Fiat is investing over 1 billion euros, or $1.3 billion, to produce subcompact SUVs for the Fiat and Jeep brands in Italy. Fiat is relying on this move to increase capacity usage and cut losses in Europe by concentrating on high-margin cars. At the plant in Melfi, southern Italy, which is where the models will be assembled, CEO Sergio Marchionne said that the company has made the decision to move away from mass carmaking and join the upscale market.
The CEO added that this is the only plant in the world to build a new small SUV for Jeep. Marchionne is planning to increase the sales of its costlier models to stimulate Fiat's European operations, which are predicted to incur losses of 700 million euros this year.
In addition, Fiat is also under political pressure at home due to criticism that its European arm is now struggling since it focused too much time on managing its takeover of Chrysler Group. Fiat Chairman John Elkann has a contrasting opinion. Elkann released a statement to say that Fiat's alliance with Chrysler “took something away from Italy.” He said that without this alliance, the Melfi investment won’t have been a possibility.
Fiat wants to launch 19 Italy-built models through 2016, including nine Alfa Romeo-badged vehicles and six Maseratis. The carmaker plans to increase production of Fiat and Chrysler cars in Europe to 2 million cars annually in 2016 from 1.25 million in 2012.
Marchionne thinks that by using Fiat's Italian factories to export cars worldwide, the automaker's European operations will go back to an operating breakeven by 2015-2106. Difficulties in Europe forced the manufacturer to reduce its 2014 trading-profit target by 31% to 5.2 billion euros.