Alluring Alfa Romeo falls far short of its promise

Few names can match the allure of Alfa Romeo. The sporty Italian brand is all about swooping lines, intoxicating engine noise, nimble road manners and the sexiest grille around.

Alfa Romeo should be a bright Italian alternative to, say, Audi that stands out from the silver-gray herd of German luxury machines.

But the gap between the brand's glittering promise and sobering reality yawns like the Grand Canyon.

Alfa Romeo has not been profitable for a decade, last breaking even in 2001, and has consistently fallen far short of parent Fiat S.p.A.'s sales expectations. Alfa Romeo sold barely 115,000 units in 2010, far short of its goal of 300,000.

At a Fiat presentation to investors Sept. 14 in Frankfurt, Alfa Romeo CEO Harald Wester scaled back Alfa Romeo's 2014 global sales target by 20 percent, to 400,000 units. Even that goal looks ambitious for a brand that expects to hit just 155,000 global sales this year.

Fixing Alfa Romeo remains a huge headache for Sergio Marchionne, CEO of Fiat and Chrysler. Meanwhile, Ferdinand Piech, chairman of Volkswagen AG's supervisory board, makes no secret of his desire to buy Alfa Romeo, adding a note of personal rivalry to Marchionne's challenge. Marchionne has said Alfa Romeo is not for sale.

The stakes for Fiat are high because Marchionne has anointed Alfa Romeo as one of two global brands in the Chrysler-Fiat alliance. The other is Jeep. The two brands are crucial to Marchionne's ambition of forging the Fiat-Chrysler alliance into a global heavyweight.

The latest Alfa Romeo disappointment came in Frankfurt last week when Wester acknowledged the brand's shortcomings and announced that the U.S. arrival of several key models would be delayed. The delays, the latest in a series of missed deadlines, mean Alfa Romeo won't arrive in the United States until mid-2013 at the earliest. And its two key high-volume cars--the compact Giulietta and mid-sized Giulia sedan--won't arrive until 2014.

Although Marchionne has said Fiat and Chrysler product development is "inextricably intertwined," Alfa Romeo delays won't affect the timing of future Chrysler, Dodge and Jeep models. In a presentation last week to investors in London, Marchionne indicated that Chrysler Group product planning is still on target.

During his Frankfurt presentation, Wester was blunt in his assessment of his brand's shortcomings. Product planning is poor, he said. For instance, the 159, a mid-sized sedan and wagon, is slated to end production in October, but it won't be replaced until 2014 by the Giulia, a vehicle originally scheduled to arrive in 2012.

Managers have lacked "consistent focus on brand DNA," Wester said. Discounting is "distressing the brand." Alfa Romeo does a poor job of using social marketing and leveraging its owner clubs, he added. Alfa Romeo has been plagued by inconsistent management. The brand has had five CEOs in the past seven years.

Wester laid out a new plan to make Alfa Romeo a global competitor in "near premium" segments within three years based on a new fleet of "advanced cars" that deliver "Italian design and a dynamic and active driving experience."

But the entry luxury market is treacherous territory. Brands such as Acura and Volvo have struggled to develop a mix of product, pricing and brand message that results in strong sales.

A lot will have to go right if Alfa Romeo is to achieve Wester's target of 400,000 global sales by 2014. If Alfa Romeo can design vehicles as desirable as past hits such as the 156 sport sedan and Competizione sports car and build them at the same improved quality levels that Chrysler and Fiat are now achieving, the plan could succeed.

Alfa Romeo is on target to sell about 155,000 units in 2011 after selling just 115,000 in each of the past two years.

Although Alfa Romeo plans a lineup of six vehicles, the brand now sells just two high-volume models: the Giulietta and the MiTo subcompact.

The Giulia and Giulietta are key to Alfa Romeo's plans to re-enter the United States. The two vehicles would be sold mainly through 130 Fiat dealerships and would be aimed at entry luxury buyers. The dealerships are counting on Alfa Romeo to broaden their product offerings beyond the 500 subcompact, the only nameplate that they now sell.

As plans stand, Alfa Romeo will relaunch in the United States in mid-2013 with the 4C, a limited-edition sporty two-seat coupe. That will be followed by a compact SUV built in Turin, Italy, that shares a platform with the next-generation Jeep Compass, and a new five-door subcompact hatch.

Three more cars arrive in 2014: a Spider roadster, the Giulia (sedan and station wagon) and the Giulietta. A large, rear-wheel-drive sedan derived from the next-generation Maserati Quattroporte will arrive after 2014.

Marchionne's drive to update Chrysler's outdated portfolio took a huge toll on his budding alliance's finances and engineering resources. In the United States, Chrysler has spent $3.3 billion introducing new models, refreshing existing ones and refurbishing factories since Fiat assumed management control in June 2009. Moody's Investors Service downgraded Fiat's credit rating last week based on Fiat's closer alliance with Chrysler.

Fixing Alfa Romeo will require more money and effort. Given Alfa Romeo's long history of delays and failures, fixing the brand remains a tall order.

Despite lackluster sales, Alfa Romeo has optimistic forecasts.

2010 global sales: 115,000, 2 models

2010 global sales goal: 300,000

Revised 2014 global sales goal: 400,000, 6 models for U.S.

Source: Alfa Romeo

By Bradford Wernle and Luca Ciferri- Automotive News