Jeeps Help Fiat Chrysler Automobiles Beat the Market's Decline

By Markets Fool.com

Several key Jeep models, including the highly profitable Grand Cherokee,bucked the industry trend and generated sales gains in May. Image source: Fiat Chrysler Automobiles.

Continue Reading Below

Bucking a trend of year-over-year declines among its competitors, Fiat Chrysler Automobiles said on Wednesday that its U.S. sales rose 1% last month, powered by continued high demand for Jeeps.

Why FCA's sales increase is impressive

Most automakers, including both Ford and General Motors , saw significant year-over-year sales declines for May. A quirk of the calendar was partly responsible: May of 2015 had one more weekend than May 2016. Because many new cars are sold on weekends, the year-over-year comparison was expected to be challenging.

But FCA nonetheless managed to generate a gain, its 74th consecutive month of year-over-year sales gains. Here's how.

What drove FCA's sales in May

Continue Reading Below

Simply put, it came down to Jeep. The white-hot SUV brand saw sales increase 14% to 90,545 vehicles in May, the brand's best monthly result ever.

FCA is benefiting more than most automakers from an industrywide shift in buyer preferences away from sedans and toward SUVs and trucks. Nearly all automakers have seen their sedan models struggle while SUV sales shine, but SUVs make up a larger portion of FCA's lineup than most.

A big part of Jeep's sales gain in May was powered by the small Renegade. Renegade sales more than doubled from a year ago, as did sales of the one-size-up Jeep Compass. Sales of Jeep's midsize Cherokee actually fell slightly, but that drop was offset by a 4% gain for the big (and hugely profitable) Grand Cherokee. Among Jeeps, only the iconic Wrangler, which is set for replacement soon, posted a significant sales decline.

FCA's other brands didn't fare so well. Ford's F-Series and GM's Chevrolet Silverado posted good sales gains in May, but sales of FCA's Ram pickups dropped 3%. Dodge sales dropped 5%, despite a big gain for the Caravan minivan and smaller increases for the Durango SUV and brawny Charger sedan.

And despite a good reception for the new Chrysler Pacifica minivan, and a strong month for the upscale 300 sedan, Chrysler-brand sales dropped almost 20% as the midsize 200 sedan continued its spiral to oblivion. FCA plans to discontinue the 200 and will use its factory to build the next-generation Ram pickup.

What FCA's sales gain means for investors

FCA CEO Sergio Marchionne is under pressure to maximize profits in North America while the market is strong, in order to continue to fund his ambitious overhaul of the company's global product portfolio. While the U.S. market is showing signs of peaking, FCA's profitable and popular SUV lineup should continue to generate good bottom-line results for a while longer.

Marchionne and his team are essentially racing against the U.S. market cycle: Can they complete their revamp of FCA before the U.S. market declines and squeezes a key profit stream? FCA's U.S. sales chief, Reid Bigland, successfully kept the metal moving in May. If he can keep it moving a while longer, he could be in line for the top job when Marchionne retires.

The article Jeeps Help Fiat Chrysler Automobiles Beat the Market's Decline originally appeared on Fool.com.

John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.