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Fiat Frets Volkswagen Up! as Europe Turnaround at Risk: Cars

September 12, 2011

(Updates with analyst comment in seventh paragraph, shares in eighth. For more on the Frankfurt motor show, see SHOW <GO>)

Sept. 12 (Bloomberg) -- Fiat SpA’s revamped Panda could be hurt by a competing compact from Volkswagen AG, jeopardizing efforts to turn around the Italian carmaker’s unprofitable European business.

Fiat, which relies on minis and compacts for 75 percent of European deliveries, will introduce a new version of the best- selling Panda this week at the International Motor Show in Frankfurt, where VW will enter the segment with the new Up! city car. VW’s smallest and cheapest model is projected to surpass the Panda in sales by 2013, according to IHS Automotive.

“Fiat seems very worried by the Up!,” said Giuseppe Berta, a business professor at Milan’s Bocconi University, who’s written books on the carmaker. “They feel a lot of pressure, as the new German subcompact has a bit of Italian flair. The new Panda is something that Fiat can’t afford to get wrong.”

Turin-based Fiat, which controls Chrysler Group LLC, is betting on the Panda to lead a recovery in market share and narrow annual losses estimated at 800 million euros ($1.1 billion). The rollout will be a test of Chief Executive Officer Sergio Marchionne’s ability to compete head to head with larger European rivals as he seeks to craft a global auto group from two struggling regional manufacturers.

‘Not Enough’

“The new Panda is not enough,” said Wolfram Mrowetz, who oversees 200 million euros at Alisei SIM in Milan, including Fiat shares. “Marchionne should invest more in new models, but he won’t have enough resources to spend before completing the Chrysler tie-up.”

Marchionne, who also heads Chrysler, acknowledged in an April interview that he neglected Europe as he pushed for a turnaround at the third-largest U.S. carmaker. Fiat’s market share in the region shrank to 7.2 percent in the first half from 8.1 percent a year earlier, while VW expanded its share to 22.8 percent from 21.1 percent, according to data from the European Automobile Manufacturers’ Association.

Fiat’s goal of ending European losses is also hampered by its relative strength in southern Europe, where governments are battling a growing debt crisis. Fiat is “most at risk” among European carmakers, Exane BNP Paribas analyst Thierry Huon wrote in a note to clients today. Huon, who has a “underperform” rating on the stock, cut his target price on Fiat by 33 percent to 4.7 euros.

Fiat fell as much as 5.5 percent to 3.50 euros, its lowest intraday price since May 2010. The stock was down 4.1 percent at 3.56 euros at 12:23 p.m. local time. The carmaker has fallen 47 percent this year, making it the worst performer in the 13- member Euro Stoxx Automobiles & Parts Index.

‘Critical Model’

“The Panda is a critical model for Fiat’s market share and to keep dealers busy,” though it won’t likely be enough to end losses, said Max Warburton, a London-based analyst at Sanford C. Bernstein, who has a “market perform” rating on Fiat. “It’s a hard segment to make money in.”

Fiat’s decision to switch factories for the model won’t likely help. The new version, which goes on sale in December, will be produced at a costlier plant in Pomigliano, near Naples, while the current version was built in Poland.

The Up! may more than double sales to 244,700 in 2013 from 118,600 next year, boosted by VW’s global presence, while sales of the Panda may decline 2.2 percent to 203,300 in 2013, according to IHS figures. Fiat aims to sell about 250,000 new Pandas a year, said a person familiar with the company’s goals, who declined to be named before the official presentation of the car at the Frankfurt motor show tomorrow.

Panda Edge

Still, in some areas the Panda may have an edge. It’s 11 centimeters (4.3 inches) longer than the Up! and offers five rather than four seats. The Up!, which will cost about 9,500 euros, also won’t likely be able to match the Panda’s price, which currently starts at 8,800 euros, Warburton said.

Fiat’s reputation and experience in the segment will also help, said Piero Carlomagno, a dealer who has been selling Pandas in the southern town of Rende since the early 1980s.

“While competition will be tougher, we benefit from being city-car specialists,” Carlomagno said in an interview. “We have expertise that VW doesn’t have.”

VW has acquired some of that. The Wolfsburg, Germany-based manufacturer last year purchased the company of Giorgetto Giugiaro, who designed the first Panda in 1980 and helped to develop the Up!. Walter Da Silva, a former Fiat director, heads VW’s design, and Luca De Meo was one of Marchionne’s key managers before joining VW in 2009 as head of marketing.

Government Role

Expanding in the city-car segment is a key part of VW’s strategy of becoming the world’s largest carmaker by 2018, as demand is lifted by governments pushing for more fuel-efficient cars. Deliveries of small cars may rise 30 percent to 7.61 million by 2014, according to IHS.

The Panda still has its fans. Ferrari Chairman Luca Cordero di Montezemolo uses the car for navigating Rome’s narrow streets. His daughter Clementina and her husband drove a Panda away from the church after their wedding in Bologna in 2008. The economic slump may boost the model’s appeal.

“The new Panda comes at just the right time, as customers are looking for small, cheap cars to help them get through another recession,” Fiat dealer Carlomagno said.

--With assistance from Andreas Cremer in Berlin, Francesca Cinelli in Milan. Editors: Jerrold Colten, Thomas Mulier

To contact the reporter on this story: Tommaso Ebhardt in Milan at

To contact the editor responsible for this story: Chad Thomas at

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