Fiat 500 Sales Shortfall No Surprise Here

A “sales flop” or poor execution?

Fiat 500 sales have fallen far short of expectations.

Fiat’s tiny 500 model took the market by storm one year ago with high expectations of sales success. Indeed, Fiat/Chrysler put its first year numbers at 50,000 units, but when 2011 sales figures are tallied later this week that number is expected to come in closer to 20,000 units.

Why the shortfall? Blame it in on unrealistic expectations than on anything else. The Fiat 500 is a capable small car, but Fiat’s execution strategy actually hampered the car’s success. Fiat may yet hit 50,000 annual units, but it will need to rectify several problems that were apparent in 2011. Let’s take a look at what those problems were and offer some solutions:

Dealer Network — Very few dealer networks were in place when the Fiat 500 went on sale in January 2011. Moreover, those dealers had to promise to set up shop in Fiat-exclusive showrooms. Its 130-dealer network wasn’t in place when the year began, thus many customers couldn’t find the 500 available in there area until later in the year, if at all. Fiat might have avoided this problem and reached its goal had it simply made the 500 available through partner Dodge or Chrysler dealerships.

Production Delays — Not helping matters for Fiat were some production delays early on. This model relies on a plant in Dundee, Michigan, to produce engines and a plant in Toluca, Mexico, to assemble the car. Production problems in Mexico slowed initial availability. But, with demand well below expectations, layoffs at the Michigan engine plant have kicked in.

Safety Ratings — The Insurance Institute for Highway Safety has recognized the Fiat 500 with its “top pick” award as a result of testing involving frontal offset, side impact, rear collision and roof safety. However, the National Highway Transportation Safety Administration only gave the 500 3-stars out of a possible 5. Why the difference? Different testing methods, according to Consumer Affairs. The NHTSA uses both a stationary pole and a side barrier to test its cars. The 500 scored below average in its side impact test, pulling down its score. Likely, a higher score won’t come until the Fiat 500 is redesigned. Unfortunately for Fiat, customers may hear more about the NHTSA score than the IIHS rating.

Marketing Campaign — Months after the Fiat 500 went on sale, the company launched its first national marketing campaign. The campaign’s late arrival was problematic for two reasons: its dealer network wasn’t in place and delivery was still limited by production problems. Although some criticized Fiat for waiting too long to launch its national ad campaign, it really had no choice — the Fiat 500 wasn’t widely available yet.

Broken Promises?

Sergio Marchionne has done wonders for Chrysler, but his Fiat and related brands continue to suffer. Some dealers are angry that promised follow up Fiat or Alfa Romeo models aren’t on the horizon. The 500 Abarth edition, a turbocharged model that makes 160 horsepower will bring some excitment to Fiat dealerships, but with no other models in sight, expect more grumblings from dealers who aren’t seeing a return on their investments.

The Fiat 500 is classified as an A-segment model, and is among the smallest cars on the market. The Smart ForTWo kicked off this segment when it made its debut four years ago, but what we have here is a 16-year-old subpar offering from Daimler, a two-seater with a raspy three cylinder engine. Offering better competition in a limited segment are a pair of new or soon to arrive offerings: the Scion iQ and Chevrolet’s Spark. With only so much demand in this segment, its competitors will be looking to snap up sales. Those sales could come at Fiat’s expense, making the dream of reaching 50,000 annual units a never-ending quest.