Why Fiat Chrysler Automobiles Is Building an Alfa Romeo SUV

By Markets Fool.com

Fiat Chrysler Automobiles (NYSE: FCAU) unveiled the all-new 2018 Alfa Romeo Stelvio at the Los Angeles International Auto Show on Wednesday.

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The Stelvio is expected to be the high-volume key to Fiat Chrysler's ambitious hopes for a global revival of the storied Alfa Romeo brand.

What it is: Alfa Romeo's first-ever SUV

"The all-new Stelvio, named after one of the greatest driving roads in the world the Stelvio Pass in the Italian Alps sets a new benchmark for the segment," said Head of Alfa Romeo Reid Bigland. "Stelvio is uniquely engineered to challenge two-door sports cars on the track, without sacrificing any of the characteristics you would expect from a premium SUV, resulting in the perfect mix of high performance, capability and Italian design."

Head of Alfa Romeo Reid Bigland with the all-new 2018 Stelvio in Los Angeles on Wednesday. Image source: Fiat Chrysler Automobiles.

On paper, the Stelvio has the hardware to back up the hype. The Stelvio is a mid-size crossover SUV based on a unibody architecture -- in this case, the same architecture developed for Alfa's mid-size Giulia sedan.

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It will be offered in the U.S. with a choice of two engines. A 2.0 liter turbo four-cylinder making 280 horsepower and 306 foot-pounds of torque is standard, while a hot 2.9 liter twin-turbo V6 making 505 horsepower and 443 foot-pounds of torque is featured in the high-performance Stelvio Quadrifoglio. ("Quadrifoglio" is Italian for "four-leaf clover," the traditional symbol of Alfa Romeo's racing teams.)

Why it's important to FCA

When CEO Sergio Marchionne rolled out his five-year plan to transform FCA in 2014, it was clear that he was mindful of the example set by the massively profitable Volkswagen Group (NASDAQOTH: VLKAY). VW's Audi and Porsche brands generated only about 19% of VW's total global passenger-vehicle sales last year, but together they brought home 67% of its total operating profit (and 79% of its operating profit from passenger-vehicle sales).

The Stelvio'sinterior is an updated take on classic Italian-car designthemes. Image source: Fiat Chrysler Automobiles.

The lesson: Thriving luxury brands generate much fatter profits than mass-market brands. That lesson is why Alfa Romeo (and to a lesser extent, Maserati) have an outsized place in Marchionne's vision for FCA: His hope is that the two old Italian brands can combine to take a substantial piece of the global luxury-vehicle pie for FCA.

Under his plan, Alfa is expected to deliver the lion's share of the sales volume in a world where sales of SUVs are surging while traditional sedans slump. That's what makes the Stevio important: It's the key piece of Marchionne's plan to turn the old Alfa brand into a global luxury contender.

Another view of the 2018 Alfa Romeo Stelvio. Image source: Fiat Chrysler Automobiles.

The Stelvio will compete around the world with mid-size luxury crossovers from the German luxury brands, General Motors' Cadillac, and Toyota's Lexus. But given the competition, the list of high-tech luxury features is somewhat shorter than you might expect. Instead, Alfa chose to emphasize performance and driving pleasure with the Stelvio, putting its money into advanced chassis-control and suspension systems rather than in-car gadgets.

That's a big clue as to how FCA plans to differentiate Alfa from its rivals.

What's next: The Stelvio will launch sometime next year -- probably

FCA said that the Stelvio will be built at its factory in Cassino, Italy, which was revamped in 2015 and dedicated to the Alfa Romeo brand. It's expected to arrive at U.S. dealers sometime in 2017, but the exact timing isn't clear.

Given the delays that have afflicted the launch of the Giulia sedan (it's about a year late), it's no surprise that FCA isn't quite ready to narrow down the timing of the Stelvio's launch.

U.S. pricing and fuel-economy figures will be announced closer to the Stelvio's launch date.

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