Global Economics

Lancia Pins Its Hopes on a Revived Delta


The rally-winning Delta from the 1980s is coming back as a new model, a five-door hatchback to compete with the Golf, M?gane, and Astra

Fiat's 102-year-old Lancia brand has a colorful history. Car lovers fondly recall innovative models from the 1940s and '50s such as the Aurelia and Aprilia sedans and coupes, the super-fast Stratos sportster from the '70s, and the rally-winning Delta from the '80s. But by the 1990s, Lancia was suffering from quality problems, and sales??specially exports??lummeted.

Now, Fiat (FIA.MI) is hoping to revive the Lancia brand with a snazzy reincarnation of the Delta (BusinessWeek.com, 9/26/06). The new model, a five-door hatchback with an arched roof and smooth, rounded lines, is aimed at successful rivals such as the Volkswagen (VOWG.DE) Golf, Renault (RENA.PA) M??gane, and Opel (GM) Astra. Given Lancia's continuing popularity in Italy, the Delta is likely to do well at home, but foreign markets will be key to its ultimate success. "We're relatively small outside of Italy, and we want to grow that in coming years," says Olivier Fran??ois, chief of the Lancia brand. "We wanted to make our mark with a very elegant car."

Ready to Roll Out

Lancia plans to start selling the Delta in Italy in June, then roll it out in neighboring countries this summer and fall. Early next year, the company will start manufacturing right-hand-drive models aimed at Britain and perhaps Japan. The company is targeting sales of 70,000 cars next year, including 10,000 in new markets such as Britain and Eastern Europe.

The Delta is a bit larger than the Golf, M??gane, and other top-selling cars in Europe, which Fiat hopes will give it a leg up. Priced between ??21,500 and ??30,700 ($33,200 and $47,400), it's also more expensive than its closest rivals, but Lancia executives hope they can create an upscale image that will warrant the higher price. The top-end Delta comes with super-soft leather seats, a two-tone body that makes the roof appear to float above the windows, and extras such as automatic parallel parking (the car slides into a spot without the driver touching the steering wheel) and sensors that warn you when you drift from your lane.

The Delta also helps complete the Lancia lineup (BusinessWeek.com, 9/26/06). Until now, the range started with a three-door hatchback called the Ypsilon and a small minivan called the Musa, then jumped to the Phedra (a larger minivan) and a big sedan called the Thesis. Adding the Delta to the mix will help Lancia better attract dealers, and the company expects to add 185 new outlets this year, for a total of 611, Fran??ois says. "With the two niche models, the Ypsilon and the Musa, it wasn't good business for dealers," he says. "The Delta gives us a model that they'll want to invest in."

Further Investment Needed

Others, though, say that while the Delta is a good start, Fiat needs to keep building the lineup. The current Ypsilon was introduced in 2003 and the Musa in 2004 (though it got a facelift last year). Without refreshing at least those two models, Lancia will have a tough time competing, says Mediobanca Securities (MDBI.MI) analyst Massimo Vecchio. Fiat isn't "losing a lot of money now, but if they want to be successful they'll need to invest more," Vecchio says. "If they don't develop a full set of new products, they're not going to be able to recruit new dealers outside of Italy."

In its quest to boost sales across Europe, Lancia stumbled into one big advantage. Fiat hired model and singer Carla Bruni to star in TV ads for Lancia shortly before she married Nicolas Sarkozy to become the First Lady of France??atapulting her from the ranks of the merely well-known to the top of the celebrity A-list. "We had an absolute stroke of luck with her," says one Fiat executive.

Such high-profile endorsements aside, Lancia continues to have something of an image problem. The Fiat brand offers a multitude of entry-level and midrange cars, and the company's Alfa Romeo nameplate anchors the high end, with sporty sedans and coupes that go head to head with the likes of BMW (BMWG.DE). Lancia, meanwhile, stands somewhere between its two siblings, and it's hard to identify its real market.

Distinctive Niche

At times, Fiat seems to pitch Lancia as being akin to Mercedes (DAI)?? luxury brand that's a bit more sedate than the fiery Alfa Romeo. Other times, though, Fiat seems to want Lancia simply to be a more upscale version of its basic cars??omething like the relationship between the Avalon and the Camry from Toyota (TM). For his part, Lancia boss Fran??ois says he can create a distinctive brand that buyers will be able to distinguish from Alfa. "The customer who buys Alfa puts his money in sportiness," Fran??ois says. "As a premium car, we have to offer good performance, but that's not what we sell. What we sell is comfort, design, and style."

Whatever its image, Lancia remains a relatively strong seller in Italy. Of the 122,000 Lancias sold last year, 104,000 were in Fiat's home market. That's a market share of roughly 4% in Italy, and those buyers tend to be passionate about the brand. "If you drive a Lancia, you won't go for Fiat because you want to distinguish yourself, you want to be different," says Thierry Huon, an analyst at brokerage Exane BNP Paribas.

The question is whether Fiat can keep both Lancia and Alfa healthy and growing. Fiat Group CEO Sergio Marchionne aims to sell 300,000 of each nameplate annually by 2010. Lancia boss Fran??ois vows that it'll happen with his brand. But others are more bullish on Alfa and less certain about Lancia, especially given the latter's relatively low profile abroad in recent years. "Lancia has shrunk back to being a national brand," says ABN AMRO analyst Andrew Lobbenberg. "Fiat needs the Delta to work. Otherwise, its aspirations of making Lancia a pan-European brand will fail."

See the BusinessWeek.com slide show for a look at some of Lancia's historic models.


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