It's no secret that luxury cars have become a hugely profitable business. Nearly two-thirds of giant Volkswagen Group's (NASDAQOTH:VLKAY) profits last year came from the Audi and Porsche brands, while BMW (NASDAQOTH:BAMXF) and Daimler's (NASDAQOTH:DDAIF) Mercedes-Benz brand continue to post strong profits year after year.
Several global automakers are making big moves to increase their presence in the global luxury-car market, and Fiat Chrysler Automobiles (NASDAQOTH:FIATY) is no exception. As Fool contributor John Rosevear explains in this video, Fiat will soon move to take on BMW with not one, not two, but seven new Alfa Romeo models.
A transcript of the video is below.
John Rosevear: Hey, Fools, it's John Rosevear, senior auto analyst for Fool.com. Germany's Auto Bild magazine reportedlast week that Fiat Chrysler Automobiles is planning to unveil not one, not two, but seven new Alfa Romeo models, part of a plan to relaunch the brand as a major global luxury-car brand alongside Maserati.
Officially, FCA had no comment on the report. The company is expected to reveal a detailed three-year plan on May 6. I'm sure we'll hear more about it then. According to the report, though, FCA is hoping to ramp up to selling 500,000 Alfa Romeos a year. That's about five times what they sold in 2013.
The plans include an all-new version of the Alfa Romeo Spider, that's the famous small convertible, as well as a new Giulia sedan, that'll compete with the Mercedes-Benz C-Class and the BMW 3-Series, and a sedan called the Alfetta that is one size larger, aimed at the BMW 5-Series and Mercedes E-Class. The report said that there will also be wagon versions of the Giulia and Alfetta, and two new crossover SUVs, a compact one and a bigger one.
So that makes seven, and it begs at least one obvious question: If the idea is that Alfa Romeo and Maserati add up to a more or less complete luxury lineup to compete with the German brands and Cadillac and so forth, why have both an Alfa Romeo midsize sedan and a Maserati in the same category?
Maserati already has the Ghibli, which is getting good reviews, as well as its big sedan, the Quattroporte, along with a sports car, and they're planning to introduce a high-end SUV. But this report says that Alfa Romeo will be doing a sedan to compete with the BMW 5-Series and so forth, and the Maserati Ghibli is already staking out some of that turf.
Maybe the idea is that the Alfa will cover the lower end of that market and the Maserati will cover the higher end? We'll see, but it's going to be interesting. Fiat, of course, has owned Alfa for years, since the 1980s, but they haven't really managed to do much with it in all that time.
But like most of the other global automakers, Fiat Chrysler CEO Sergio Marchionne has surely learned from the example of Volkswagen Group, which has demonstrated how profitable a successful global luxury-car lineup can be. Volkswagen made a little over $16 billion in operating profits in 2013, and 65% of that profit came from the Audi and Porsche brands, despite the fact that those brands accounted for just 18% of VW's total sales volume last year.
Luxury vehicles are booming in China and will probably be booming for several more years. They've been strong here in North America, and for FCA there's another good reason to boost Alfa Romeo and Maserati. Fiat has several factories in Italy that are high-cost factories. They have expensive labor, and it's not very profitable to build small cars there anymore, but it is profitable to build luxury cars, and, of course, everybody expects Alfas and Maseratis to be made in Italy. Thanks for watching.
John Rosevear has no position in any stocks mentioned. The Motley Fool recommends BMW. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.