Why Fiat isn't here --more thoughts (long)

[Rollins <73500.616@domain.elided>]

Thaks to to Ed at Caribou for enhancing this interesting discussion

I certainly agree with him that there are substantial costs beyond the
variable costs. Perhaps Ed may have not read my entire post, or perhaps
misread it, because he noted that I did not recognize the costs --
administrative, legal, advertising, etc.-- above incremental  costs. What I
said was, "...they could still lose money by not managing the selling and
operating costs well ..." 

Another good point Ed made was the need for investment spending. This was
so obvious to me that I assumed everone would recognize this factor, but
that was a poor assumption. However, I think there are two significant
considerations for investment spending which are less erosive to the 
profit of the program over time . First , I believe there are several ways
to do things for a lot lower cost than  Ed implies.  Second, many of the
large, up-frront costs, such as federalization, are not yearly costs and
will benefit the program in future years of a particular product's life
cycle. Some of these investments should be progressive, such as
federalization. Initially, they should only invest in the few models with
the highest potential.

There is already some FIAT infrastructure in place in North America,
supporting their other businesses, so they don't have to start from ground
zero. Here are opportunities to benefit from economies of scale. Some of
the facilities and services which are not avilalable in the current FIAT-NA
structure can be outsourced, rather than creating a large, expensive
internal organization. Another option avialable is a joint venture or
joint-marketing arrangement with another auto manufacturer that does not
have directly-competing cars, but does have an established support
organization. In anticipation of the obvious responses, I recognize that
they have tried the latter and failed. However, the generally subjunctive
(yes,not subjective) nature of this discussion assumes that FIAT would
become a competent marketer in North America. 

I have a different perspective on advertising strategy and tactics from
Ed's. I do not know Ed's credentials in this area. My experience is as a
Brand Manager for several, national, consumer brands with high market
shares (in several cases, first or second highest), some with low shares,
as well as new-product launches. I have developed national and regional
marketing programs, and worked with major advertising agencies  on
television, radio, magazine, newspaper, and direct-mail campaigns. I have
also been Director of Marketing for a regional, consumer-brand company.
Ed's comment about advertising being a significant expense is certainly
important, although I don't agree with the magnitude of his total budget.
Ed's figure of over $1000 per car is not outrageous in the auto industry by
order of magnitude. Going back to Ed's original number of 100,000 units,
this would generate $100,000,000. Of course, it would be unrealistic to
expect to sell this many cars early in the program. or maybe ever. Building
awareness, and more importantly, preference, is an INVESTMENT and would run
to high dollars per car in the early years, but not anywhere near this
total amount.

A full-line, national distribution and promotion program is NOT the
efficient way to introduce these cars. The right way to do it would be to
concentrate resources on the few models with the greatest potential and
initially in the highest-potential geographic areas. Then the program would
"roll out" or "build" to other areas in order of potential. This is a
common strategy.  As the BRAND is established in all of the desired areas,
then the product offering can be expanded. It is not necessary that the
brand ever be national. There are probably areas where the type of cars
FIAT Group makes will not be very appealing (like where the majority of
people have three first names, all of four letters or less, and the same
last name), so why offer them there and lose money forever? Any rational
advertising budget would be built on the assumption that the brand would
NOT be FIAT. Only a fool would march into the market place with a brand
with so much negative perception (negative brand value). It would take a
huge amount of money just to convince the market  that the cars weren't 
instant-rusting, mechanically-unreliable, poorly-supported,
low-resale-value junk, which is where the brand is, unfortunately, now. A
lot of money would only bring the brand up to a level that would allow
consumers to even consider the car with its peers. Then, the productive
advertising expense, to make prospects appreciate the true excellence of
the cars and cause purchase, would start from there.

There is a lot more to a FIAT Group re-entry to the U.S. market. For one,
it needs to be verifed that there is an adequate acceptance in the NA
market for any of their cars (unfortunately, this digest is not a good,
national probability sample for meaningful market research). The
distribution channel needs to be convinced that the products will sell and
that FIAT is committed to the market for the long term. Plus all of the
detail of  realistic business and marketing plans needs to be developed..

Paul Rollins
Vancouver, WA