Ram, Jeep Are Strong Enough to Stand on Their Own, Says Marchionne
The importance of the Ram pickup and the Jeep brand to Fiat Chrysler Automobiles cannot be overstated. If it wasn’t clear before, FCA CEO Sergio Marchionne erased any doubt today on an earnings call when he was asked if Jeep and Ram are strong enough to exist as a standalone entity like Ferrari. “Yes,” he answered, with no hesitation.
That does not mean FCA is on the verge of spinning off the profit-makers, but it underscores the importance of the pickups and SUVs for a company that has stopped making smaller cars.
FCA is investing heavily in the new Jeep Wrangler coming out in the fourth quarter and the new Ram 1500 light-duty trucks coming at the end of 2018, said Chief Financial Officer Richard Palmer.
Ram light-duty pickups are currently built at the Warren plant in Michigan, but assembly of the next-generation truck will move to the Sterling Heights facility that made the Chrysler 200 sedan, which has been discontinued. Production launches in early 2018.
Because the Ram 1500 lineup is so complex, “it will take a good 12-18 months to roll out the full range of products for the 1500,” Marchionne said. As a result, the Warren plant will likely keep making some of the current-generation pickups while the new 1500 ramps up production. Marchionne said the team is still debating assorted scenarios but “I think there is a better than 50 percent chance that Warren will run for some period of time, if not the whole of 2018, making the old models but only to supplement the new one until the full rollout happens.”
Eventually the Warren plant will be retooled to make the new Jeep Wagoneer and Grand Wagoneer luxury SUVs. Their arrival has been pushed back to 2020, and they will use the same body-on-frame architecture as the Ram light-duty truck. That is a change from original plans to launch the three-row top-end SUV in 2018 using a stretched version of the Jeep Grand Cherokee architecture.
Mike Manley, head of the Jeep brand, said the truck-based Wagoneer family will still be able to compete against unibody luxury Land Rovers and command a high price. He said having truck underpinnings might net it more volume. Jeep will also have a plug-in hybrid model after 2020, which makes Wagoneer a candidate to share the system currently in the Chrysler Pacifica.
The new Jeep Wrangler is a different story. Marchionne said there will be some overlap when the next generation comes out in the fourth quarter. Old Wranglers will continue to be made, for a while, in the Supplier Park portion of the Toledo complex while the 2018 model ramps up in its new home in the Toledo North plant that had been making the Jeep Cherokee. But the Supplier Park can’t keep making the current Wrangler too long because that space will be used to launch a Wrangler pickup in the fourth quarter of 2019. Marchionne said the Wrangler plant has to be de-commissioned in the first half of next year to begin work on the Jeep pickup.
FCA has not decided on a name for the Wrangler pickup yet. Manley said the brand has a number of heritage names (Comanche, Willys, Gladiator, J-Series) but not all are relevant. He said the name debate has not yet started.
FCA is also in the midst of the global launch of the new Jeep Compass that replaces both the old Compass and the Jeep Patriot. The Toluca, Mexico, plant was down for part of last year for retooling.
The loss of production that accompanies any model turnover is reflected in the bottom line, and the first quarter earnings released today were no exception. Pretax profits were only up slightly in North America because volumes were down—of the small Jeeps as well as the hole left by the discontinuation of the Dodge Dart and Chrysler 200. But even a small gain is key, given that about 80 percent of profits come out of North America, and it is why Marchionne has chosen to forego the small car market for the higher sales and profits that trucks and SUVs generate.
Overall, it was the best quarter since Fiat and Chrysler merged as part of the former Chrysler’s bankruptcy restructuring in 2009. FCA today reported earnings of $1.67 billion in the first quarter, beating expectations. FCA earned a profit of $698.2 million which was a surprising 34 percent gain from a year ago. An emphasis on SUVs, improved fortunes in Europe, and surging profits at Maserati were the main contributors.
Marchionne said the rest of the year will only get better as the Compass launches globally and volumes slowly build for the Alfa Romeo and Maserati brands.
Maserati saw its sales almost double from a year ago, boosted by the Levante, the first SUV in its lineup, and margins will continue to improve as volumes increase and the launch costs are behind them.
On the Alfa Romeo side, FCA continues to launch the Giulia sedan, and the U.S. will get the new Stelvio SUV by June 30, Palmer said. The sales goal is 60,000 this year globally, which is not enough to be profitable, but Palmer is optimistic the brand will not take long to break even and start earning its keep. Part of the growth will come from expanding the number of dealerships.
There will still be production hiccups. This year the Belvidere plant had downtime to get ready to build the Jeep Cherokee which moved production to Illinois from Toledo. The Cherokee will launch this quarter, but production losses during the turnover will amount to about 30,000 Jeeps.
The elaborate plan that has so many products switching facilities will significantly boost profits when it is all done, Marchionne says. The plan was designed to minimize downtime for key next-generation vehicles, namely Ram pickups and Jeeps.
In other product news, Marchionne said the Chrysler Portal, an electric minivan concept, could launch as a production car in the next year or two.
And today FCA said it is expanding its Pacifica minivan lineup to include a Touring Plus model that starts at $33,455 and is available now. This brings the number of models in the Pacifica lineup to six. The Touring Plus falls between the Touring and the higher-end Touring-L, making it the third-most affordable, addressing concerns that the Pacifica is out of reach for some buyers.
As for FCA’s partnership with Waymo, the self-driving car project of Alphabet which is the parent of Google, Marchionne thinks he is paired with a company set up to be a leader in AI which will be part of autonomous vehicles in the future. But he said FCA will not rely solely on its collaboration with Waymo (which consists largely of selling them 600 Pacificas), but will also pursue other avenues as well in the pursuit of self-driving cars and electrification, knowing diesels have a limited role in the future.