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Fiat Faces a Critical Audience: Its Own Would-Be Dealers

By Jim Henry

Updated on: August 31, 2010 / 2:48 PM EDT / MoneyWatch

Chrysler Group met with some of the toughest potential customers for the Fiat (FIATY.PK) brand this week, a group of about 400 U.S. dealers who are considering acquiring a Fiat franchise.

Existing Chrysler dealers get first dibs on the Fiat brand's return to the United States, after an absence of more than 20 years. The Italian company has reinvented itself from the days when a poor quality reputation helped spell the end of U.S. sales. Today's Fiats get much higher marks in European quality surveys.

Chrysler has reportedly said it will appoint dealers from outside the Chrysler network if it can't find enough suitable dealers among Chrysler, Dodge and Jeep dealers. However, it would be an extraordinary move to give the franchise to outsiders.

Chrysler is still patching up relations with its dealers after terminating hundred of dealers in bankruptcy restructuring a year ago. Even for dealers with no beef with Chrysler, the example is still fresh.

It's important for Chrysler to make nice with potential Fiat dealers, because the dealers themselves bear the cost of new Fiat facilities. The company expects to appoint dealers for only 165 locations, so more than half of the dealers at this week's meetings will go away from the process empty handed.

In Europe, the Fiat-Chrysler partnership is working in the opposite direction. Fiat is appointing Lancia dealers within the Fiat Group to sell Chrysler, Dodge and Jeep products. Dealer relations are a lot easier in Europe, where the car companies typically own most of the dealerships. When a car company in Europe says "jump," most dealers say, "How high?" U.S. dealers are independent businesses, so they're more apt to look at a new franchise strictly in terms of return on investment. A Fiat showroom is a pretty big investment, so Chrysler needs to persuade U.S. dealers it's worth it.

Some of the dealers at this week's meeting with Chrysler were enthusiastic about the brand and especially the iconic Fiat 500. The Fiat 500 is part of a wave of new small cars heading for U.S. showrooms.

Dodge dealer Joshua Towbin of Towbin Dodge, Henderson, Nev., said in a video shot for Chrysler that customizing is big in his market in the Las Vegas metropolitan area. Towbin said he expects the Fiat 500 to be a good candidate for customization. Towbin didn't say so in the video, but customization is highly profitable for dealers, and it's a big reason for the success of the Mini brand from BMW.

Time is critically short to appoint a Fiat dealer network, since Chrysler has said repeatedly it expects to start selling the Fiat 500 in the United States by the end of this year. Just considering how long it takes dealers to get all the necessary building permits and other paperwork for a new facility means there's no way the brand can have all those dealerships up and running by the end of 2010.

That's probably OK, as long as Fiat is represented soon in the biggest and wealthiest import-minded U.S. markets, like Southern California, Florida and the New York metro area. The Mini brand from BMW took a long time to roll out across the country. So did the Scion brand from Toyota. Chrysler said it picked locations based on existing concentrations of small-car registrations.

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Photo: Chrysler