Issue: Apr 2007


In addition to popular retail acceptance of its new passenger cars, Fiat has succeeded in the commer



Gianni Coda, president of Fiat Worldwide and Sergio Marchionne (who was appointed CEO of Fiat in 2004)

by Nick Palmen



There are many changes at Fiat, with the company on a roll and a change of name - Fiat Auto is now known as the Fiat Group Automobile SpA.

Fiat recently debuted its mid-sized sedan, the Bravo, in Europe. The five-door car is one of 23 models Fiat will launch over the next three years. The target is to increase sales to 2.8 million vehicles a year – in 2006, the Italian auto major sold around two million vehicles. Initially, around 70,000 Bravo cars will roll out of Fiat’s Frosinone facility and will take on brands such as GM’s Astra, the Ford Focus and the Volkswagen Golf.

The Bravo replaces the Stilo, which was launched in 2001 and failed to capture any interest in the market. The Bravo is Fiat’s only midsize car – Fiat’s successes have recently been in the compact car segment. The mid-size or C segment accounts for more than 20% of the European market and Fiat hopes to capture 3% of this market. Earlier, Fiat had said it would capture 8%t of the Western European market – in 2006, its market share in that region stood at 7.6%. The auto major makes cars under the Fiat, Lancia and Alfa Romeo brands as well as trucks and agricultural and construction vehicles, returned to profitability in 2005.

Fiat's exceptional shareholder return appears to be driven by the success of its ongoing recovery efforts. In addition to popular retail acceptance of its new passenger cars, Fiat has succeeded in the commercial vehicle space. The company has also moved quickly to reduce net industrial debt and sell off equity stakes in other companies not directly related to core operating areas, such as Italenergia and Mediobanca. Fiat has also moved to solidify holdings in Ferrari.

Fiat rolled out the Bravo in just 18 months, compared to an industry standard of 36, to capitalize on the momentum from the successful launch in the fall of 2005 of its flagship compact, the Grande Punto, claims the company.

The Grande Punto has helped Fiat boost sales. Fiat has seen a marked turnaround with strong sales of compact cars helping push fourth quarter profits to US$587-million from US$49-million the previous year. According to Bloomberg, Fiat’s group earnings before interest, taxes, restructuring costs and one-time items, known as trading profit, almost doubled to US$2.5- billion in 2006 as revenue rose 11% to around US$67-billion. The Bravo hatchback will be sold in around 60 markets by the end of 2007, including in China. Fiat hopes to sell 120,000 Bravo cars by 2008. Fiat invested around 350 million Euros in developing the Bravo and will be priced between around 15,000 Euros to 23,000 Euros.

According to reports, Fiat will use the Bravo platform, or chassis and major parts, to build compact cars for its other brands, such as a successor to Alfa Romeo's 147 and the new Lancia Delta hatchback. Component sharing among Fiat's brands is part of Fiat’s strategy to reduce production costs.

This is part of the plan of Sergio Marchionne (who was appointed CEO of Fiat in 2004) to overhaul all divisions of the auto-maker’s operations. He introduced a new purchasing and production strategy focusing on partnerships and alliances, which allows for the risks and costs of developing new models to be shared. Marchionne has said that he is working to increase Fiat’s market share in Italy alone to over 30% in 2007.

“The Bravo is in a segment that's worth 25 percent of the market, and which we haven't used sufficiently and intelligently enough in the past. We need to reposition the brand in the segment,'' Marchionne said to reporters during the launch of the Bravo. Later this year, Fiat will be re-launching its legendary Cinquecento or Fiat 500. Plus there is a new strategy plan for Fiat’s lorry and bus division, Iveco.

In September 2005, under the leadership of Gianni Coda, president of Fiat Worldwide Purchasing, the company embarked on its new supplier program. This was a turning point for the Italian car manufacturer, which then began shifting its focus from global sourcing to global partnerships.

In 2005, Automotive Industries reported that the Fiat Group was focusing on global partnerships with strategic suppliers and, at the same time, pursuing a supplier management program approach for building long-lasting relationships. It is also looking towards implementing joint global sourcing strategies. According to a report by the Ca’Foscari University of Venice, purchasing costs represent over 70% of the total manufacturing costs of a vehicle. “This implies that the purchasing function has a strategic relevance in the automobile industry,” says the report.

Automotive Industries (AI) caught up with Gianni Coda (Coda), President of Worldwide Purchasing at Fiat Auto, and asked him how Fiat’s supplier strategy has helped turn the company around.

AI: What efforts do you make in order to optimize your purchasing strategy?

Coda: That’s what we are working on now. Of course you cannot change from one year to another. But what I perceived was the lack of strategy in purchasing - in only sourcing and global sourcing, you do not have a strategy for the parts you are buying. So you end up with a mix of a lot of suppliers when you actually need fewer suppliers.
So we have to compile a study of all the parts - of how many suppliers we have, how many we need for the future, and take into consideration the new models we are going to add. It takes two years to renew models, and to fix the starting issues with the supplier.

AI: What are the biggest challenges that you are facing with components standardization?

Coda: This is the challenge that we had where we had a lot of suppliers for similar parts. Of course with the engineers of the Fiat Auto group we are starting to use more standardization platforms, so it helps to have more standardized parts. So the new model that we are developing can be of the same platform. Also, if it is Lancia or Fiat, it can be made on the same platform. After that, of course, you can diversify with the interior but the basic platform is the same. We are coming back to the question about the strategy.

AI: How do you share the challenge of rising cost of materials with the suppliers?

Coda: What was really successful was that normally in a car you have two goals to reach. One is the purchasing, the commercial side, and the other one is the engineering angle, from the technical side. So we decided to have only one objective. It doesn’t matter if it is the commercial or technical. We have to reach this objective, so we work together. We split 16 commodities throughout our purchasing and put together guys from purchasing, and technical guys from quality and manufacturing, only working on cost reduction involving suppliers. We are giving premium to the supplier. We are talking about volume and working together

AI: Do you see an increase of modular outsourcing in the future or would you prefer to keep core competences in-house?

Coda: It depends. We do a lot of outsourcing. We have quotations from outside - from India, China and elsewhere. You reduce costs by between 15 and 20% landed in Europe? The quality tends to be the same. Of course you have the cost of the inventory, and the cost of transportation because it is further. You have to take all this into account. Plus, to answer your question, we prefer to have the very technical parts closer to the plant.

AI: The electronic share in the vehicle is becoming more and more important. What innovative solutions do you think will bring more value to the customer?

Coda: The safety aspect. We have five-star rating, and we are gong to have six-star. This means more cost for you, the consumer. The reduction of weight will be very important for the fuel consumption in terms of the new regulations we are going to face. If we are looking today, for example, at wheels, we have steel wheels, aluminium and alloys. Now with magnesium parts, 70% is produced in China and costs less then aluminium. So in the future I can say that the wheel could be more magnesium than aluminium. Three years ago it was the opposite.

AI: How have your sourcing relationships in India and China been working out? Have they met with your expectations and if so, why?

Coda: Fiat has been working with partners around the globe to expand its market. In India, for example, Fiat is collaborating with Tata Motors to launch a low-cost small car. In July 2006, Tata Motors and Fiat entered a US$877-million agreement to make cars and engines from 2008.

The joint venture would see the two auto majors manufacturing more than 100,000 cars and 200,000 engines and transmissions from early 2008. The two are also looking at making Tata Motor’s new one-ton pick up truck in Argentina for Latin America and other countries from the second half of 2008.

Fiat Bravo earns a five star Euro NCAP rating
The new Fiat Bravo has been awarded the five star Euro NCAP rating, placing it at the top of its category for safety, with a total score of 33 points.

Similar ratings have been given to the Grande Punto and Fiat Croma, is confirmation of the commitment of Fiat Automobiles SpA to all aspects of driver and passenger protection.

Qualitas Convention 2006

By Simona Cappa

More than 500 supplier companies attended the Qualitas Convention 2006, where Fiat Auto presented challenges to suppliers. 37 awards for the best results were presented.
The archer, framed in the spotlights, braces his arm, draws the bow and releases the arrow, hitting the bull's-eye of the large target in front of him.

The lights come on again amidst applause. The 2006 Fiat Auto Suppliers Convention has begun. And this explains the large, stylised target dominating the monitors - the central theme linking all the reports: a metaphor of the tension of work, that demands concentration, dynamism and efficiency. Ideas put immediately into action, without distractions.

An audience of more than one thousand people, from Europe, Brazil and Turkey. More than 500 supplier companies attended. The meeting - as Gianni Coda, Fiat Group Purchasing and Fiat Auto Purchasing Manager explained on stage when welcoming guests - aimed to provide a clear idea of the reality of Fiat Auto and the Fiat Auto supplier system through focusing on results already attained, the objectives to be relaunched and new challenges.

The scheduled programme embraced unexpected rhythms. Yet the fast, almost relentless rhythms were characterised by the impressive structural harmony of the presentations. From Stefano Re Fiorentin for Engineering & Design to Stefan Ketter for Manufacturing; from Richard Schwarzwald who discussed Quality, to Pierre Fleck who outlined the needs of Parts & Services - all these reports began from the analysis of objectives proposed during the 2005 Convention to verify their attainment and what still has to be done to operate in the best possible manner.
A surprise unscheduled report in the middle of the meeting involved the Managing Director of Fiat Auto. Sergio Marchionne took the stage and, in his customary style, set aside his prepared speech to improvise a calm yet pungent report. He confirmed the good news already announced in the newspapers and mentioned current and future international agreements. He spoke of the “extremely demanding” future that, in the next few years, will see even faster growth with increases in production and turnover that by 2010 will mean 3 million vehicles built.

He is convinced that the worst times are over and that “the mistakes of the past won't be repeated”. "We are lucky," he added, "to have a determined young team that in June 2004 took up the challenge to make Fiat Auto great again. Our current undertakings will have an impact on all of you. Over the last few months, we had to address a problem of inconsistent supply quality: and this is not acceptable. We ask you to uphold your commitments. The quality level is currently improving and you must all help maintain it. Your support in this regard is essential."
The scheduled programme resumed after his report to even greater effect and with the focus on current topics. Reports were presented by purchasing managers, who all contributed to the “overall picture” Coda had hoped to see. Roberto Di Stefano, Franco Cavallotti and Mario Sabena - respectively for the Chemical, Electrical and Metallic sectors - described their departments and outlined the "tasks" for the immediate future and prospects in a rather more long-term viewpoint. Coda summed up as follows: “We must move forward with optimism in the search for quality”.

The meeting closed with the presentation of Qualitas Awards to the best companies in 2005. More numerous than ever: 37, each mentioned with a specific motivation; belonging to different realities in terms of logistics (Turkish companies received awards from Tofas and Brazilian companies were nominated by Fiasa); to the tune of solemn, battle-like music emphasising that quality is and will always be the “heart” of the target. “Thank you for your fine work. See you again next year,” were the closing words of Gianni Coda.

Forward with optimism in the search for quality

The last person to take the stage at the Qualitas Convention 2006 to conclude reports was Gianni Coda. His composed and optimistic report nevertheless emphasised again the essential importance of quality: it is still the main priority.

"I hope," said Coda to the audience, "that what you have heard is more or less what you were expecting to hear. Since the objectives we have illustrated - and which Mario Sabena defined as ‘ambitious’ - are not so much ambitious as ‘necessary’. We must improve quality - there is simply nothing else for it. In relation to this commitment that we demand of you, the Fiat Group will offer you interesting opportunities over the next few years, with growth strategies now being implemented and through our new, more integrated purchasing organisation."
Coda, who by no means coincidentally plays the dual role of Purchasing Manager in the Car sector and Group Purchasing Manager, mentioned some of the agreements signed recently by Iveco in China, by Iveco and Fiat Powertrain Technologies in India, by Fiat Auto in Russia - "and when speaking of Group business and not just about Fiat Auto," he added, "this means that there are business opportunities and they will expand over the next few years".

"In terms of value," Coda pointed out, "worldwide Group purchasing business totals 25 billion Euro for direct materials and 46 for indirect materials, plus services and machinery. Not many companies can boast such turnover and it is destined to grow. And as regards direct materials, 442 suppliers or groups of suppliers represent 90% of purchase turnover; of these, two thirds have at least two sectors in common, worth 15 billion Euro. "We are suggesting that they share our strategy, as also those companies that perhaps only supply one of our companies but are interested in boosting their activities. This may lead to great stability in business relationships as well as more important business visibility." A significant example concerns tyres, involved in all three main sectors of the Fiat Group. "And this itself may give rise to a more integrated strategic vision ensuring more stability and better prospects."

Coda explained that at Group level "we are currently implementing the same type of organisation already seen in Fiat Auto Purchasing areas, with transversal responsibilities that make it possible to grasp (and offer to our partners) the opportunities that the Fiat world is experiencing or will experience over the next few years and thereby operate in an integrated manner. In this way, we will be able to dialogue with you across the board in all the markets where the Fiat Group does business." The reality of indirect materials is equally interesting. "And here again, with new installations, investments and services, there will be themes to be developed and the possibility for synergic growth. We have already identified people in various sectors to look after various commodities and opportunities that in the future we will handle as a Group rather than through individual sectors."

"I hope," Coda went on, "that the message we have outlined to you is succinct, clear and exactly reflects the times we are going through today. Times in which we must express our desire to be there, grow and improve. We have a lot to offer you, just as you have a lot to offer us. Today, you listened to me repeat the four priorities we are focusing on: quality, that must be an established fact, competitiveness, performance and service levels. We want to grow with quality products that enable us to compete with the best in the world. A positive attitude and technological innovation are fundamental in this regard but, today, optimism and a desire to grow are equally fundamental."

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