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Fiat has been working with partners around the globe to expand its market

Automotive Industries caught up with Gianni Coda, president, worldwide purchasing at Fiat Auto and asked him how Fiat's supplier strategy has helped

Recently Fiat 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 2 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 per cent of the European market and Fiat hope to capture 3 per cent of this market. Earlier, Fiat had said it would capture 8 per cent of the Western European market – in 2006, its market share in that region stood at 7.6 per cent.

Fiat has a target of 120,000 Bravo sales in the next year. 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, say reports.
The Grande Punto has helped Fiat boost sales. Fiat has seen a marked turn around with strong sales of compact cars helping push fourth quarter profits to USD 587 million from USD 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 USD 2.5 billion in 2006 as revenue rose 11 percent to around USD 67 billion. Fiat Auto is being renamed Fiat Group Automobile SpA/
The Bravo hatchback will be sold in around 60 markets by end-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 Sergio Marchionne, who was appointed CEO of Fiat in 2004, plan 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 per cent 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. The auto major makes makes cars under the Fiat, Lancia and Alfa Romeo brands as well as trucks and agricultural and construction vehicles, returned to profitability in 2005.

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.

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 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 USD 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.
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 also looks to implementing joint global sourcing strategies. According to a report by the Ca’Foscari University of Venice, purchasing costs represent over 70 per cent 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 caught up with Gianni Coda, president, worldwide purchasing at Fiat Auto and asked him how Fiat’s supplier strategy has helped.

1. What efforts do you make in order to optimize your purchasing strategy?

That’s what we are working on now. Of course you can not change from one year to another. But what I perceived was the lack of strategy in purchasing. Because using only sourcing and global sourcing you do not have a strategy for the parts you are buying. So you end up with to many suppliers.

So we have to make a study for all the parts of how many suppliers we have, how many do we need for the future, taking into consideration the new models we are going to add. It takes two years to renew models, etc, etc. and to fix the starting issues with the supplier.

2. What are the biggest challenges that you are facing with components standardization?

This is the challenge that we had where we had a lot of suppliers for similar parts. Of course with the engineers of Fiat Auto group are starting to use more standardization platforms, so that 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 on the same platform. After that of course you can diversify with interior but the platform is the same. We are coming back to the question about the strategy.

3. How do you share the challenge of rising cost of materials with the suppliers?

And 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, 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, we work together. We split 16 commodities throughout our purchasing and put together guys from purchasing, 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.

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

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

5. 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?

The safety aspect. We have 5 star, we are going to have 6 star. This means more cost for you the consumer. The reduction of weight will be very important for the fuel consumption, for 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 cost 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