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why Fiat's not here (long)
Paul Rollins wrote in ICD #32:
<<<Ed pointed out that 100,000 units sold in the U.S. would only add 6.2% to
their unit sales volume. However, this COULD be very profitable business.
Incremental sales are the most-profitable sales, because the cost of units
sold is only the variable cost -- the fixed costs of development, toolin=g,
etc., are already paid.>>
True, Paul... but this equation only really works if there are no significant
ADDITIONAL costs involved to sell the incremental production. If Fiat's case
an entire new US (North American?) business and distribution organization
would need to be established: ports of entry, vehicle preperation areas,
vehicle and parts distribution systems, warranty claims processing, corporate
facilities AND the real estate and personnel to staff these positions AND THEN
try to integrate all this into an entirely new dealer network. Very, very
expensive to do. The EPA/DOT costs to "federalize" just a single vehicle run
several hundred thousand dollars. Want to bring in 4 different types of
vehicles? Write a check to the Feds for about $2.5 million! And that's if
everything passes the first time. Fail somewhere along the "federalization"
way and you get to write out another check to do it again.
PLUS: everyone always forgets the largest cost for new vehicle sales...
To even do a half-way decent job of advertising a new vehicle launch in the US
is in the neighborhood of $20 million dollars. And that is for a SINGLE
vehicle (like Mercedes just did with the M-class sport utility) not a new LINE
of vehicles! Mercedes expects to sell about 15,000 M-class vehicles for the
introductory model year. You do the math... it comes to an advertising cost of
$1333 dollars spent per vehicle sale. Yes, most people do not realize how much
advertising costs are amortized into the price of a new motor vehicle!
Now remember, $20 mil just launches a single new vehicle, not a full line. So
how much would Fiat need to spend on advertising alone to re-introduce itself
to the US with line of a few different types of vehicles? My guess would be
$60 million on the low side to $100 million to go "first class". AND WE STILL
HAVEN'T PAID FOR ALL THE "BUSINESS" COSTS I have mentioned above!
AS a tie-in to this, James Seabolt wrote:
<<<One of the questions at the 1994 Freakout banquet was, how many cars did
FIAT sell during their last year? Seems like it was around 40,000 cars.
That's really alot of cars for the early 1980s. If that figure is correct
then why did they leave the US?>>>
James, I have the "exact" answer to this, but the figures are buried with a
ton more of reference literature I have somewhere around here. Remember that
Caribou moved to a new building this past July (after being in the same spot
for 11 years) so before I knew where everything was (after 11 years I should!)
but here some things still aren't even upacked yet. BUT.... I do remember the
number being something like 14,000 for 1982 (the last year Fiat was
"officially" here) and this is the total for all the models Fiat sold. I
believe I remember this number correctly because the closest information I can
find here right know is the total number of Fiats registered nationwide in
1985 that were from the 1982 model year. This is virtually 12,000 cars on the
dot. Considering we lose about 6% of the vehicles each year (crashes, fires,
thefts, etc.) during the first couple of years after vehicles are sold new, a
6% population loss each year for 3 years (1982 to 1985) would be about 11,600
cars remaining 3 years later.
The tie in with the 14,000 number is if you are still trying to advertise your
cars, but you've committed to a $30 million total ad campaign, your amortized
cost for ads per car is now about $2140. It simply costs too much to keep up
the advertising, but when you cut your advertising your sales decline and that
increases your amortized cost for ads per car yet again. It's a vicious
Advertising costs are a primary reason why Alfa left the US. Do you know how
many cars Alfa sold in 1994? Try 800, (yes eight hundred!) 1993 wasn't any
better as it was about 1300 cars. Now try to do advertising (or even pay your
rent) when you only have a thousand or so cars to spread the costs over! Yes,
it can be done. Ferrari sells about 700 cars a year in the US, but the
amortized cost for ads per Ferrari sold is just about $5000 (Ferrari's ad
budget being about $3.5 mil annually). Now it's one thing to raise the price
of a $133,000 F355 to $138,000 to cover your advertising costs, BUT it is
another thing entirely to raise the price of what would have been a $26,000
(or so) "NEW" Alfa Spider to $31,000 to cover ad costs. It just doesn't work.
I haven't even touched on the subject of lawyers & liability, but as an
example I do understand that Maserati left the US (back in 1992 was it) in
part because they had "lost" in damages adwarded from a couple of lawsuits
against them MORE MONEY than they had made in the US sum total for 1984 to
1992! Liabailty is a very complex issue for auto manufactures and most build
into the price of their vehicles a sum already destined to be used for
settlement of lawsuits! If "we" charge an extra $100 per car, by the time we
sell 50,000 cars we have $5 million in "the kitty" for any damage awards. But
as you know $5 mil is "doodley" for settlement of a lawsuit! Why should Fiat
come back here to sell 20,000 or 30,000 cars (which would be great for them in
1st year sales) and then lose all the profit they made (and then some) on a
single $8 or $10 million damage award? Companies DO think this way!
And in closing, Fiat Auto Italy purchased FIAT-Roosvelt Motors (the privately
owned comapny which had held the importation rights as James had correctly
noted) in 1972, when Fiat Auto USA, Inc. was formed, so they did have a 10
year span to "control their own destiny". We all know what happened.
Ed at Caribou Imports, Inc.
now the largest Fiat parts distributor in the Western U.S.
visit us on the Web at:
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