Fiat Chrysler's CEO Pledges to Support Fiat Brand in Brazil

(Bloomberg) -- Fiat Chrysler Automobiles NV is bringing a slew of new models to Brazil and expanding production at two local factories as part of a 16 billion reais ($4 billion) plan to regain lost market share in Latin America’s biggest economy, Chief Executive Officer Mike Manley said.

The Italian-American company increased its investment plan for Latin America by 2 billion reais through 2024, though it extended the time frame of outlays first announced in June by a year. The spending will go toward increasing annual capacity at a Jeep plant in Pernambuco to 350,000 units from 250,000 and building a new plant to produce more efficient turbo engines, Manley told a group of reporters on Wednesday.

“We want to make sure the Fiat brand remains very strong in Brazil’s marketplace,” Manley said during a visit to the Betim plant. “The Fiat brand is a vital part of our business.”In a sign the Fiat brand remains a key part of the company’s strategy, Fiat Chrysler said 15 new, refreshed, or special series models are planned for Fiat and 10 for its Jeep and Ram brands by 2024.

Latin America is critical to Manley’s plans to grow Fiat Chrysler’s business globally. It’s the only other region where the company made money in the first quarter besides North America, turning out 105 million euros ($117 million) in adjusted earnings before interest and taxes. The automaker’s profit margin in Latin America in the period was 5.4%, and it’s targeting "near-double-digit" profitability in the region over the five years through 2022.

Fiat Chrysler's CEO Pledges to Support Fiat Brand in Brazil

Fiat opened its first plant in Brazil in 1976 and the Fiat brand led sales in the country for 12 years until 2015. That ended after the company merged with Chrysler and began pouring resources into Jeep in an effort to make it more of a global brand, including starting local production of the Compass and Renegade models. While demand for Jeep’s higher-margin SUVs have boosted its Brazilian market share ranking to 4.8% from virtually zero four years ago, the budget-car Fiat brand has declined to third place.

Fiat was the first automaker in Brazil to establish manufacturing facilities outside the industrial center of Sao Paulo state, opening its plant in Betim, in the central state of Minas Gerais, in 1976. Giovanni Agnelli, grandson of the company’s founder and grandfather of Chairman John Elkann, attended the inauguration.

Today the factory makes engines, transmissions, and eight Fiat models, from the super compact Mobi to a commercial van called Doblo. It has annual capacity of 800,000 vehicles and 1.1 million engines and transmissions. The Jeep assembly plant in Pernambuco, in northeast Brazil, employs 5,000 people to manufacture the Jeep Renegade and Compass.

Brazil is one of the few regions outside Europe where the Fiat brand has achieved broad popularity. It’s been withering away in the U.S., where cheap gas prices and a love affair with trucks and SUVs have left its 500 compact car out of fashion. The brand has also largely disappeared from China. The future focus is on Europe, Brazil and emerging markets, people familiar with the company’s five-year plan said last June.

Fraternal Competition

The Betim plant will produce three new models starting in 2020, including two new SUVs for the Fiat brand, the company said. By that time, Fiat will have to contend with Volkswagen AG and even its own Jeep brand, Felipe Munoz-Vieira, an analyst with Jato Dynamics in Turin, said in an email.

“Brazil is one of the few remaining key markets of the Fiat brand, but it is not among the brands considered by the consumers looking for an SUV,” he said. “These two new SUVs of Fiat will certainly help the brand to regain market share, but by the time they will arrive,” Volkswagen and Jeep “will be well positioned in the segment.”

Fiat Chrysler’s Latin American investment compares with the 10 billion reais earmarked for the region by General Motors Co. for 2020-2024 and the 7 billion reais budgeted by Volkswagen through 2020. VW has been losing money in Latin America and expects to break even by 2020. GM Chief Executive Officer Mary Barra said in February that its South American business "remains a concern.”

©2019 Bloomberg L.P.

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