Global Insight Perspective | |
Significance | As part of its US$1-billion expansion in the region, Fiat is moving production of the Siena sedan to Argentina and hiring 1,700 new workers in Brazil to ramp up production. |
Implications | The Betim plant in Brazil has just finished implementing a third shift, having added 1,200 workers in January. The announced additions are intended to boost production in the country to 2,700 units per day. |
Outlook | The investment in Argentina makes sense as Fiat’s Brazilian plant is close to capacity and the Argentine plant in Cordoba used to produce the Siena in small numbers before it was mothballed. Fiat's South American operations are growing in strength and proving to be the Italian firm's most profitable; going forward, Fiat needs to execute a similarly successful strategy in China if it is to achieve its growth targets and attain financial independence and stability in the long term. |
Fiat's South American unit has announced a further US$60-million investment in its plant in Cordoba (Argentina), as it is shifting production of the Siena sedan there in order to free up capacity in Brazil, according to Dow Jones Newswires quoting Fiat Argentina President Cristiano Rattazzi. The news follows the announcement in Brazil that Fiat is hiring a further 1,700 workers at its Betim plant in Minas Gerais state in order to increase its daily output there from 2,500 units to 2,700 units, to meet booming domestic demand. Roberto Gloria, Fiat's director of human resources for Latin America, said: "Fortunately, the market conditions surpassed even those most optimistic estimates." The decision to hire these extra workers follows the installation of a third shift at the plant, completed in January, which entailed the addition of 1,200 new workers (see Brazil: 11 December 2006: Fiat Brazil to Hire 1,200 New Workers as Demand Surges). Fiat currently employs 9,000 workers at its two plants in Brazil.
Rattazzi said that production of the Siena in Cordoba will start in January 2008 and the plant will have an annual capacity of 50,000 units. "Fiat Brazil is close to full capacity", said Rattazzi. The news follows the recent announcement of a US$100-million investment in a joint venture (JV) with India's Tata to produce pick-ups at the mothballed Cordoba plant (see Argentina: 5 February 2007:Argentine Production of Tata Pick-Ups at Fiat JV to Start in 2008) and is part of the wider expansion plans announced by the Italian automaker last year (see Latin America: 25 October 2006: Fiat Plans US$1-bil. Expansion in Latin America).
Outlook and Implications
Fiat's South American operations are the jewel in the Italian company's global operations, and the most profitable. Fiat has executed a successful strategy in the region and is now reaping the benefits of the booming local market, so far outstripping its closest rivals in Brazil. Light-vehicle sales in Brazil were up 22.9% year-on-year (y/y) to 638,609 units for the year to date (YTD) ending April, according to industry association Anfavea, and early indications suggest that May will see the market post the highest sales on record, surpassing the boom in 1997. However, Fiat's growth outstrips the market and that of its closest rivals, Volkswagen (VW) and (GM), having sold 160,356 units, including light commercial vehicles (LCVs), in the first four months of the year, a 27% increase over the same period last year. VW by comparison, which currently holds the top spot in the passenger car sales chart with a margin of just over a thousand units, recorded growth for the YTD period at the overall market rate of 22% for cars and LCVs.
The decision to move Siena production to Cordoba is also highly cost effective as the plant used to produce the model before it was mothballed in 2002 at the height of the economic crisis. However, Rattazzi's production forecast for the Siena is conservative at 50,000 units per annum (upa). Betim produced 77,972 units of the Siena in 2006 and the model is forecast to continue to sell well in the region, with around 65,000 sales forecast this year, despite the introduction of the Linea sedan. The Linea, based on the new Grand Punto platform and first produced in Turkey, will fill the upmarket sedan role in Fiat's model line-up and be produced at Betim, with 30,000 units forecast for 2009 (see Turkey: 26 October 2006: Fiat to Launch Linea C-Segment Sedan in Turkey).
Fiat's success with its South American operations is a result of investment and popular models. Brazil is a key component in Fiat's global strategy, and as the South American unit is growing in strength, it is proving to be the Italian firm's most profitable. Going forward, Fiat is investing judiciously in Argentina, where the risks are greater due to the nature of the economic recovery there, but the operations are tiny compared to Brazil. In the future, Fiat needs to execute a similarly successful strategy in China if it is to achieve its long-term global growth targets and ambitions, as South America alone will not provide the company with financial stability.