Fiat Automobile Corporation Essay

(Part 2)

 

New opportunities for Fiat can only come from avoiding the mistakes of the past. The greatest issue that led to the company’s miseries was the fact that it failed to keep abreast with the changing trends in the automobile industry in the late 90s. While Renault, VW and Mercedes were injecting billions of euros and designing new models, Fiat was investing in other businesses and ignoring its leading business. By the time the company started reacting, its competitors were far ahead. In the 6-year period between 1995 and 2001, VW spent over $20 billion to restructure its operations while Renault and Mercedes spent about $9 billion apiece in restructuring model development of new models. In comparison, Fiat only spent $4.5 billion. This resulted in big gaps between Fiat’s and its competitor’s product lines.

Graph 1: Amounts in billions of US dollars European auto manufacturers spent in restructuring and development of new vehicle models during the late 90s

 

Suggested solutions

 

During the 6-year restructuring period that Fiat undertook reluctantly, its competitors vigorously invested in new brands and at the same time slashed prices on their vehicles. They saw their market share increase, which naturally went hand in hand with the erosion of Fiats market share leading to low sales and strained revenues. Failing to go with the trend, Fiat saw that its competitors were now controlling and acting as the direction of the automobile industry. Learning from history, Fiat can implement a number of measures in order to keep up with its competition.

First of all, the company can invest in new technologies, as automobile consumers are becoming more and more environmentally conscious. The company can invest in producing models that use alternative energy, as this appears to be the dominant trend going into the future (Pieper 2002). Fiat auto landed in problems due to its mistake of ignoring its leading business and instead embarking on buying into other businesses that were not necessarily related to its activities in a bid to widen its revenue base, an exercise that landed it into losses. It would be a good step for Fiat to shed off these loss-making businesses and concentrate on its core business by allocating funds for research and development. The company can also invest in image upgrading to regain its lost brand equity, a move that would bring Fiat to see it regain some of its lost consumers by making them feel that the brand is back to its earlier renowned status. This would have the secondary effect of stimulating the sale of the company’s stock in the equity markets hence availing the funds needed to finance its expansion activities.

Fiat has indeed been making progress in producing less polluting vehicles as the company has been voted to be the least contributor of CO2 emissions among European automobile makers. JATO dynamics, a company that leads in automotive consultancy and conducts automobile related research around the world awarded Fiat this distinction for the 2010 year, a fourth time in a row. This shows that the company is no longer ignoring industry trends but rather setting the pace as pollution is set to be the next competitive front for vehicle manufacturers. The less a brand contributes to pollution, the better it will perform in terms of sales as consumers rank pollution among high priorities when it comes to purchasing a new car.

The European Union set a target of 130g/km of CO2 emissions by 2015 but Fiat has achieved and in fact surpassed this target 4 years ahead of schedule having reduced its CO2 emission levels by about 10% over the past 4 years (Fiat 2011). If the current trend is maintained, Fiat will have cut its CO2 emissions by almost a quarter over an 8 year period which is impressive. This might be the perfect opportunity for the company to make up for its mistakes of the late 90s when it failed to read the signs right. Its role as an environmental champion is likely to help the company to regain its lost market and bounce back to the automobile leader it previously was (Simpson, 2010).

 

Graph 2: Fiat’s CO2 emission in g/km over the period 2007-2010

 

Fiat is investing in technology and leading its competitors in terms of developing new solutions such as its TwinAir engine which is advertised to be the most ecological turbo petrol in the engine as of now (Fiat 2011). The company is also campaigning the use of alternative fuels for example LPG/Methane and is also the leader in this field among European car makers. The company has also developed a technology referred to as eco:Drive which is essentially a system aimed at encouraging responsible and eco-compatible driving style thereby enabling drivers to achieve lower emission levels (even lower than the officially sanctioned levels).

While Fiat has a numerous of environmental targeted advantages over its European competitors, the fact is that it is not in this alone. Asian car makers especially Toyota has been investing billions in its own eco-friendly technologies. Fiat is competing at a global level and just being a step ahead of its European competitors does not mean that the company has won the battle. As Toyota continues to make an entrance into the European market, Fiat will have to do more than being content with the fact that it is ahead of its local competitors and is achieving less than the sanctioned levels of emissions. Eventually, the choice will not be which of the European brands has the lowest emissions but rather which brand is the most eco-friendly in the world.

 

Conclusion

 

Fiat enjoyed great success over the years but management issues led the company to make choices that saw it loose ground and its brand equity deteriorate. However the company now has a chance to bounce back to its earlier success by exploiting a few factors in which Fiat is coincidentally leading among its European competitors. However, the company still faces stiff competition in this market especially from the world renowned, Toyota of Japan. Fiat is competing at a global level and just being a step ahead of its European competitors does not mean that the company will eventually regain its earlier success due to the fact that there are other competitors to look out for. The company will therefore have to prove its competitive advantage to the global market if it wants to succeed.

 

 

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