Sergio Marchionne’s bad bet at Fiat

November 22, 2011, 9:51 PM UTC

FORTUNE — Sergio Marchionne took a gamble last year, recruiting a relatively unknown junior auto executive from Volkswagen for her experiential marketing skills which would help relaunch the Fiat brand in the U.S.

He lost that bet.

Fiat’s first model, the 500, has suffered from low sales and complaints from U.S. dealers of weak advertising support. Marchionne, the chief executive of Chrysler Group LLC and its Fiat SpA affiliate, is now reshaping the 500’s marketing along more conventional lines. On Monday, Fiat announced that Laura Soave, 39, was out and Tim Kuniskis, 44, a Chrysler sales and marketing executive since 1992, is taking over.

Re-launching Fiat was never going to be a cakewalk. Soave “faced an uphill battle from the start,” says Michelle Krebs, an automotive analyst for car-buying website Soave’s charge was effectively to introduce Americans to a brand that had no reputation whatsoever with young consumers and a not-so-sterling image with older ones. (The old joke goes that Fiat stands for “Fix It Again Tony.”) “I don’t know how much money she had, but it probably wasn’t enough,” adds Krebs.

Fiat was hoping to duplicate the launch success of BMW’s Mini in 2001, when the automaker relied on all sorts of unconventional stunts and events that went viral on the Internet. Moves like strapping the diminutive vehicle on the roof of a conventional SUV and parking it in public areas created buzz for the new brand. Because Mini was new and sales projections were relatively modest, BMW sought a less expensive way to market the car than by buying costly advertising.

Marchionne was in a similar position when he decided to bring Fiat back to the U.S. Both Chrysler and FIat are suffering from weak financial performance and thus have less to spend than bigger, more prosperous rivals. Plus, the 500 is similar to the Mini, a small, premium vehicle with a distinctly European flavor. Among the events Fiat staged was a drive-in-movie in Manhattan’s Times Square. Spectators were invited to sit in Fiat 500s, facing one of the outdoor screens.

That may have generated some buzz, but not enough. Why Marchionne hired Soave, an Italian-American who grew up in a Detroit suburb, is clear. A warm and charming demeanor with the press and dealers didn’t hurt. But, the automaker insisted that dealers initially construct separate, dedicated Fiat “studios” — a costly stipulation — rather than rely on existing Chrysler stores. Many of the owners of the 134 studios would have preferred to see a large advertising expenditure by the automaker to stimulate customer traffic.

If more traditional, the new game-plan is likely a work in progress. Fiat recently hired actress Jennifer Lopez to promote the 500 in a series of television commercials. Meanwhile, the company also rolled out several variants of the 500, including a high-performance Abarth version. Sales have begun to pick up a bit. In October, sales were just under 2,000, bringing the total to slightly less than 16,000. Fiat skinned back on an earlier prediction of 50,000 first-year sales.

Fiat has its challenges cut out for it. Analyst Krebs thinks that beyond overall weakness in the automotive market, the size of the small-car segment remains questionable due to most Americans’ preference for larger, more powerful cars. And, she says, the small-car segment has plenty of new contenders, several of which offer better fuel economy and larger size for less money than the 500.

Still, the 500 does carry an undeniable message of romance and pizzaz, one J.Lo’s sex appeal is supposed to tap into. Now, Fiat is likely to build on that.