Fiat Headed Back To U.S. After 27 Years

The 500 Is Coming, But Will Americans Find It Fashionable?

When Village Motors in Los Angeles opens the first "Fiat Studio" this month, it will be the first of 130 such showrooms that will open by the end of the year to sell the Fiat 500. This small, four-passenger hatchback is part of Fiat's plan to combine itself with Chrysler, and re-enter the U.S. market. The Italian automaker controls Chrysler through its 20% stake, and has set its sights on becoming a bigger global automotive player.

Many are bullish on the return on Fiat to the U.S. after a 27-year absence, this despite the recent closure of such automotive brands as Mercury, Pontiac, Saturn and Hummer. AutoNation, the biggest auto retailer in the world, will be opening seven of the Fiat dealerships.

"It's a tough market they're entering, but the product is very competitive and that's a good start," says Rebecca Lindland, auto industry analyst with IHS Global Insight.

Fashion or Flop?

Indeed, the 500, a diminutive model that will compete with the Mini Cooper, as well as cheaper compact models like the Toyota Yaris and Hyundai Accent, should appeal especially to car buyers who lean toward making buying decisions based on design and fashion. The 500 is more cute than anything else, with plastic body-color appliques on the dashboard to give the interior a fun atmosphere.

The 500 conjures up images of '60s era cars like the original Fiat 500 or Volkswagen Beetle, which had metal dashboards the same color as the exterior. Its 1.4-liter engine performs better mated to a manual transmission, but the automatic is not a dog by any means. Offering 30 mpg city/38 mpg on the highway, its fuel economy numbers are a bit low for a car this small, but they're not uncompetitive.

The 500 has a distinct styling advantage over the Yaris, the current Accent (though a new design is coming this summer), the Nissan Versa and Kia Rio. But there is a price premium for it, with stickers ranging from $15,500 for the entry level "Pop" model with a manual transmission, to $17,500 for the automatic "Lounge." In between, there is a "Sport" edition, also with a manual. A Yaris, by comparison, starts at less than $13,000.

There are ten exterior and ten interior colors to choose from, meaning buyers will be able to spec out their 500 to look unlike their neighbor's. Later this year, the company will add a Cabrio convertible, as well as an electric model. Next year, the Fiat Studios will get a turbocharged Abarth version, and potentially a micro-van based on the same platform.

Pound-for-pound and dollar-for-dollar, straight value shoppers might be hard pressed to choose a Fiat 500. But there is an attraction of a European brand the others don't have. And of course, Fiat it is the "new new thing."

The Mexican plant where the 500 is built is set up to produce 130,000 cars annually, but it's anyone's guess how many Fiat will sell in the U.S. That capacity number also includes Central and South America, where Fiat has been a mainstay and doesn't have brand awareness problems. Small cars sell better in those markets than in the U.S., meaning if Fiat sells 30,000 500's in 2012 after all its dealerships are open, it would be a good showing. The company is planning a no-haggle strategy for buyers.

Putting Bad Quality in the Rearview Mirror

"As long as they have the quality high and competitive so as to avoid bad publicity, they will do well if they play up the 'La Dolce Vita" personality of Fiat and the Italian roots," says Charlie Hughes, industry consultant at Brand Rules, and the former marketing chief of Fiat when it was operating in the U.S. in the late 1970s.

Hughes says the dark days of terrible Fiat quality during the Carter administration will only be relevant to a small number of buyers with long memories. One of them is Thomas Pellechia of Hammondsport, NY, an author. Pellechia said he lusted for a Fiat X1/9 in 1976, paying $4,000 for a chocolate brown two-seater with removable hard top. "Driving the X1/9 was exactly what I had expected it to be -- heaven," he said. "It not only looked intriguing and pretty, it felt right and comfortable. Acceleration was exhilarating, shifting was effortless, and being seen in this car was essential."

The exhilaration quickly gave way to misery. The car would start up fine, but after a short while would buck and overheat, according to Pellechia, who said that several trips to the dealer brought no relief. After a terrifying break-down in the Holland Tunnel between New Jersey and Manhattan, and with fewer than 2,000 miles on the odometer, Pellechia says he unloaded it for $1,500 to a used car dealer. While that was relatively low mileage, Pellechia says the warranty had expired at just 1,000 miles.

His experience wasn't unique. Hughes says of 100,000 Fiats sold in 1975, the company had huge warranty claims on 99,000. "It was bad, real bad," he said of the brand's quality.

Today Fiat still ranks below average in J.D. Power's Vehicle Ownership Satisfaction Study in Europe. But the 500 stands out as an exception, ranking as the top city car, for example, in France.

"There is no question that the days of Fiat standing for 'Fix It Again Tony' are well behind them," says former GM vice chairman Bob Lutz, who was perusing the car at the recent North American International Auto Show in Detroit.

Even Pellechia is willing to give Fiat another chance today. "My X1/9 experience removed the name Fiat from any further new or used car consideration," he said, "but this was so long ago that I have to assume that the company has figured out by now how to keep a car running."

Italian-American Wedding Soup

The relaunch of Fiat here is tied up with the company's venture to expand its alliance with Chrysler, which the Italian automaker took control of in 2009 when Chrysler went through bankruptcy. The White House Auto Industry Task Force deemed Fiat's control, and its 20-percent ownership, as the best option for Chrysler's salvation. The two companies, led by CEO Sergio Marchionne, are now developing Chryslers, Fiats, Alfa Romeos and Lancias using shared engineering platforms and engines.

A series of Chryslers, for example, will be engineered off a modified vehicle platform that currently serves as the underpinnings of Fiat's Alfa-Romeo Giulietta. The plan also calls for the introduction of Alfa-Romeo vehicles to the new Fiat dealerships in the U.S. Dealers are expected to get the first of the U.S.-bound Alfas starting next year: A mid-sized Giulia, the MiTo compact hatchback and iconic Spyder roadster. Fiat has taken over the distribution of Jeep in Europe, selling the off-roaders at Fiat stores, and a new Jeep is being developed off a Fiat platform.

Fiat is also taking the new Chrysler 300 and Dodge Journey and will sell those vehicles in Europe as Lancias, though with interiors that better match Italian tastes, more sumptuous and leather-bound. "These cars are beautifully done, and we believe there is a market in Europe for them," says Chrysler marketing chief Olivier Francois, who is also CEO of the Chrysler brand in North America and CEO of Lancia. "There is very little financial risk to try even if it doesn't work."

It is a strategy that makes sense on paper, but is fraught with bad possibilities. Selling the same vehicles under different brands, known as badge engineering, has historically been a messy business for GM, Volkswagen and Ford, even when they're sold on different continents. "Badge engineering is an idea that accountants dream up because it saves money, but it almost always cheapens the brands," says Hughes.

Fiat had offers to sell Alfa, which has been a money-loser for Fiat for years, to Volkswagen last year, but kept it. Growing sales in the U.S. would be a way to restore black ink to the venerable Italian brand, especially if the company eventually builds in Alfas in North American plants alongside Chryslers. Already, Fiat plans to build a Maserati SUV with a Ferrari engine in a Detroit plant where Jeep Grand Cherokees are manufactured.

Subtle Marketing

Super Bowl viewers won't be seeing an ad for the 500 this month. In fact, TV ads will be scarce-to-nonexistent this year. Fiat USA CEO Laura Soave says that social and digital media will carry the messages. "We are going to build up this business and brand from the bottom up through social media and events," says Soave. "The people we are targeting tend to live the kinds of lives where they aren't watching a lot of TV anyway."

At the South By Southwest music conference, for example, Fiat will have a display and host events. Held in March in Austin, Texas, it drew over 13,000 business attendees and 100,000 music fans last year. "These kind of events allow us to touch a lot of people and generate a lot of social media currency," says Soave.

Credibility is probably the number-one obstacle for Fiat in the U.S. People who buy small cars below $18,000 tend to be highly rational buyers, placing reliability and functionality above the whimsy of owning an Italian car. Only time can prove out reliability, but Fiat's prospects for rebuilding its reputation for even old X1/9 buyers looks very promising.

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