Strong Pickup Sales Give Fiat Chrysler Automobiles a Solid Month

By John Rosevear Markets Fool.com

Fiat Chrysler Automobiles (NYSE: FCAU) said on June 1 that its U.S. sales fell 1% in May on a reduction in sales to rental-car fleets. FCA's retail sales were up 1% from a year ago.

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FCA's May U.S. sales: The raw numbers

Metric May 2017 Change vs May 2016
Retail sales 152,227 1%
Fleet sales 40,813 (7%)
Overall sales 193,040 (1%)

Data source: Fiat Chrysler Automobiles N.V.

FCA's Ram pickups have made nice sales gains in 2017 -- mostly at old rival GM's expense. Image source: Fiat Chrysler Automobiles N.V.

How FCA fared against rivals in May

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None of the major automakers had big year-over-year gains (or declines) in the U.S. in May. The U.S. market is probably past its cyclical peak, and month-to-month results have been choppy as the automakers have tried different strategies to respond to softening demand.

Automaker May 2017 vs May 2016
FCA (1%)
General Motors(NYSE: GM) (1.3%)
Ford MotorCompany(NYSE: F) 2.2%
Toyota(NYSE: TM) (0.5%)
Nissan(NASDAQOTH: NSANY) 3%
Honda(NYSE: HMC) 0.9%
Volkswagen(NASDAQOTH: VLKAY) (VW brand only) 4.3%

Data sources: The automakers.

That said, FCA held its own, with strong gains for some of its most profitable products -- and a win that will give its salespeople a juicy talking point: FCA's Ram pickup line outsold GM's Chevrolet Silverado in May, 44,850 to 43,804.

Year to date, the Ram has outsold the Silverado by almost 9%.

What worked (and didn't) for FCA in the U.S. in May

FCA has had a tougher ride than some rivals in the U.S. in 2017. Its aging product line -- and a slow rollout of a key all-new Jeep -- had pushed its U.S. sales down 8% in 2017 through April. But May was a bit better, particularly at retail. Some high points:

  • Ram pickup sales rose 16% from a year ago, outselling the rival Chevrolet Silverado (as noted above).
  • Sales for the Ram truck brand, which includes the pickups and a series of vans sold mostly to commercial customers, rose 18%.
  • Sales of Jeep's highest-priced product, the Grand Cherokee, rose 14%.
  • Dodge brand sales rose 8%. The Challenger coupe (up 2%), Journey crossover (up 23%), Caravan minivan (up 58%), and Durango SUV (up 19%) all posted increases. The about-to-be-discontinued Dodge Viper sports car also posted an increase: 85 were sold in May, up 81% from a year ago.
  • The well-regarded Chrysler Pacifica minivan, all-new last year, continued to sell well, with 11,720 sold in May. That's up more than threefold from a year ago, when the Pacifica was just beginning to arrive at dealers.
  • With the new Giulia sedan beginning to arrive at dealers, Alfa Romeo sales jumped to 919 from 44 a year ago.

That said, there were also some points of concern:

  • Overall sales at Jeep, FCA's most important brand, were down 15%. Part of that was due to a model changeover: FCA is rolling out an all-new Compass to replace the last-generation model, as well as the now-discontinued Patriot, and supplies are still thin. But that doesn't explain why the small Renegade and midsize Cherokee were down 15% and 24%, respectively, in a market that's still very hot for SUVs.
  • Sales at Fiat, FCA's small-car brand, slipped 16%, to just 2,670 vehicles.
  • FCA's big rear-wheel-drive sedans continue to struggle in what has been a very difficult market for larger cars. Sales of the brawny Dodge Charger were down 10% from a year ago, while sales of the upscale Chrysler 300 were off 19%.

Pricing, incentives, and inventories

FCA doesn't typically provide data on pricing, incentives, or inventory levels in its monthly U.S. sales report (and it didn't in May). But Kelley Blue Book estimates that FCA's average transaction price in May (net of incentives) was a healthy $37,058, up 5.9% from a year ago. That slightly trails both Ford and GM, as well as Volkswagen -- which benefits in this case from its upscale Audi and Porsche brands -- but is well ahead of other mass-market automakers.

We'll have to wait several days for third-party data on FCA's inventories as of month-end. But we know that, as of May 1, FCA had an 80-day supply of vehicles in its U.S inventory, according to data from Automotive News. That's higher than Ford's was at the end of May -- 72 days' worth -- and probably a little higher than is ideal, but it's considerably lower than the worrisome 101-day supply GM had at the end of May.

What it means for investors

FCA is taking the same kinds of steps -- cutting rental-fleet sales, being more careful with inventories and incentives -- that its Detroit rivals have been taking to improve their margins. FCA has made good progress, but the reality is that it started from further behind: It has a lot more debt than Ford or GM, or most of its other global rivals, and a less robust new-product pipeline.

A few years ago, FCA CEO Sergio Marchionne made a big and costly bet: That a big investment in a slew of new products for the Alfa Romeo brand could give the company a high-margin global luxury contender.

That bet forced cash-strapped FCA to put other priorities -- new sedans for Dodge and Chrysler, a new Ram, a new Journey, overhauled Jeeps -- on somewhat slower paths. The upshot is that much of FCA's current mass-market product line is older than competitors' equivalents, which hurts FCA's sales and pricing power relative to those competitors.

On the other hand, the first new Alfa Romeos to emerge from that expensive engineering effort are now arriving at dealers around the world, and early reviews have been strong. Will it pay off? We'll find out over the next year or so.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.