Analysis: Volkswagen takeover of not-for-sale Alfa Romeo

Posted: Tuesday 24 August 2010 by Alison

Vintage Alfa Giulia sprint

Among many ifs and buts, more rumours have emerged that Volkswagen would be interested in buying the Alfa Romeo brand, despite it apparently not being for sale right now. According to Automotive News Europe, top executives at VW (remaining anonymous) have said that the German company would be seriously interested in an Alfa purchase, despite previous denials of Alfa wanting to sell which came from another anonymous executive at the Italian company.

At the moment, it looks like a lot of mud stirring with no real foundation, although we would not be surprised to see this rumour evolve into something more. There are a couple of interesting issues at stake that need to be considered. Firstly, the main reason behind Volkswagen’s interest in buying Alfa Romeo to be cited so far, is that the purchase would go some way to helping VW’s plan to become the world’s number one car manufacturer, dethroning Toyota of its current position.

We have our doubts that this is the main, and certainly not the only reason. Surely Volkswagen would have a couple of other savvy motives up its sleeve before outlaying what we would imagine to be a significant sum to purchase Alfa. The cited reason suggests more vanity than we’re willing to attribute to Volkswagen’s plans for world domination, and if the stories of Alfa on struggle street right now are to be believed, the German company certainly wouldn’t be purchasing a healthy sales guarantee. So what are the other business interests at the heart of the rumour?

Luckily there are other reasons circulating as to why Alfa Romeo could be an intelligent purchase for Volkswagen. A German sister publication to Automotive News states that Alfa would be a neat addition to the Volkswagen Group’s expansion plans. While VAG could be considered as having just about every vehicle offering under the sun, the Alfa sports tradition could enhance its brand and vehicle offering (as long as it doesn’t become too German in the meantime, the Italians would argue).

Also, given Seat is apparently not doing as well as hoped, Volkswagen could merge the two brands, use the Alfa image and make some great sports cars, thus saving any losses it’s currently incurring. This reason seems a little far-fetched to me - if Seat is not doing so well now, the addition of Alfa to the brand portfolio is no guarantee that it will do any better. In fact, it could only work if Volkswagen were to then kill off its Spanish brand, which is probably part of the above idea.

While Volkswagen would have access to the historic and powerful image that is the Alfa Romeo brand, analysts suggest that the German company would also benefit from a technical point of view. It could develop on new chassis options, including Alfa’s impressive front wheel drive technology. The appeal of the brand is also evident when looking at Volkswagen’s ranks of former Alfa Romeo employees and reported afficionados of the Italian brand.

So that’s the Volkswagen story, but what about the Alfa Romeo side of the coin? So far it appears that Alfa Romeo and Fiat CEO Sergio Marchionne are sticking to the plan to develop the brand image as a premium car maker. But the ambitious targets set mean that many are skeptical as to whether Alfa will ever make it. For much of the Italian public in the know, Marchionne has seemed to betray their beloved brand on more than one front recently.

It seems that the Alfa brand has been sidelined in the Fiat return to the US in favour of the new Fiat 500 model to be a flag bearer, and the restructure of the Fiat organisation hasn’t yet bore fruit in reviving the Alfa sports image. In fact, only in recent days, the announcement of the termination of the Alfa Brera and Spider production was made, and no product replacements have been named. In addition, Sergio Marchionne doesn’t seem particularly impressed with Alfa’s efforts with its recent MiTo and Guilietta models. The first has been a mild success but possibly just a flash in the pan, and the second hasn’t had time yet to prove its mettle.

So would Sergio Marchionne eventually be tempted to sell the Alfa brand if the ambitions to become a premium car maker don’t materialise? It’s hard to say. But an initial reaction of “you wouldn’t dare” is hardly anything to rely on. We’ve got an alternative for Fiat, though - look at the rumoured Volkswagen-Alfa takeover plan with the various models outlined, and steal their ideas like there’s no tomorrow. If you can’t beat them, copy them and if Alfa needs an example of how to go premium, what better place to look than VAG?

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  • St John Harvey

    10 Sep 2010 - 17:27 - #1
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    Marchionne is beginning to worry me with his mixed messaging for Alfa. At the beginning of the year, it was more or less “game over” for the brand, putting all future model development on hold. Then came a change of heart on the eve of the Giulietta launch which, based on an entirely new platform and featuring state of art engines like multiair, the JTDMs and the 1750 Turbo Benzina, had great promise. Press reports to date support this (even if some of the Alfa-ness has been dialled out). The return to the States slides back and forth with a FIAT spearhead now looking most likely.

    Marchionne has the magic 5m car per year production target in his sights as a minimum threshold for a modern day car manufacturer to survive. Whether the breakeven point for Alfa is 300K, 400K or even 500K, it is still small fry in the context of this. So, has he and his henchmen got the management agility and will to balance these two very different challenges and take Alfa foward? Granted it sits in an uncomfortable spot today: too small to be mass market - not specialised or “small” enough to be niche. It sits, however, in its owns specialised niche which, whilst a headache for accountants presents a fascinating challenge for engineers and marketers. So here’s the question: is he patient enough to follow through from the Giuliatta and take Alfa forward, respecting brand positioning and values? If so, keep it Italian and keep it within FIAT. If not, sell it to VW.

    Forget Alfa losing some of its Alfa-ness if bought by the Germans (it’s already happened under FIAT). The fact that they appear to have a clear-cut strategy, the single-mindedness of approach and the money to follow through is most important to the brand’s survival.

    With such purpose, we would soon stop talking about Alfa’s survival and begin looking to its growth and prosperity as the only real global brand that can take the fight to BMW in its comparative market segments.

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