6ibcs qcf case study jun13

7/30/2019 6ibcs Qcf Case Study Jun13

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The Association of Business Executives

QCF

International Business Case Study

Fiat Automobiles S.p.ATuesday 4 June 2013, Afternoon

This is an open-book examination, and you may consult any previously prepared written

material or texts during the examination.

Only answers that are written during the examination in the answer book supplied by theexamination centre will be marked.

6IBCS0613 ABE 2013 J/601/2793


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6IBCS0613 2

Notes

l As in real life, anomalies may be found in this Case Study. Please simply state your

assumptions where necessary when answering questions. ABE is not in a position toanswer queries on Case data. Candidates are tested on their overall understanding

of the Case and its key issues, not on minor details. There are no catch questions orhidden agendas.

l After the publication of the Case Study, subsequent developments may occur. Theexamination is based on the published Case Study, and students who do not mention

such developments will not be penalised. However, students may consider suchdevelopments in their answers if they wish.


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6IBCS0613 3 [Turn over

Fiat Automobiles S.p.A

Fiat Automobiles S.p.A. is an Italian car manuacturer that produces Fiat branded cars, andis part o Fiat Group Automobiles S.p.A. The company, Fiat Automobiles S.p.A., was ormed in

January 2007 when Fiat reorganised its automobile business. The company traces its history backto 1900 when the rst Fiat (Fabbrica Italiana Automobili Torino) actory opened in Carso Dante,

Italy with a workorce o 150 people.

In 1922 Fiat opened what was to be the largest actory in Europe, with a unique ve foor assemblyline that nished with a uturistic test track constructed on the buildings roo. It became the symbol

o the automotive industry in Italy or decades to come. The company also became involved withthe production o other industrial goods, particularly agricultural machinery and military vehicles.

Fiat continued to experience growth o production into the mid 1960s, in both exports as well

as domestic sales. The iconic Fiat 500 and Fiat 600 were best sellers and Fiat dominated thedomestic market. During this period car ownership in Italy increased rom one in 96 Italians owning

a car to one in 28 Italians owning a car. Fiat took advantage o the increase and establishedseveral actories in southern Italy.

The Italian car market became both the most attractive and competitive in Europe. This put

pressure on production costs, as large French and German car manuacturers introduced theirproducts at heavily discounted prices in order to gain market share.

In a bid to remain competitive Fiat introduced Robogate, an innovative and fexible robotic system

or assembling bodywork, in 1978.

Fiat was also becoming an economic as well as industrial powerhouse, as it began to acquireother well-known Italian brands such as Lancia, Ferrari, Ala Romeo and Maserati. These, along

with the Fiat brand, would be ormed into Fiat Auto S.p.A. Between 1978 and 1990 Fiat also setup numerous operations as independent companies. These included Fiat Avio, Fiat Engineering,

Comau, Fiat Ferraviaria, Magnet Marelli and Teksid.

During the 1990s, as more and more car manuacturers, particularly rom Asia, entered the EU carmarket, Fiat was once again acing a crisis in the orm o market competition. In order to cope, the

company expanded urther into the international market, making Fiat one o the most recognisedworldwide producers o aordable vehicles. However, there were serious quality problems thatinhibited long-term customer loyalty.

Fiats main market is Europe, mainly ocused on Italy, its home market, which is one o the worlds

most dynamic markets. Historically Fiat has been a success in the smaller city-cars and super-minisectors and currently Fiat has a range o models ocused on the two segments. In 2011 these two

segments accounted or 84% o Fiats sales. Fiat does not currently oer a successul mediumamily or executive car, although key global competitors such as Toyota and Volkswagen have

enjoyed great success with cars in this lucrative sector.

Fiats share o the European market shrank rom 9.4% in 2000 to 5.8% in the summer o 2004,when Sergio Marchionne was appointed as Chie Executive. By March 2009 their market share

had risen to 9.1%. This was mainly due to the successul launch o new cars, notably the Fiat 500.

On 20 January 2009, Fiat and the US carmaker Chrysler announced their intention to orm aglobal alliance. Under the terms o the agreement, Fiat would take a 20% stake in Chrysler and

gain access to its North American distribution network in exchange or providing Chrysler withtechnology and platorms to build smaller, more uel-ecient vehicles in the US and providing

reciprocal access to Fiats global distribution network.


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In addition, the proposed agreement would entitle Fiat to receive a urther 15% o Chrysler (without

cash consideration) subject to the achievement o specifc product and commercial objectives. Nocash or fnancial support was required rom Fiat under the agreement. Instead it would obtain its

stake mainly in exchange or covering the cost o retooling a Chrysler plant to produce one or moreFiat models or in the US. Fiat would also provide engine and transmission technology to enable

Chrysler to introduce smaller, uel-efcient models in the NAFTA (North America Free TradeAgreement - USA, Canada and Mexico) market. The principal objective o the partnership was to

provide both groups with signifcantly enhanced economies o scale and geographical reach.

On 30 April 2009, Fiat announced the signing o a series o agreements to orm a global strategicalliance with Chrysler, with Fiat receiving an initial 20% stake and the option to purchase/

receive additional ownership interests in Chrysler, subject to certain conditions being met. Fiatsshareholding would be capped at 49%, however, until all US government loans to Chrysler had

been repaid. (Chrysler had had to borrow money rom the US government in 2009 when sales elldramatically).

Marchionne was appointed CEO o Chrysler and under his leadership Chrysler has taken on a

structure similar to that o Fiat and has released, in quick succession, a large number o completelyredesigned or rereshed vehicles. Fiat launched the 500C - a slightly larger version o the 500

(which had been available in Europe since 2007) - in the United States and Canada in 2011,markets rom which it had been absent since 1984. Prior to 2011, Fiats main presence on the

continent was Mexico, where it oers a greater variety o products than in the United States andCanada.

The current range o Fiat models is as ollowing:

l City-car: 500, Panda

l Super-mini: Punto

l Compact car: Bravo, Linea, Albea l Mini MPV: Idea

l Large MPV: Freemont (rebadged Dodge Journey) l Mini SUV: Sedici (developed with Suzuki with its twin Suzuki SX4)

Fiat Group sales in 2011 were 676,704 (minus 17.3% vs. 2010), broken down as ollows:

Model 2011 Sales 2012 Sales

estimated

Punto 220,343 210.000

Panda 189,527 200,000

500 156,301 250,000Linea 35,499 35,000

Bravo 31,673 32,000

Sedici 14,777 26,000

Freemont 13,651 12,000

Albea 8,951 10,000

Idea 5,982 7,000

Total 676,704 782,000

In 2012, Fiat ormed an alliance with Mazda to develop and build a new roadster or the Mazda andAla Romeo brands.


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In recent times Fiat has suered rom the depressed economy in Italy, which has been aected bythe Eurozone debt crisis. This has led to Sergio Marchionnes decision to cut investment in Europe.The companys loss beore interest and taxes during the second quarter o 2012 in Europe, MiddleEast and Arica (EMEA) was 184 million ($226 million), compared to a 406 million loss in therst hal o 2011. In the second quarter o 2012, all regions had positive results except EMEA,which had a smaller loss in the second quarter than in the rst. Total income showed strong growthin North America and Asia, a slowdown in Latin America, in spite o the good result Fiat had in

Brazil during June, and o course the poor situation in Europe, Middle East and Arica (EMEA) asa result o the European economic crisis. Total earnings were 1 billion as a result o the goodperormance by Chrysler in North America and Asia, while Europe reduced its losses to around70 million. Total debt decreased to 5.4 billion, rom 5.8 billion.

Fiats Global Presence

Appendix 1 shows the extent o the Fiat and Chrysler joint ventures presence globally. As a resulto the Fiat and Chrysler joint venture there have been many distribution agreements signed whichhave urther benetted Fiats global sales. For example, in May 2012 Chrysler Australia group wasappointed as the distributor or Fiat and Ala Romeo in Australia. Under the agreement, the currentFiat and Ala Romeo dealer group, which numbers 17 car dealerships and 22 commercial vehicleoutlets in Australia will report to the Melbourne-based Chrysler Australia group. Fiat models oeredon the Australian market include the Fiat 500, the Fiat 500 Abarth, and Ducato and Scudo models.The Chrysler Australia group o companies, which currently manages the Chrysler, Jeep andDodge brands in the Australian market, has seen a remarkable surge in sales. In 2011 combinedsales increased by 27.5%.

In March 2010 Fiat signed a 50:50 joint venture with the Guangzhou Automobile GroupCorporation (GAC) to build a new actory to produce the Fiat Viaggio. This will be the rst Fiatmodel produced in China. The new plant, which covers 730,000 square metres, incorporatesworld-class manuacturing with one o the highest production standards in the world. Thesestandards have now been adopted at all Fiat and Chrysler plants worldwide. GAC is Chinas

sixth largest automotive manuacturer and produces cars, buses and commercial vehicles. Theinvestment in the joint venture will be RMB 5 billion ($750 million).

Automotive Industry Risks and Pressures

The automotive industry is a global industry, with an annual turnover o over 2 trillion, making itequivalent to the sixth largest economy in the world. The industry operates globally, oten by usingalliances and joint ventures. The car industry is divided into categories based on the size o thecars. Cars in the super mini/smaller size categories are generally the best sellers.

Meeting and satisying customer demand with attractive new vehicles and reducing the amount

o time required or product development are critical elements to the success o automotivemanuacturers in international car markets.

Demand may also be aected by actors directly impacting on vehicle price or the cost opurchasing and operating vehicles, such as sales and nancing incentives, prices o raw materialsand parts and components, cost o uel and also governmental regulations.

The global automotive industry is subject to various risks associated with conducting businessworldwide, including political and economic instability. Natural calamities such as the tsunami inJapan in March 2011, which greatly impacted upon Japanese car plants worldwide as supplies ocomponents were interrupted, can aect the global car industry, as well as wars, terrorism, labourstrikes and work stoppages.

The negative impact resulting rom fuctuations in both oreign currency exchange and interestrates may adversely aect global manuacturers nancial perormance. Additionally, high prices


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or raw materials that automotive manuacturers and suppliers o parts and components use, such

as steel, precious metals, non-errous alloys including aluminium, and plastic parts, inevitablyincrease costs o production which manuacturers may not be able to pass on to customers.

In 2012, or the frst time in history, over 60 million passenger cars were produced in a single year

(or 165,000 new cars produced every day). Ater a 9% decline in 2009 (due to the 2008 globalfnancial crisis), global car production immediately jumped back the ollowing year with a 22%

increase in 2010, to then consolidate at the current 3% yearly growth rate. Going back in recenthistory, in 2006 there were less than 50 million passenger cars produced in the world, an increase

o 6.53% over the previous year. The increase or 2007 was about the same, and 2008 showed adecline. Analysts rom various institutes had in act orecast 2007 as the year which would end the

5-year cycle.

Year Cars produced in the world

2012 60,001,402

2011 59,929,016

2010 58,264,852

2009 47,772,598

2008 52,726,117

2007 53,201,346

2006 49,918,578

2005 46,862,978

2004 44,554,268

2003 41,968,666

2002 41,368,394

2001 39,825,888

One in our cars produced in the world comes rom China. More than hal o the cars in the world

are produced in Asia and Oceania, whereas Europe produces almost a third. It is estimated thatover1 billion passenger cars travel the streets and roads o the world today. The1 billion-unit mark

was reached in 2010 or the frst time ever.

In the United States alone, 250,272,812 highway registered vehicles were counted in 2010, owhich 190,202,782 were passenger cars. (Bureau o Transportation Statistics, US Department o

Transportation.)

(Appendix 2 lists the global production o cars by the top 20 countries in 2011.)

China was the worlds third-largest car market in 2006, as car sales in China soared by nearly40% to 4.1 million units. Soon thereater, China took the lead and became the worlds largest car

market, as low vehicle penetration, rising incomes, greater credit availability and alling car priceslit sales past those o Japan. Furthermore, vehicle penetration in China still stands at only about

40 vehicles per 1,000 people, compared with approximately 700 vehicles per 1,000 people in themature markets o the G7 group o countries.

The industry is subject to various laws and governmental regulations including environmental

matters such as emission levels, uel economy, noise and pollution, and laws and regulationsrelating to saety. Many governments also impose taris and other trade barriers, taxes and levies,

and enact price or exchange controls.


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The market or cars in the BRIC nations (Brazil, Russia, India and China) is estimated to be verylarge but a note o caution must be considered, since although increased wealth and the move

towards greater urbanisation are two o the macro actors driving demand there has also been amassive increase in trac congestion. This has led many cities within the BRIC nations to take

steps to reduce car usage. In the two largest Chinese cities, Beijing and Shanghai, the localgovernments have introduced restrictions on driving similar to the congestion charge instigated in

London. There has also been investment in mass transport systems such as the Shanghai Metro,

which had over 2 billion passenger journeys in 2011 and which, at 434 kilometres in length, is thelongest in the world. In India the major conurbations such as Delhi have built similar systems.

The car industry in India is growing and the potential market size is enormous but there have beenproblems with regard to production as Appendix 3 describes.

The increase in urban congestion in the West has also seen a decline in car usage. This has

yet to lead to a all in demand or new cars, but it has been orecast by some experts that thephenomenon o peak car ownership will be reached within a ew years and aterwards demand or

new cars will all dramatically.

In January 2011, the Society o Motor Manuacturers and Traders (SMMT) in the UK predictedthat sales o new cars in the UK would all by 5% in the next year. SMMTs Chie Executive, Paul

Everitt, said 2010 had been a year o recovery or the motor industry but that conditions wouldbe extremely challenging in 2011. He added, We are in a dicult period in terms o public

expenditure, concerns about job losses and tax increases.

The worldwide automotive market is highly competitive. There are many actors that aectcompetition and these include: product quality and eatures, brand values, the amount o time

required or innovation and development, pricing, reliability, emissions, saety, uel economy,customer service, warranty conditions and nancing terms. Increased competition may lead to

lower vehicle unit sales and increased inventory, which may result in urther downward pricepressure.

Each o the markets in which the major manuacturers compete has been subject to considerable

volatility in demand. In the United States car sales have shown signs o recovery whilst theoutlook in Europe was seen as gloomy. For example, in the third quarter o 2012 sales in the US

increased by over 10%, with the Japanese carmaker Toyota doing particularly well as their salesrebounded ater the supply shortage caused by the earthquakes and tsunami in March 2011. TheUS car industrys recovery was the result o a number o actors, including car owners seeking

replacement cars ollowing the end o the recession in 2009, low interest rates and cheaper loans.

By contrast the outlook or car sales in Europe is weak and the announcement in January 2013 byHonda UK o major redundancies in its plant in Swindon UK, as a result o poor sales in the EU,

is indicative o the market decline. The Eurozone debt crisis, sluggish economic growth and non-availability o credit (in spite o record low interest rates) has meant that overall sales are expected

to be depressed or at least 2 years.

However, within this orecast it is expected that not all manuacturers will suer equally. Thetraditional mid-market European car makers such as the French manuacturers Renault and

the PSA Peugeot Citroen group, as well as Ford, General Motors and Fiat, are expected to seealling sales and prots in Europe. However, there has been a boom in sales o the high end

manuacturers such as Jaguar Land Rover, Lexus, Audi, Mercedes and BMW as a result o theirexpansion into the mass market with aggressively priced premium models and with downsized

luxury cars.

(Appendix 4 gives urther insight into the European Car Market.)

One o the segments o the market that has been very successul is the one that refects the trendtowards retro-replica cars. Appendix 5, The Future is the Past, describes this trend and the main


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successes have been the Volkswagen Beetle, the Mini and the Fiat 500. This trend is likely to

continue or some time and o the three it is thought that the Fiat 500 is the most successul.

Demand or cars depends to a large extent on general social, political and economic conditionsin a given market, together with the introduction o new vehicles and technologies. In certain key

markets governments have intervened in order to give a short term boost to the car market. Arecent example was the scrappage incentive schemes that operated in 2009 in many countries,

notably Japan, Germany, France, UK and the United States.

Scrappage programmes

A scrappage programme is a government-initiated scheme to promote the replacement o oldvehicles with modern ones. Scrappage programs generally have the dual aim o stimulating

the automobile industry and removing inefcient, high emissions vehicles rom the road. ManyEuropean countries have introduced large-scale scrappage programmes as an economic stimulus

to increase market demand in the industrial sector during the global recession that began in 2008.Others countries such as China introduced schemes on environmental grounds. Also, in the 1990s,

many countries introduced tax rebate programs or new cars that met modern emission standardsbut, with the Kyoto Protocol, some countries made the public oer dependent on the scrappage o

old cars.

Arguments against scrappage schemes

There are a number o arguments against car scrappage schemes:

l The schemes may only boost car sales temporarily by bringing orward uture demand.When the scheme is wound up new car sales could all, even i the economy is

recovering. The Economistnoted that: In France, which oered a scrapping bonus inthe mid-1990s, sales o new cars ell by 20% in the year ater it expired. The schemes

may divert consumer spending rom other sectors o the economy to new cars, as the

subsidy will only cover a portion o the cost o a new car.

l The motor industry should not be singled out or specifc support. Many believe theglobal car industry needs to reduce capacity and that scrappage schemes merely delay

consolidation in the industry.

l Most new cars that are bought in the UK are made abroad. Thus, a large portion o themoney spent on the scheme may support carmakers based outside the UK.

The Financial Times, in an editorial about the US scrappage scheme, was critical o such

initiatives, saying that there was no sound economic reason to sustain the capacity to produce cars

that consumers are unwilling to pay or in ull.

The Economistalso noted that despite the short-term boost to demand that scrappage schemes

have provided, there are concerns over uture demand.

One worry was the eect o withdrawing scrappage incentives as they had propped up demand,especially in Germany where they drove sales volumes to record levels. Optimists say that at least

70% o the scrappage purchases were incremental sales that were made to people who would not

normally have bought a new car. However, car manuacturers were worried that sales volumes inEurope would decline in the ollowing years unless normal new car buyers - well-o people and

companies - return to the market.

New Technologies and Energy Saving Alternative Fuelled Cars

With both the dramatic increases in petroleum products and the prospects o oil reserves beingexhausted in the next 40 years, there has been increasing interest in alternative power systems.


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In the short term, as with most new technologies, the high cost and the perceived relatively weakperormance o alternatively powered cars such as the Toyota Prius (a so-called hybrid powered bya petrol engine and batteries) has meant that adoption has been slow.

In the light o these problems, many car manuacturers have instead chosen to rene andimprove the perormance o existing car engines. The Fiat TwinAir has been widely acceptedand acclaimed as a major breakthrough in both economy o perormance and low emissions.

Successully exploited, this unique selling proposition can provide increased market share or Fiat.Other car makers such as Volkswagen are making similar engines.

Fiat started development o electric vehicles in the mid-1970s, with the concept car, the Fiat X1/23which was shown at the 1972 Turin Motor Show. In 2008, Fiat showed the Phylla concept, and theFiat Bugster concept in Brazil.

Some Fiat vehicles, such as the Dobl van and the Fiat 500, have been converted to all-electric byMicro-Vett but the perormance is below current consumer expectations.

In Brazil, Fiat has also been involved with electricity power companies, Cemig and Itaipu, todevelop new electric vehicles based on the Palio. Tests started in 2008. Although the carsperormed well in an urban environment, consumer acceptance was low.

The Fiat TwinAir engine used in the Fiat 500 has only two cylinders with just 0.9-litre capacityand yet produces power similar to some 1.4 litre engines, using much less uel and producingjust 95 grams o CO

2per kilometre. The TwinAirs secret is the way it manages air intake into the

combustion chamber via the engine valves, or valvetrain. Instead o using a standard camshatit has electro-hydraulic controls which manage the airfow more precisely, thereby improvingcombustion eciency. According to a Fiat spokesman - All global car makers are now ocusingon urban passenger vehicles which mean smaller vehicles . . . ideal targets or 1.0-litre and sub-1.0-litre engines . . . which we expect to account or about 3.5 to 4.5 million units annually by 2020,about ve percent o the total market.

The Ford Motor Company launched its 1.0-litre, three cylinder EcoBoost engine in its Focus modelin May 2012. It is the smallest engine the company has built since the 1930s and it is 30 percentlighter than the 1.6-litre model it is replacing. According to Ford, it achieves a 15-20 percentimprovement in uel economy but without any loss o perormance. The EcoBoost engine usesboth direct uel injection and turbocharger technology.

Volkswagen introduced its 1.0-litre, three cylinder engine at the Frankurt motor show in September2011. It powers the up! car, designed specically or urban motoring. In city driving Volkswagenclaims that the up! averages between 5.0 and 5.9 litres per 100km (48 to 56 mpg) depending onthe model. Volkswagens latest 1.4 litre engine can make itsel more ecient by deactivating its

second and ourth cylinders when not required. Cylinder deactivation isnt a new thing. For sometime, weve seen large capacity engines with 6 or more cylinders use deactivation technology toimprove economy when power demands are low.

It is widely accepted by the industry that these developments in engine downsizing will be themost eective way or the industry to cut carbon emissions rom vehicles in the next ten yearsbecause internal combustion engines will continue to dominate the auto market in the absence oan acceptable alternative power solution.

Climate impacts: gasoline v diesel v electric

Diesel engines have become increasingly popular recently because o their better uel economy

and lower CO2 emissions. However, gasoline (petrol) engines have an advantage over their dieselcounterparts. Compared to diesel engines, gasoline engines dont emit nearly as much nitrogenoxide (another greenhouse gas) or soot (particulate emissions) - a major contributor to poor air


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quality. In June 2012, the World Health Organisation declared or the rst time that diesel umesare carcinogenic. A key driver or downsizing is the introduction by governments o taxes andincentives that gradually increase or reduce based on a vehicles level o CO

2emissions, thereby

nudging consumers towards less-polluting cars. In Germany, or example, vehicles with CO2

emissions below 110 grams per kilometre are exempt rom road tax. In the UK, the exemptionstarts below 100 grams per kilometre and owners dont have to pay Londons congestion charge.Meanwhile in Spain registration tax is waived i a car emits less than 120 grams per kilometre and

in the United States new emission standards require carmakers to achieve a feet average ueleconomy level o 34.1 miles per gallon (8.3 litres per 100km) by 2016 and 54.6mpg by 2025. By2020 European incentives will have turned into regulations. The European Commission plans toset CO

2emissions to 95 grams per kilometre by 2020. So ar EU regulations have aimed at a CO

2

limit o 130 grams by 2015.

With regard to electric cars, there have been some questions raised concerning their overall impacton the environment. The production o electric cars can have up to twice as much global warmingpotential as that o conventional cars and in addition the production o batteries and electric motorsinvolves a lot o toxic materials such as nickel, copper and aluminium. There is also the question ohow electricity is produced to charge the batteries. In many leading countries such as China coal isused in the production o electricity and this is a major contributor to greenhouse gas emissions.

The real cost to the environment o conventional cars is not as high as rst thought.


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APPENDIX 1 - Fiat and Chrysler List of Fiat Group assembly sites

Including joint ventures, licensed production and outsourced production.

Country Owner Location Current products

Italy Fabbrica Italia Mirafori

S.p.A.(100% Fiat S.p.A.)

Turin Ala Romeo MiTo

Lancia Musa

Italy Fiat Group AutomobilesS.p.A.

(100% Fiat S.p.A.)

Piedmonte SanGermano

BravoLancia Delta

Ala Romeo Giulietta

Italy Fabbrica ItaliaPomigliano S.p.A.

(100% Fiat S.p.A.)

Pomigliano dArco,Naples

Panda, Van, 4x4

Italy Societ AutomobilisticaTecnologie Avanzate

S.p.A.(100% Fiat S.p.A.)

Melf Punto 2013Abarth Punto

Italy Maserati S.p.A.(100% Fiat S.p.A.)

Modena Maserati

Gran Turismo, GranCabrio

Italy Ferrari S.p.A.(90% Fiat S.p.A.)

Maranello Ferrari F12 Berlinetta

Ferrari CaliorniaFerrari 458 Italia, 458 Spider

Brazil Fiat Automveis s.a.(100% Fiat S.p.A.)

Minas Gerais Palio, Siena, Palio WeekendStrada Pick Up

Grande Punto

Linea, Idea, Dobl, Uno Mille,Fiorino

Argentina Fiat Auto Argentina s.a.(100% Fiat S.p.A.)

Cordoba Siena FLPPalio

Poland Fiat Auto Poland s.a.(100% Fiat S.p.A.)

Tychy Fiat 500, 500C, Abarth 500,500C

Mexico Chrysler Group LLC

(58.5% Fiat S.p.A.)

Toluca Fiat 500, 500C (US-spec)Chrysler/Dodge models

Canada Chrysler Group LLC

(58.5% Fiat S.p.A.)

Brampton, Ontario Lancia Thema

Chrysler/Dodge models

Canada Chrysler Group LLC

(58.5% Fiat S.p.A.)

Windsor, Ontario Lancia Voyager


U.S.A. Chrysler Group LLC(58.5% Fiat S.p.A.)

Sterling Heights,Michigan

Lancia Flavia


Italy Sevel S.p.A.50-50 JV with PSA

Val di Sangro, Atessa New Ducato Fiat and PSA

versions

France Sevelnord S.A.

50-50 JV with PSA

Hordain near

Valenciennes

New Scudo Fiat

and PSA versions


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Turkey Trk Otomobil FabrikasiA.S

38-38 JV with the KoGroup

Bursa Dobl, Dobl cargo

Palio, VanAlbea

LineaFiorino and PSA versions

Qubo

India Fiat India AutomobilesLimited50-50 JV with Tata

Motors

Ranjangaon (Pune) PalioLinea

Grande Punto

Serbia Fiat Automobiles

SerbiaJoint Venture -

Government o Serbia

Kragujevac Punto Classic500L

China GAC Fiat Auto Co Ltd50-50 Joint Venture

with GuangzhouAutomobile Group

Changsha Viaggio

Fiat Licence production

Country Plant Owner Location Current products

Russia ZMA Sollers JSC NaberezhnyeChelny

Albea, LineaDobl Van

Russia Sollers Elabuga Sollers JSC Elabuga Ducato Van

Other assembly plants

Country Plant Owner Location Current products

Hungary Magyar Suzukiplant

Magyar SuzukiCorporation

Esztergom SediciOther Suzuki models

Brazil Sete Lagoas,

Minas Gerais

IVECO Latin

America

Sete Lagoas Fiat Ducato and PSA

versionsIveco vehicles (Daily,

Stralis and Cavallino)

(Source: Adapted from http://en.wikipedia.org/wiki/List_of_Fiat_Group_assembly_sites)


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Joint Ventures:

l Arab American Vehicles Company - Assembles Jeep Cherokee (Liberty) or the Egyptianmarket and Jeep Wrangler Military (TJ-L) or the Egyptian Army (Cairo, Egypt)

l Beijing Benz - Daimler/Chrysler Automotive Ltd. - Produces 300C and Jeep Cherokee or the

Chinese market (Beijing)

l China Motor Corporation - Produces Chrysler Town & Country or the Taiwanese market(Yang Mei, Taiwan)

l Global Engine Manuacturing Alliance LLC - A joint venture with Hyundai and Mitsubishi

Motors to manuacture 1.8-, 2.0- and 2.4-litre engines (Dundee, Mich.)

l Tritec Motors Ltd. - Produces 1.4- and 1.6-litre gasoline engines or Chrysler and BMW (Mini)vehicles (Curitiba, Brazil)

(Source: http://www.chrysler.com.cn/en/chrysler/index.html)


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APPENDIX 2

Global car production by the top 20 countries in 2011:

Rank Country Cars produced % of total

world production

1 China 14,485,326 24.1%

2 Japan 7,158,525 11.9%

3 Germany 5,871,918 9.7%

4 South Korea 4,221,617 7.0%

5 India 3,038,332 5.0%

6 U.S.A. 2,966,133 4.9%

7 Brazil 2,534,534 4.2%

8 France 1,931,030 3.2%9 Spain 1,819,453 3.0%

10 Russia 1,738,163 2.9%

11 Mexico 1,657,080 2.8%

12 Iran 1,413,276 2.3%

13 U.K. 1,343,810 2.2%

14 Czech Republic 1,191,968 2.0%

15 Canada 990,483 1.6%

16 Poland 722,285 1.2%

17 Slovakia 639,763 1.1%

18 Turkey 639,734 1.1%

19 Argentina 577,233 1.0%

20 Indonesia 561,863 0.9%

(Source: www.worldometers.info/cars)


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APPENDIX 3

The Critical, Future Role of the Car Industry in India

India needs a big manuacturing base. No major country has grown rich without one and nothingelse is likely to absorb the labour o the 250 million young people set to reach working age in thenext 15 years. In July 2012 power cuts plunged an area with a population o over 600 million into

darkness, reminding investors that Indias inrastructure is not wholly reliable. Workers tempersboiled over at a car actory run by Maruti Suzuki in Manesar Almost 100 people were injured andthe plant was torched.

This episode is extreme. Good examples exist. For example, Pune in West India, is a boomingindustrial hub that has won the steely hearts o Germanys car rms. Inside a $700m Volkswagenplant on the citys outskirts, laser-wielding robots test car rames dimensions and a giant conveyorbelt slips by, with sprung-wood suraces to protect workers knees. It is probably the cheapestactory we have worldwide, says John Chacko, VWs boss in India. In time it could become anexport hub. Nearby is a plant owned by Mercedes-Benz.

Both German rms were attracted by (airly) reliable power and access to land but also Punesengineering colleges and tradition o manuacturing. It is a hub or auto-suppliers, says PeterHonegg, Mercedes boss. Smaller rms are arriving too. Zubin Kabraji, o the Indo-Germanchamber o commerce, says Pune hosts 262 German companies, up rom 130-odd in 2008.

The oreign infux is not limited to Germans; local suppliers benet regardless. Three-quarters oVWs parts are bought locally. Some oreigners are not really manuacturing but rather assemblingimported parts to get around Indian customs duties. Still, they use some Indian suppliers too- 30-40% o Mercedes components are local. Indian car makers are also prospering. Tata, aconglomerate, has been in Pune or decades and has a new plant assembling Land Rover cars.Bharat Forge, with $1.3 billion o sales, is a maker o car parts, with 70% o its production beingexported.

Marutis Manesar plants have the capacity to produce hal a million cars a year. The abrupt closureo the plant ollowing the violence has already resulted in production losses o around 27,000 carsin 19 working days so ar.

Maruti, which is Indias largest carmaker and accounts or almost 40% o all cars sold in thecountry, has been losing out to its rivals as its popular cars, the Swit and the Dzire, are both out oproduction due to the closure o the Manesar plants.

(Source: Adapted from The Economist, 11th August 2012)


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APPENDIX 4

Carmakers in Europe

Hands off the wheel - Europes politicians should resist meddling and let its carmakers

make drastic, and increasingly inevitable, cuts

Ater the 2008 nancial crisis many governments did a sort o automotive easing, subsidisingmotorists to trade their old bangers or new motors, to stop the car industry rom seizing up. Butas these scrappage schemes have expired, car sales have whiplashed. In France they are nowabout a th lower than when its scheme was running. In the European Union as a whole, saleshave dropped or our years in a row despite the scrappage schemes, and will all urther this year.A price war has broken out, with discounts o up to 30%, as carmakers desperately try to shitunits.

The slump in sales, and growing competition rom Asian makers like South Koreas Kia andHyundai, have intensied Europes overcapacity in volume car making. The makers o the toprange and expensive models - BMW, Audi, Mercedes, Land Rover and Jaguar - are at ull throttle,ullling the desires o the emerging worlds new rich or ancy wheels. But most volume carmakersare in crisis: on 15 February Peugeot-Citron said its car making operations lost 92m ($121m)last year (2011), Fiats European car making operations lost 500m and GMs European division,Opel-Vauxhall, is said to have lost $14 billion since 1999.

GM sources have recently hinted at closing actories in Germany and Britain to stem Opel-Vauxhalls losses. Renaults Flins actory north-west o Paris looks vulnerable, as does PeugeotsAulnay plant, north-east o Paris. Mitsubishi plans to cease production in the Netherlands andSaab o Sweden has gone out o business. But all this capacity and more may have to be cut torestore the industry to health.

In Americas controversial bailout o GM and Chrysler, government aid was provided on the

condition that the carmakers made drastic cuts in actories and jobs. Now, relieved o inecientplants (and o other liabilities as a result o their bankruptcies), the two rms are bouncing back, asis Ford, which also made bold cuts but declined handouts. Britain has mostly been relaxed aboutits domestic carmakers being closed or sold, and has made oreign rms welcome. Indian-ownedJaguar Land Rover is adding capacity. This week Honda said it would boost output at its Britishplant.

Yet too oten, European politicians stand in the way when industry needs to restructure. EvenBritains government says it will leave no stone unturned to keep GMs British plants open.President Nicolas Sarkozy harrumphs about Renaults dlocalisation o plants rom Franceand, when Peugeot-Citron said it needed to cut 6,000 European jobs, he summoned its boss

to the Elyse Palace. Both companies want to keep much o their high-value design work, andthe manuacture o expensive parts like engines and gearboxes, at home. But i they are to beprotable and survive in the long run, Mr Sarkozy must shake o his obsession with keepinguncompetitive assembly plants open as a supposed symbol o national might. (Renault saysassembly adds only 15% o the value o a car.)

(Source: The Economist, 18th February 2012)


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APPENDIX 5

The Future is the Past

Cars have now become so technologically advanced and packed with electronic eatures thatthey have lost their souls. They are an emotional purchase and customers are longing or the past

when cars (and the world) were easy to understand. There is a simple element o nostalgia: people

(especially men) in their 40s and 50s are longing or the cars they dreamt about and couldnt aordwhen they were growing up. But theres more to it than that.

In the US one o the latest trends is teens buying grandpa cars like Chevrolets, Buicks,Oldsmobiles and Cadillacs rom the 1970s and 1980s, partly because they are cheap, partly

because they are so out theyre in, and also because they are simple to understand and easyto fx. There are no on-board computers or sealed boxes o electronics: mechanically minded

owners can work on (and, crucially, customise) them themselves, but it is elt that the main reasonis a combustible mixture o low cost, simplicity and nostalgia. There is even a magazine in the US

dedicated to tricked-out old motors (Donk, Box & Bubble).

Manuacturers like Ford are all too aware o this trend, but its very difcult or them to makesomething simple. It involves uninventing technologies, so the idea o recreating a perect copy o

a 1960s Mustang or Ford GT40 with remanuactured mechanicals will inevitably end up as a newtwenty-frst-century version packed with every gizmo and device under the sun.

Another good example o the power o nostalgia and simplicity is a small chain o fx-it-yoursel

garages in France. O Garage is or people who own cars but dont have garages or tools. Thegarages are ully equipped proessional workshops that can be rented or an hour, a day or a

week; help is available on site i you dont know your wishbones rom your brake discs. Given theboom in domestic outsourcing (that is, paying people to do things you are perectly capable o

doing yoursel) this is a bit contrary, but it is most likely connected to a new need to get your hands

dirty. As lie becomes more and more technical and virtual, more o us will crave simple physical

tasks. So perhaps automakers should throttle back a bit on the computer-enhanced engine-management systems and design cars that owners can fddle with themselves.

Some suspect that manuacturers are already on to this, in a sense. Weve had retro car designor years (not quite the same as what has been addressed here), but there is a new trend on the

horizon. According to Carmagazine, the next big thing is local design. Ever since car companieswent global (a long time ago) and started using computers rather than pencils to design, cars have

looked remarkably similar. Take the badge o a Hyundai and replace it with a Honda emblem andmost people wouldnt notice the dierence. Moreover, its virtually impossible to tell where the car

has come rom, as they all look like the product o a world design studio. This wasnt always thecase. Once upon a time a British car could only have been made in the UK and the same was true

with cars rom France, Germany Italy and US. Global markets, CAD design and worldwide ocusgroups changed all that.

But not so in the uture. As with ood and wine - and increasingly everything else - people want to

know where what they buy has come rom. Industrial provenance is important and localisation isbecoming a strong countertrend to globalisation. Hence automakers are rediscovering their roots

and in the uture cars will once again look and eel like local products, even i they are made andsold internationally.

(Source: Adapted from Richard Watson, Future Files - A brief history of the next 50 years,Nicholas Brealey Publishing, 2010. (ISBN 978-1-85788-534-7)


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