Fiat Chrysler Automobiles is moving forward with a plan to restructure its manufacturing footprint, abandoning small-car production while emphasizing trucks and utility vehicles, CEO Sergio Marchionne says.
The scheme, which will end production of the Dodge Dart and Chrysler 200 in the U.S. next year, isn't at all a risky bet on the future of the U.S. truck market, he contends, and actually will add UAW jobs, not reduce them, although there will be temporary layoffs as facilities undergo extensive retooling.
FCA does not detail all the specifics regarding the production shift, but Marchionne confirms Ram truck production will go into the Sterling Heights, MI, plant and the Warren, MI, facility will shift to Jeep production as FCA looks to expand the lineup with upcoming Wagoneer and Grand Wagoneer models.
Marchionne says Sterling Heights was selected for Ram production because Warren would need “major surgery” to keep building the trucks after 2018, when a new version of the fullsize pickup is due to hit the market.
All the retooling should be completed by 2018, Marchionne says, promising not one unit of profit-driving Jeep or Ram production will be lost during the changeover.
“We will see the whole U.S. manufacturing footprint fully loaded by the early part of 2018,” he says during a conference call with analysts to discuss the automaker’s strong first-quarter financial results. “The next 18 months are crucial, but the work is under way now.”
The strategy to focus on production of trucks and utilities in the U.S. was borne directly out of the self-evaluation exercise that led Marchionne to make a public bid for strategic partnerships with competitors or an outright sale of FCA to another automaker. His pitch, initially made a year ago and aimed directly at General Motors, Ford and a handful of other multinationals, so far has been rebuffed.
But the CEO says the process led to the conclusion it was better for FCA go all-in on more profitable pickups and SUV/CUVs and decrease investment in low-margin small and midsize cars.
“We started focusing on the relevant portion of our activities and sort of abandoned the notion of being able to withstand mediocre performance of some segments simply because of the fact it was due to a higher calling of being an automaker,” he says.
Strategy Recession-Proof
That strategy shift will allow FCA to get a better return on its capital investment, he says. “But having said that, I remain reasonably hopeful somebody will pick it up with us and get (a partnership or acquisition) done.”
There will be a slight reduction in FCA’s U.S. capacity overall as a result of the shift from cars to trucks. And although Marchionne admits the North American production mix will lean a little more toward trucks, he dismisses any suggestion the moves will push that to 90% or more “unless you count minivans as trucks.”
“I think the call we made to exit (the small-car business) as a producer in the U.S. in hindsight is probably one of the best calls we’ve made,” he adds, saying if given a second chance FCA would not have invested in the Dart and 200 back in 2008-2009.
“There’s been permanent change in landscape in U.S. I think you’ll see a lot more (utility vehicles)…occupying what has historically been a passenger-car market,” Marchionne notes.
The FCA CEO suggests the capacity realignment is somewhat recession-proof, because Jeep still has room to grow outside the U.S. and some of the brand’s North American production will be targeted at Europe, China and Latin America.
In the past, FCA’s has had to make a “Sophie’s choice” of which markets to supply with Jeeps, Marchionne says. “Even if there were to be a contraction of the U.S. market, there’s unexplored potential in terms of outside-U.S. markets.”
The rollout of the Jeep brand globally will continue in the second quarter with the launch of Renegade production in China. The small CUV is the second Jeep model in production there, following the Cherokee, now selling at a rate of 9,000 units per month and expected to go higher.
Overall Jeep sales in the Asia/Pacific region rose 17% in the first quarter vs. year-ago, FCA says.
The automaker also plans to launch output of Jeep in India, which will mark the sixth country to build vehicles for the brand, though officials do not specify timing.
Meanwhile, Marchionne characterizes discussions of possible collaborations as productive, adding, “I think we need to give it more time. It has been worth the effort (and) I would do it again.”
Later, he hints of progress on acknowledged discussions with such disruptors as Apple and Google, both of which are exploring a bigger role in automotive, though specifics of their plans remain unclear.
“Dialogue continues with people who are interested in exploring their relevance in the automotive world. And we will continue to try to help them find a way out. We need time to figure out if some of these arrangements are commercially relevant to FCA, but hopefully we’ll have something to say about that in 2016.”
FCA reports a first-quarter net profit of €528 million ($667 million), a whopping €497 million ($628 million) higher than like-2015 partially on the strength of Jeep sales. Revenues totaled €26.6 billion ($30 billion) for the quarter, up 3% from year-ago on a 15% hike in worldwide vehicle shipments totaling 1.086 million units.
