Fiat 500 Economic Analysis, Written in 2011

    How much are you willing to pay for a custom made vehicle? With the 2011 release of the Fiat 500, Fiat is banking on American consumers paying a substantial amount of money for a premium sub-compact car. Depending on the options selected, the 500’s will range from around sixteen thousand to well over twenty thousand dollars; ample money for a car the size and shape of a large crock pot.     

    Fiat will offer the 500 in about half a million combinations of exterior colors and graphics, interior colors and trims, as well as a multitude of various electronic and wheel options, giving buyers a much greater ability to customize a Fiat 500 than the vast majority of other vehicles.  Fiat’s ordering system is much like a Dell computer, the buyer chooses one of three models (base, mid-level or luxury) and then tailors their vehicle with the desired options. 

    Unfortunately for consumers, the amount a car maker allows a consumer to “spec” out a vehicle has steadily decreased since the 1970’s. Manufacturers determined that it was expensive to provide hundreds of options and to customize the majority of cars. Since the 70’s, car makers have bundled together options into packages or models. Most cars today are available in a base, mid level or luxury model with only a few packages to choose from. That way, if way, if you want heated seats you’re forced to order and pay for a “cold weather package,” which includes heated windshield washers and heated mirrors, both options that the majority of consumers would never purchase had they been individually offered. 

    Customization, of course, comes at a price. Fiat, currently owned by Chrysler, is banking on a consumer market willing to pay a premium for custom ordered Fiat 500. Furthermore, those purchasing a custom vehicle will have to wait a month or more before delivery, contrary to research attesting that the majority of new car buyers want to drive their purchase home the same day. However, can assume that Chrysler and Fiat have studied their target market thoroughly and researched the cost of their customization plan. Clearly, they’ve determined that offering half a million combinations of options will yield the most profit. Fiat’s plan, in essence, is that the 500 will appeal to a broader market of buyers because they can order a 500 to suit them personally.

    However, automotive market research is often horribly incorrect, as proven by the Pontiac Aztec. Pontiac executives clearly thought they had a profitable product when they billed the Aztec as a revolutionary automobile. Allegedly a combination of a rugged SUV and a roomy minivan with a sports car spirit, the Aztec failed on all accounts. What Pontiac thought was a radically modern design, consumers thought an incongruous design I thought it was the automotive equivalent of a Platypus, as it looked to be assembled from spare parts and it’s overall function was indeterminable. 

    My opinion of the accuracy of Fiat’s market research aside, a market of car buyers willing to wait and pay a premium for exactly the car they want has existed for other vehicles, notably the Ford Mustang when it was released in 1964. Buyers could choose from lists of options, engines, drivetrains and colors to “spec” out a Mustang exactly to their taste and budget. This consumer power to customize a Mustang attracted record sales numbers from a diverse market; everyone from teenage whipper-snappers to housewives looking to become a two car family. From what I can tell, Fiat has essentially the same marketing plan for the 500.     

    In conclusion the Fiat 500 will test whether a profit can be made by selling more custom cars than the cost of supplying custom cars. The cost-benefit analysis of producing customizable cars has umpteen facets and arguments, many of which rely less on numbers and more on notoriously complex consumer perception and determinants of purchasing. Personally, I don’t understand why anyone would pay upwards of 20 grand for a car the size of a stroller with only 100 horsepower. I think the Fiat will be a huge flop in the American market as perception here is that the bigger the vehicle, the more luxurious. I doubt there is a market looking for a premium sub-compact vehicle, even with the current gas prices. Since the 500 was just introduced, it will take several years to determine a definite answer.