Alfa Romeo out to win younger men's hearts

By Gilles Castonguay

MILAN (Reuters) - Pity the Alfa Romeo. Despite its status as an icon of Italian style and speed, its sales are mediocre, it struggles to exceed a one percent market share in its main European market, and it is losing money.

Even though it has had the culture of motor-racing coursing through its valves and pistons since its inception nearly a century ago, years of poor-quality parts and service have deprived it of the premium status enjoyed by Volkswagen's Audi and BMW.

"While it tries to pitch itself as a premium brand, it doesn't quite make it," said Jonathan Pusket, an analyst at J.D. Power.

When the Fiat group, best known as a maker of cheap, small cars, bought Alfa in 1986, its factories were empty of ideas, with no investment in technology or product development.

Sergio Marchionne, Fiat's chief executive, last year told analysts Alfa "is the hardest asset that we have that we have to work (on)".

Now rising to that challenge is Luca De Meo -- at 40, the youngest executive within the Fiat industrial group -- who brings a badge of success from overseeing the recovery of the Fiat brand.

De Meo's thick hair and modish suits suggest he would be more comfortable riding a scooter than driving a convertible, but success for Alfa will depend on him reinventing the brand magic of the 1950s and 1960s for a younger generation.

Enzo Ferrari used to race Alfa Romeos before he started up his own company, Alfa won the first Formula One World Championship in 1950, and in its 1960s heyday, cameo appearances in movies such as "The Graduate" and "The Italian Job" showcased the soft sleekness of its design.

"People love it for its history," said Tiberio Santagatti, a director at a club of Alfa enthusiasts called Club Alfa Italia. "It's had so many racing victories."

For De Meo, that's just part of the problem.

The chief marketing officer for the group since September after three years as head of Fiat, he needs to position a premium product when his experience has been at the lower end of the market, at a time of waning consumer demand, and with no sign of a let-up in the competition.

BIGGER BRANDS BOOMING

By far the dominant brand in the premium segment of the market, Germany's BMW reported a 14.3 percent sales rise to a record 56.02 billion euros last year and has forecast more record sales volumes for 2008. Audi's sales rose 2.8 percent to 645,676, giving it a market share of 4.4 percent.

But Alfa sold 1 percent fewer cars at 142,506 in Europe, according to industry figures. Worldwide, it sold about 165,000.

"Alfa's problem is that it sells too few cars," said JP Morgan analyst Philippe Houchois. Although numbers are not broken out by brand, he estimated Alfa had a trading loss of up to 100 million euros last year. Fiat declined further comment for this article.