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BMW and Fiat Sign MoU on Sharing Components and Platforms
9 Jul 08
Cost savings are at the heart of Fiat and BMW's decision to look into collaborating on component sharing and vehicle architecture.
Global Insight Perspective | | Significance | The BMW Group and Fiat Group have signed a memorandum of understanding that will see both companies work together to look at the possibility of cooperation in the area of component and vehicle architecture sharing for their Mini and Alfa Romeo vehicles, according to a jointly released statement. | Implications | On initial view BMW and Fiat are not the likeliest on bedfellows. BMW has pledged to support Fiat in re-launching Alfa Romeo in the United States and there are some obvious small and medium car synergies. The MoU is also a sign of how global carmakers are looking to form alliances in order to reduce costs and improve economies of scale at a time when global commodity prices are reaching record highs. | Outlook | While the MoU between the two companies is just an agreement to investigate potential common ground for future collaborations an alliance could potentially generate cost savings through combined component buying power, something that would be a benefit to both companies which are both struggling to grow margins despite enjoying strong vehicle sales in recent years. |
BMW and Fiat Sign MOU to Look Into Platform and Component Synergies The BMW Group and Fiat Automobile Group have signed a memorandum of understanding (MoU) to look into the possibility of cooperating in the areas of component sharing and vehicle architecture (platform), for the Mini and Alfa Romeo brands. A jointly released press statement from the two companies said that the only initial tangible expression of the alliance would be BMW providing assistance Alfa Romeo with assistance to re-launch the brand in the United States. To this end the MoU has been signed by Friedrich Eichiner, member of the Board of Management of BMW AG responsible for Corporate and Brand Development, and Alfredo Altavilla, Senior Vice President, Business Development, Fiat Group Automobiles and CEO of Fiat Powertrain Technologies. In the press statement Eichiner was quoted as saying, "We are currently examining with the Fiat Group possibilities for the joint use of components and systems in Mini and Alfa Romeo vehicles in order to achieve economies of scale and thus cost reductions within the framework of our Number ONE strategy" Both parties have said they will not divulge further details of the proposed collaboration until the details become finalised, which will probably occur by the end of the year. It is a significant development that BMW is looking seriously at an alliance with Fiat in the areas of component sharing and small car production and the fact that Mini is the unit that is being touted as part of the alliance is also significant. BMW has traditionally steered clear of forming major partnership alliances with other vehicle manufacturers (its current engine alliance on the Mini with PSA Peugeot-Citroën notwithstanding), preferring instead to make strategic acquisitions such as the purchase of MG Rover, Land Rover and Rolls Royce in the 1990s. While attempts to maintain MG Rover as a volume carmaker in its own right ultimately proved unsuccessful, the deal did see BMW secure the Mini brand which has gone on to prove a valuable addition to BMW's brand portfolio. However, while there is no doubt that the Mini brand is popular with consumers and has allowed BMW to introduce a high value product into a segment where it was not previously represented, the company is still a long way short of scale where it can become self sufficient from the main BMW brand in terms of paying for its own research and development (R&D) costs (see United Kingdom: 2 July 2008: Mini to Launch "SAV" Model in 2010—Report). Any tie-up with Fiat, which has huge scalability in terms of its small car production operations and unrivalled experience in manufacturing small cars, together with component and powertrain sharing could improve Mini's profitability, especially as the brand's volumes increase as the new hatchback and SUV models are added to the product range. Fiat could benefit from potentially sharing a platform with Mini for the next generation Mi To, while bigger Alfa vehicles such as the eventual Brera and 159 replacements could potentially benefit from BMW's rear-wheel drive platform technology, which these models need from both a viewpoints of both brand heritage and dynamic ability. Outlook and Implications It is unclear how BMW will aid Fiat in relaunching the Alfa Romeo brand in the United States, but it's possible that the tow companies could share back-office administration and distribution networks. However, it would make little sense for BMW and Alfa to share dealership floor space in the States as most Alfa models have direct BMW competitors. BMW and Fiat's sales have remained relatively robust this year, even in light of the economic downturn in the primary market of both carmakers, Western Europe. BMW reported yesterday (see Germany: 8 July 2008: BMW Group Sales Rise 4.7% in H1) that its sales in the region had outperformed the overall market significantly to record growth of 6.6% year-on-year (y/y) to sell 446,032 units, equating to 58% of the company's overall sales volumes. While Fiat has yet to report its first-half sales results, the company managed to generate a combined global sales increase of 4.1% y/y in the first quarter to 563,600 units, benefiting from particularly strong sales in France and Germany. However, it is likely to have struggled to maintain this momentum in the second quarter as a result of sharp declines in its biggest single market Italy.
Despite these localised headwinds, the fact remains that both companies have enjoyed strong sales performances in recent years as a result of a strong commitment to R&D and revitalised and highly regarded product lines. However, while Fiat's excellent range of new small passenger cars has helped it return to the black, it has been an uphill struggle for the company to increase margins, and this concern has been reflected in the poor performance of the company’s share price in recent months (see Italy - Switzerland: 5 March 2008: Geneva Motor Show 2008: Fiat CEO Forecasts Poor Year for Italian Sales; Says Stock is Being Treated Unfairly).Similarly BMW is also struggling to raise its margins from the current level of between 5 and 6% and this is a key facet of the company's "number ONE" strategy which is attempting to increase return on sales to a figure of between 8 and 10% on a consistent basis by 2012. This issue would appear to be at the heart of BMW's and Alfa's collaboration discussions. With global commodities undergoing record rises the carmakers are finding their margins squeezed further at a time when they need them to grow to boost profits and placate investors. Steel prices are at a record high, and prices of other raw materials such as glass, rubber, plastic and of course, energy, are similarly high.
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