Turin, January 15th 2012

BALILLA
The new FIAT B SUV
The following paper has to be considered as a
complementary part of the final presentation. It
explains further details and shows how to reach the
overall results and the related calculations more
deeply. The document has been realized by the
consulting team of the ESCP Europe Business School.
The information provided acquires value only if
properly commented by the authors.

Technical &
Financial analysis
for the launch

Working team
Benatti Elisa
Drocco Simone
Montalbano Vincenzo
Querci della Rovere Aurora
Solmona Mattia
Toffali Francescaa

....................................................................................................................................................... 5 Distribution costs......................................................................................................................................................................... 13 Marketing ............................................................................................................................................................................. 7 USA .................................................................... 4 ENTERING NEW MARKETS ....................... 3 Suppliers material costs........................................................................................................................................ R&D) ........................ 6 Discount ........................................................................................................................................................................................................................... 6 EMEA ......... 4 Investments (plant............................................................................................................................................................................................................... The new FIAT B SUV 1 ........................................................................................... 13 Balilla.. 13 Cost reduction ....................................................................................................................................................................................... 2 INDUSTRIAL COSTS ANALYSIS ...........................................................................................................................................................................................................................Contents CURRENT SITUATION .... R&D) .................................................................................................. tooling plant and suppliers............................................................................................................................................................................................................................................. 7 EMEA ............................................................................... 8 3rd step ............................................................................................ 4 Plant analysis .......................................................................................................................................................................................... 4 Plant capacity ................... 8 1st step ............................................................................................................................................ 4 Investments (plant.................... 3 Interior design analysis .............................................. 13 New markets................................................................................................................................................................... 10 References ............................................................................................................. 5 MARKETING STRATEGY........... 6 USA ..... 6 Pricing ................................................................ 9 EVALUATION OF ENTERING IN NEW MARKETS ...................................................................................................................................................................................................................................................................................................................................................................................................................................................................................... 6 China .................. 7 China ...................... tooling plant and suppliers........................................................................................................................................ 7 Advertising ............................................................................................................ 8 2nd step ...................................................................... 3 Available versions .................................................................................................................................................................................................................................................................................

8 Mio € of NPV within 7 yrs. despite the comforting analysis of segment growth. discount to dealers. a severe economic crisis forced analysts to reduce their forecasts of 20%. direct manpower. and overall plant investment Simulating data from 2011 to 2019. powertrain material cost (engine and transmission). residual generic depreciation Industrial spending: specific investment for product development. now set to (85.5) Mio €. price to final customers. the launch will happen in 2013. Balilla. R&D. in which FIAT is not present yet. as the one with the highest grow rate.CURRENT SITUATION Initial plan and drop of the sales FIAT launch of the new Balilla was aimed by results’ of market analysis which describes the segment of B SUV compact regular. However. The new FIAT B SUV 2 . advertising campaign expenditure Industrial cost: suppliers material costs. which cause a drop of volumes and an increase of overhead costs and a drop in the NPV. variable and fixed production costs (assembly and shop press). Provision found. Basing upon these evidences management builds an entering strategy considering the following elements: - - Market data: expected volume of sales. distribution costs (outbound logistics and warranty). shows a positive perspective scenario of 17. Start-up.

A * %salesG/D.018 282 1. It is considered an ideal solution for Balilla development since it is modular and could be easily re-arranged even for different sizes.810 Avegrage cost (€/veh) Average net Revenue (€/veh) 266 1.A *%mixG/D*V)/V * Average revenueG/D = (urG/D. already used in the chosen plant.350 12% 35% 1.A *%mixG/D*V)/V Suppliers material costs It’s possible to save 135 €/veh (Gasoline) and 121 €/veh (Diesel) Change the suppliers’ inventory management model from HILL to Consignment Stock (savings: 75 €/veh).M *%mixG/D*V+ urG/D. transmission wheels and tyres electrical parts fuel system breaking parts suspension parts frame and others SUPPLIERS' COSTS 121 135 0 20 40 60 80 100 120 140 Saving on suppliers costs (€/vehicle) Fiat Balilla Diesel model Fiat Balilla Gasoline model Balilla. but in order to better satisfy the requests of consumers the new Fiat Balilla will be provided both with a manual and automatic transmission. it generates an increment of costs of 150 € but an increase of net revenues from option larger than 550 €/veh. Product Gasoline Diesel Unitary costs Unitary Revenue % sales %mix (G/D) Net Revenue (€/veh) Manual 230 850 88% 65% 620 Automatic 530 2. It’s strongly recommended the adoption of the SCCS platform (Small Common Components and Systems) jointly developed by Opel and Fiat. if extended. A * %salesG/D. The new FIAT B SUV 3 . In fact.INDUSTRIAL COSTS ANALYSIS Available versions It’s possible to increase net revenues from options of 132 €/veh (Gasoline) and 143 €/veh (Diesel) The new FIAT Balilla is produced in two versions: gasoline and diesel engine.250 12% 65% 1. M * %salesG/D.126 * Average costG/D = (ucG/D. could allow suppliers to know Balilla’s demand and level of stock in every moment. In the initial hypothesis they are available only with manual gearbox.M *%mixG/D*V+ ucG/D. components/materials from suppliers Change of the platform (savings: 55 €/veh). Since Fiat works closely with suppliers it would be possible to use a new approach for inbound inventory. where installed.720 Manual 240 950 88% 35% 710 Automatic 540 2. GASOLINE Fire 1. In this way suppliers are charged with the financial costs of inventory providing savings for Fiat as buyer but they will save costs for orders emission adopting an e-procurement strategy: in fact the FIAT integrated IT system. M * %salesG/D.3 16v 85 HP E5 C510 Manual and Automatic This causes an increase of net revenues from options.4 16 V 100 HP E5 C514 Manual and Automatic Engine Gearbox DIESEL Multijet 1.

72 hours 0.641 63% 316.168 69% 266.60 hours 14.Interior design analysis The re-style of internal design allow to save 50 €/veh for both models Thanks to the cooperation with the FIAT engineering department it is possible to modify some features of the first design of the FIAT Balilla.75 hours Gasoline TO-BE 0. Saving and re-using the excess heat for pre heating ovens for painting cycle or conditioning the building FIAT also reduces fixed costs.6 €/button) and the vent elimination cut the material and production costs: mold simplification and cost reduction. less holes in the front top. Plant analysis The production of the new FIAT Balilla is forecasted in the Italian plant of Melfi where the production capacity is not saturated.349 103641 543. so it’s recommended the entrance in those.72 hours Due to the high profitability of the new business plant. The re-arrangement of the front top. Today the plant is producing 440. less manpower. less risk of damages during drilling.511 2017 70644 49136 33388 153168 593. R&D) It’s recommended to invest more money in the equipment to sustain the interior redesign which lead to a reduction in press shop working time for each vehicle and in tooling suppliers in order to increase the standardization of components produced by suppliers and a reduction of time needed on the assembly line. tooling plant and suppliers.836 76% 209. no air tunnel connection. less electrical wirings.83 hours Gasoline AS-IS 0. This presented a vent for the air conditioning and a lot of buttons on the front top. Assembly Line Press Shop Diesel AS-IS 14.114 4 .000. the reduction of buttons (0. EMEA US CINA Balilla volumes Total production Utilization % Residual capacity 2013 64000 25129 2014 65600 28001 2015 67240 36401 89129 529.601 62% 326. The new production function is estimated as following.75 hours 0.439 67% 283. ENTERING NEW MARKETS Plant capacity The capacity of the plant is enough to produce the volumes forecast to new markets (USA and China).855 2019 74220 72680 63936 210836 650. Furthermore this choice is convenient because the SCCS platform is already used in the plant to produce Punto. Investments (plant. This residual capacity allows FIAT to produce all new Balilla in this plant.35 hours Diesel TO-BE 13. The new FIAT B SUV 2016 68921 42754 24764 136439 576.129 62% 330.821 93601 533.095 72% 240.1 hours 12. Country in order to decrease generic depreciation costs and fixed overall costs. Punto EVO and Grande Punto. less parts to be installed. FIAT has the opportunity to invest in green direction in order to reduce the CO2 produced by its plant.000 vehicles/year while the total capacity is close to 860.782 2018 72410 60383 46302 179095 619.309 Balilla.

400 350 300 250 200 150 100 50 0 2011 EMEA 2012 2013 2014 EMEA+US 2015 yr 2016 2017 2018 2019 EMEA+US+CHINA Distribution costs While considering the entrance in new markets the shipping costs have been charged. and in third parties warehouses in China. Thanks to the increment of volumes also fixed costs and generic depreciation will decrease on single vehicle.900000 800000 % utilization Volume [Units] 1000000 700000 600000 500000 400000 2013 2014 2015 2016 2017 2018 2019 80% 70% 60% 50% 40% 30% 20% 10% 0% 2013 2014 2015 2016 2017 2018 2019 Current volume Maximum capacity Current+EMEA Current+EMEA Current+EMEA+US+China Current+EMEA+US Investments (plant. tooling plant and suppliers. R&D) Total Industrial Investment forecast (Mio €/yr) Entering new markets will cause an increase in investments not proportional to the increase in volumes thanks to the economies of scale reachable. The new FIAT B SUV Overall volumes [Units] 483035 314482 168390 5 .S. and China. EMEA U. In order to be efficient on this aspect the optimization of the way and the saturation of trucks and ships is made thanks to a new IT technology. They already consider ship transportation with load and unload. packaging. China Unitary transportation cost [Euros] 200 1800 2400 Balilla. Furthermore FIAT signed an agreement with Grimaldi Lines for the ship transportation in order to reach a very convenient price towards both U.S. damages warranty and duties.S. The new Balilla are stocked in Chrysler warehouses in the U.

instead is part of the FIAT brand repositioning strategy. but Chinese customers usually consider in-house products to have lower quality and often despise them.150 18.150 19. 2016 2016 CHINA ¥ CNY € 128.700 Petrol 19. without setting the model in a “cheap” slot. From a price range point of view it would position the Balilla among models of esteemed manufacturers.200 Diesel China 2012 McKinsey report “Bigger better broader: A perspective on China's auto market in 2020” predicts the Chinese biggest automotive segment by price range to be the 11. in order to foster a fast market share growth.00€. growing).450 20. this would foster sales and penetration. we concluded that the purposed prices are appropriate. 2013 2016 EMEA € € 18.600 Diesel Balilla.MARKETING STRATEGY Pricing EMEA Considering both the prices of the SUV Compact Regular Segment in EMEA and the offering of vehicles of other segments in the same price range. In 2016 as we plan a renewal of the model we suggest the prices to rise of 4%.500 Petrol 140. In order to value the brand and attract the newly rich middle-class longing to exhibit their status.000 19. between the years 2011-2020 (with 37-41% market share. this should not be considered as a threat.200-21.500 18. we set the prices in the highest 3/4 level of the segment just described.000 Diesel USA Considering the purchasing downtrend due to the crisis and the low penetration of the FIAT brand in the country we suggest lower prices as shown in the table.150 17.650 23750 20.950 21700 18. In 2016 as we plan a renewal of the model we suggest the prices to rise of 4%.450 Petrol 22. There are Chinese products copying western models and sold for much lower prices. so they don’t have to be considered as real competitors. The resulting price positioning is slightly under the average of the segment. The new FIAT B SUV 6 . 2013 2013 2016 2016 USA $ € $ € 21.

5%.5% in the following years. Breakdown Value Drivers Dealer Invoice 9. to which each producer adds a fixed holdback after sales have taken place. Average rebates to the final client are verified both vertically along the segment and horizontally for other FIAT models.5% Promote the model and FIAT brand. and gaining a big share in short time is necessary to reduce costs and solidify FCA presence in the market. It remains constant during the launch of the new version of Balilla in 2016.0% Encourage dealers to support the model 3. due to both higher invoices and higher bonuses.0% Fixed contracts Holdback + bonuses 4.0% Balilla. which Asians find so attractive. but with such small order of dimension it allows a clearer computation to incorporate it in the discount without affecting the result.Discount EMEA The discount has been computed considering the 2012 FIAT contract with the dealers.0% Fixed contracts Bonuses on volumes sold 4. Furthermore. It will raise slowly of 0.0% Encourage dealers to support the model.5%. Discount than includes the average rebate made to the final clients (7%). From an accounting point of view it should be calculated before taxes. Thus the initial suggested discount in EMEA is 17. It will raise slowly in the following years as in EMEA Breakdown Value Drivers Dealer Invoice 9. laying 50% on the producer and the rest on the dealer. evaluated it as an average additional 3-4%. Breakdown Value Drivers Dealer Invoice 11. achieve fast penetration High level brand positioning Bonuses on volumes sold 50% to final customer rebates Discount 2. plus bonuses on volumes targets granted to the dealer usually on a quarterly base or each six months.0% 18. and restart increasing the following year at a 1% rate.0% Encourage dealers to support the model 4.5% in the following years as the bonuses to the dealers increase with the volumes sold and to encourage dealers to push the product as its life cycle moves to an end. Thus the initial suggested discount in EMEA is 16. sacrificing some revenues in order to penetrate the market rapidly and to build a strong Brand. react to the crisis 50% to final customer rebates Discount 17. Therefore building the Image is crucial. It will raise slowly of 0. The discount to be applied in China is calculated taken into account high bonuses and also medium-low rebates.5% USA In The USA the dealer’s invoice is still 9%. Thus the initial suggested discount in 2016 in China is 18%.5% Promote the new model 50% rebates/promotions Discount 16. which settles the invoice price with a discount at 9%. The new FIAT B SUV 7 .0% Fixed contracts 5.5% China Chinese dealers usually have higher earnings than the rest of the world. since FIAT brand is not yet strong in the market we suggest to pledge bonuses (additional 1%) to foster penetration and grow market share rapidly. FCA average holdback in the States is 3%. Indeed the marketing strategy in China leverages on the western origins of FIAT.

EMEA Communication Plan 60 40 20 0 USA Communication Plan Produzione Outdoor Print TV 60 40 20 0 Internet Produzione Events Outdoors Print TV CHINA Communication Plan 60 40 20 0 Produzione Outdoors Print TV Internet Balilla.Advertising Entering into new markets involve new advertising campaigns which have to be efficient to guarantee visibility to our cars. during the 9 years.000$ 10 sec spot 500$-6.000$ 30 Sec spot 4.000.000% weekly 50$-300$ weekly 10.000$ ADV placement 200$-10.000$ ADV placement 2nd step After the evaluation of the total number of our target.000$-6.000$ ADV placement 200$-10. billboard and general adverting. 1st step Average price of medium involved in the campaign.000$-2. The new FIAT B SUV 8 . Then we studied the markets and our target we built the campaigns .000$-150. we deviced the campaign considering the prices of each spot. US Prices TV RADIO INTERNET PRESS MAGAZINE 100. to reach the target and achieve a great gross rating point (GRP).000% weekly 50$-300$ weekly 500$-100. through special tools such as “Sinottica” of Eurisko. and the calculation of the penetrations of each medium (Percentage of the target striked by the media).000$ ADV placement CHINA prices TV RADIO INTERNET PRESS MAGAZINE 350$-12.

we calculated the GRP that s a measure of the size of an advertising campaign or by a specific medium or schedule. 100.239 mln= 804. It does not measure the size of the audience reached. Rather.3rd step Finally. Our campaign has an average rating of 10 for person. GRP values are commonly used by media buyers to compare the advertising strength of components of a media plan GRPs are most directly calculated by summing the ratings of individual ads in a campaign. or in fact much greater than. GRPs quantify impressions as a percentage of the target population.2484 34% 46% TARGET EMEA TARGET USA TARGET CHINA 20% Balilla. The purpose of the GRP metric is to measure impressions in relation to the number of people in the target for an advertising campaign. GRPs are simply total impressions related to the size of the target population: Impress: 100*470 mln =4722.861/587. and this percentage may thus be greater than. The new FIAT B SUV 9 .861 GRPs= 100 * Impressions/Defined population (#) = 100*4772.

According to KPMG Global Automotive Survey the high potential of following this way should be mitigated/merged by/with a negative effect: the considered new growing markets (China. on the other side the Balilla. as a further advice is to have as a long term strategy an increasing in the joint ventures and/or M&A in that countries. India. APAC Selling forecast in China = 168390 cars in 4 years (2015-2019) Considering the Asia and Pacific region. In particular China and India are the two driving countries. The reasoning is based on selling a product where a developing market is huge.2% + + + Brand awareness 2010-2025 GDP growth % CO2 constrain LATAM Unless LATAM is expected to increase by 24% the car sales (2012-2019) and Fiat is the market leader in one of the dominant country in car sales. Moreover an advice about the mid-term objective is to add value to the product by meeting technological needs of customer (plug-in an technological connection tools installed in the car). Moreover an increasing in taxation in the region doesn’t allow us to foresee a promising future sales. Brasil. The new FIAT B SUV 10 . Brazil) will take the control of the global automotive market. statistics from consulting reports forecast a huge growth of the automotive market in the region. LATAM APAC NORTH-US 2012-2019 Car sales growth 24% 109% 31% B segment growth (sales) 32% 6% (191% China) 62% + - +/- 10% 50% 15.EVALUATION OF ENTERING IN NEW MARKETS In a horizon of negative NPV together with the need of overcoming overcapacity. About India we found out that is true that the automotive market will grow by 2020 of 113%. (22% of market share in 2012) within a different segment (C). one of the main drivers considered is the expansion in countries where the Fiat Balilla is not sold yet.

a distribution channel is already set there (200 dealers by 2013 are expected).000 2016 17.578.200.100.086.400.688.main two segments growing in the country are the extreme ones. Moreover the country GDP is increasing and in three/four years also a mid-income Chinese person can effort to buy our car.073 14% 2018 2019 20. The last advice can also contribute to control pollution and turnaround the disadvantage of lack of car plates in some main cities (due to CO 2 restriction) in an opportunity.346.000 2012 12. So we will take into account to enter in the market with different models. particularly in our segment (191%). unless.0% 1.000 growth % of B segment 10% Market .563 16.5% 1.339 11% 1. by 150% from 2016 to 2019.777 3. Moreover.007.079.000 growth % of Fiat mkt share 1.873.070 3.671. now the patriotic behaviour of Americans is touched.552.107 2013 13. The new FIAT B SUV 11 .302 63.491.110. 2011 Automotive Market China 11. The resulting GAC partnership will allow us to have a facilitator in the potential future production inside the country.931 2. is justified both by the increasing in Fiat market share in B segment.000 14% 14% 2.936 The increase in Fiat Market sales in B segment.compact SUV segment 1. China is the other main Country we have considered with a huge potential growth. we are in the middle.476.213 13% 1. North-US Selling forecast in North US = 314482 in 7 years (2012-2019) The first advantage in going overseas with Balilla model is the opportunity to take advantage of the distribution channel and economy of scale and scope already set in the country by Chrysler.8% FIAT Market on "B" Segment 24. as well as the huge growth of compact regular SUV segment.858 2014 2015 14.000 15% 16% 2.753.3% 1. Indeed our advice is to plan the entrance in that market in 2016. Consumer’s willingness to buy is also increased by the fact that Fiat merged with FCA.764 33.512 22. as a JV was just made this year (2012) with Gaig.889 14% 2017 19. Balilla.388 46.214.444 2. We suggest as well to help our brand awareness increase by introducing a car sharing six months in advance to the city launch.237.

671 22.5% 7.154 10.230 700.5% 7.437 25.095.919.5% 7.629.678 Balilla.029 777. in that segment 2011 2012 2013 Automotive Market North US 7.920 628. The new FIAT B SUV 2014 2015 2016 2017 2018 2019 12 .499.340 10.777 560. going from the actual one of 4% to the 8% in the 2018.885 growth % of B segment 6.129 28.About NAFTA region we suggest to enter in north US as we have a retail net already set there.333.539 8.120 11.0% 7.028 728.401 42.7% 7.362.934 862.707.754 49.957 8.058 10.8% 7.0% Market .9% 8.0% 6.610 908.136 60. Moreover north US market is now accounting for 30% of the global automotive market and it is expected to growth by 31% in next 8 years. Also statistics tell us that our segment is growing and Fiat market share as well.355.compact SUV segment 441.341 818.001 36.974.471 growth % of Fiat market share 4% 4% 4% 4% 5% 6% 6% 7% 8% FIAT Market on "B" Segment 17.721 9.383 72.709 9.

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