level” prices.
Both companies have been ailing, and analysts greeted the partnership as a necessary step to cut costs in a competitive global market plagued by overcapacity. “By working together on this project, both companies would envisage reduced development and material costs, while providing highly competitive products to the marketplace,” Ford’s European division said. Profit margins on small cars are often tight, and alliances are one way of cutting costs. “The cooperation makes a lot of sense,” said Patrick Juchemich, auto analyst for the Sal. Oppenheim bank. “The volumes of the respective cars are too low to justify that they go their own way,”
The two cars would have very different designs, but should have similar engines, chassis, and body work, Juchemich said. There was no timeframe available at this point for when they will be built.
Lapo Elkann, in charge of brand promotion at Turin, Italy-based Fiat, told Italian Radio24 that the cars would be made on the platform of the Fiat Panda, and added that the agreement might be broadened.
A broad-based alliance between Fiat and Detroit-based GM collapsed in February. GM agreed to pay the Italian automaker $2 billion, mostly in exchange for canceling a clause in the partnership that could have forced GM to buy the 90 percent of Fiat it did not already own. Fiat and GM claim the relationship bore some fruit, for example in shared costs of producing the new Fiat Punto, and the two companies did not completely cut ties. But since February, Fiat has been looking for a new “targeted” alliance. Fiat CEO Sergio Marchionne has said Fiat must join a growing trend among carmakers to form alliances to produce specific models or components. “This is a well-established procedure, especially for utilitarian cars,” Juchemich said, citing the cooperation of Toyota Motor Corp. and PSA Peugeot Citroen SA to produce the Toyota Aygo, the Peugeot 107 and the Citroen C1 in the Czech Republic.
BMW, GM and DaimlerChrysler AG also recently teamed up in a joint effort to develop fuel-saving hybrid engines.
Fiat launched the latest version of its best-selling Punto on Tuesday, making a great effort to promote it amid hopes the car might revive its fortunes.
Fiat is investing around 10 billion euros ($12.5 billion) in 20 new models between 2005 and 2008. Its prototype for the “Trepiuno,” its resurrection of the “Cinquecento” first launched in 1955, won plaudits for its stylish look at the Geneva motor show last year.
Marchionne said Tuesday that Fiat will have cut its debt by some 4.8 billion euros ($6.02 billion) this year, helped by the settlement from GM, and by Fiat’s sale of its stake in power company Italenergia.
Fiat Auto improved results in the second quarter of this year, when the unit cut its operating loss by two-thirds to 88 million euros ($106 million), said Marchionne.
The auto unit, which accounts for around 40 percent of the Fiat SPA group’s revenues and has been losing money since 2000, is aiming to be in the black starting in 2007.
Stephen Cheetham, an auto analyst with Sanford C. Bernstein Ltd., said the agreement between Fiat and Ford was sensible, presuming that the cars would be produced in Eastern Europe or Turkey. Labor costs are lower there than in Italy, where Fiat’s production is concentrated, or Spain, where the current “Ka” is made.
But he said the Italian company would still face difficulties.
“It doesn’t solve Fiat’s main problem of having too many costs in Italy,” Cheetham said.
Ford, which also is struggling with high labor and health-care costs and faltering sales of its popular sport-utility vehicles, is dealing with a profit slump of its own.
In July the company said profit fell 19 percent in the second quarter, hurt by lower production and harsh competition in North America.
U.S. shares of Fiat rose 6 cents to $9.44 in afternoon trading on the New York Stock Exchange. Ford shares rose 3 cents to $9.95 on the NYSE.
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On the Net:
Fiat SpA: http://www.fiatgroup.com
Ford Motor Co. http://www.ford.com
AP-ES-09-09-05 1317EDT