Fiat 500 to test Chrysler

Chrysler Canada Inc. plans to begin selling the Fiat 500 subcompact in early 2011, providing an early test of how the alliance between the two auto makers will address the most glaring problem at the No. 3 Detroit company: the collapse in sales of its passenger cars.

The Fiat 500 is crucial for Chrysler Canada because of the particularly deep slide in passenger car sales that has afflicted all three of the Detroit auto makers here. As of the end of July, Chrysler, Ford Motor Co. and General Motors of Canada Ltd. delivered just 25 per cent of the passenger cars sold in Canada, a staggering drop from the 50-per-cent market share they held in 2000.

When sales to fleet customers are stripped out, the Detroit Three captured less than 20 per cent of the passenger car market in Canada during the first six months of this year, said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. in Richmond Hill, Ont.

"It's a fundamental problem," Mr. DesRosiers said. "The absolute No. 1 issue at GM, Ford and Chrysler is that they've lost the consumer."

At stake is more than simply bragging rights. Most of the entry-level vehicles for new drivers are passenger cars, such as subcompacts, where Chrysler and Ford have been without entries in Canada for more than a decade.

The launch of the Fiat 500 could also provide a glimpse into how the Chrysler-Fiat deal will play out in other markets. Drivers in both Canada and the United States are movingback to passenger cars from trucks and sport utility vehicles because of high gasoline prices - a trend that will continue during the next decade as governments in both countries put in place more stringent fuel economy standards.

"That's where the money is going to be made going forward," said Joe Phillippi, a veteran industry analyst who heads Auto Trends Consulting Inc. in Short Hills, N.J. "That's where the action is going to be."

The collapse in Detroit Three car sales is particularly acute at Chrysler. It fell to eighth spot as of the end of July, from fifth in 2000, and although it's just one place behind Ford it is barely ahead of Volkswagen Canada Inc. among the major companies selling in Canada.

GM, the perennial leader in the overall market and sales champ in passenger cars, has fallen to second place and now trails first-place Toyota Canada Inc. by more than 10,000 vehicles.

One Chrysler dealer in Western Canada said he is no longer ordering passenger cars from the company because they simply aren't selling.

Chrysler would not comment on which Fiat vehicles will be coming to Canada and when. Dealers said they have been told the 500 will be available in January, 2011.

Analysts and industry sources said the Fiat 500 - which arrived as a revival of one the storied cars in Fiat SpA history and helped restore profitability - has to be followed by a strong entry in the mid-sized segment, where redesigns of the Chrysler Sebring and the Dodge Avenger have been flops.

"Filling back that product pipeline is going to be job one," said one high-ranking industry source. "They're a minivan and truck company basically" that was starved of product development money under the ownership of private equity fund Cerberus Capital Management LP, the source said.

The 500 gives Chrysler a competitor in a segment where GM, Honda Canada Inc., Hyundai Auto Canada Corp., Nissan Canada Inc. and Toyota are well entrenched.

But it will be late to the party: Ford will begin selling its Fiesta in the subcompact segment next summer; Mazda is expected to offer its Mazda2 model subcompact for sale. As well, Toyota will start sales next year of its Scion brand, which includes subcompacts and is aimed at capturing young, entry-level buyers.

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Since 2,000 the Detroit Three have seen market share in passenger car sales fall from 50 to 25 per cent.

PASSENGER CAR SALES IN CANADA, (% MARKET SHARE)

January-July - Total 448,050

GM 61,972 (13.8%)

Ford 30,974 (6.9%)

Chrysler 20,513 (4.6%)

2000 - Total 849,103

GM 256,792 (30%)

Ford 99,738 (11.7%)

Chrysler 80,853 (9.5%)