Slipping Jeep Sales Could Put Fiat Chrysler Automobiles' Profit at Risk

U.S. sales oftheJeep Cherokee declined 23% last month, which should have FCA shareholders concerned. Image source: Fiat Chrysler Automobiles.

Fiat Chrysler Automobiles (NYSE: FCAU) said its U.S. sales fell 10% in October, as its formerly white-hot Jeep brand posted its second consecutive monthly sales decline.

The key numbers: How FCA's brands performed in October

Data source: Fiat Chrysler Automobiles.

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

Like most of its rivals, FCA was hurt in October by a quirk of the calendar: Last month had two fewer selling days than October of 2015. (Selling days exclude Sundays and other days when dealerships tend to be closed.) The overall U.S. market is expected to be down as much as 8% once all automakers' results are tallied.

FCA's shining star last month was its Ram truck brand. Ram saw a 12% overall gain, with a 7% year-over-year increase for its biggest seller, the Ram pickup line. But that's not necessarily great news for FCA's bottom line. Ram's outsized sales performance in September was helped by very generous incentives, and that was probably true again last month: TrueCar estimates that FCA spent $4,388 per vehicle on incentives in October, up almost 23% from a year ago.

FCA's Jeep brand had been riding a terrific sales streak. But sales dipped in September from the year-ago period, and October brought another decline. The small Patriot and big Grand Cherokee SUVs eked out year-over-year gains, but sales of all other Jeep models declined from a year ago. Most concerning: A 23% year-over-year drop in sales for the midsize Cherokee, the brand's biggest seller a year ago.

Not long ago, the Chrysler brand was the centerpiece of FCA's "Imported from Detroit" ad campaign. But now, it's in decline: The midsize 200 sedan is being phased out, and the aging 300 is suffering from a segment-wide decline in big-sedan sales, leaving the all-new Pacifica minivan to carry the brand's flag. Chrysler sold 7,758 Pacificas in October -- a good result, but down 37% from the 12,286 examples of the Pacifica's predecessor, the Town and Country, that Chrysler sold a year ago.

The Dodge Challengergot a big sales boost after it was overhauled for 2015. But buyers are looking elsewhere now: Sales were down 22% last month. Image source: Fiat ChryslerAutomobiles.

FCA is changing the Dodge brand from a mainstream family brand to a niche brand focused on "performance" and aimed at bringing younger buyers into dealerships. Not surprisingly, sales of the soon-to-be-phased-out compact Dart and Caravan minivan were down 63% and 15%, respectively. But the Dodges that are supposed to serve as the future backbone of the brand -- the Charger and Challenger muscle cars and the Durango SUV -- all posted year-over-year declines as well.

FCA has big plans for its Alfa Romeo brand. But right now, the brand has just one product in the U.S., the 4C sports car, and sales are tiny.

Fiat sold 444 examples of its new Miata-based Spider convertible last month. But that and an 8% year-over-year gain for the small 500 weren't enough to overcome significant declines in sales of the bigger 500L and 500X models.

Analysis: FCA needs the U.S. market to stay strong for a while

FCA managed a good third-quarter result. Net income of 606 million euros ($669.2 million) was a big improvement over a 387-million-euro loss in the year-ago period. That gain came in large part because of the Jeep brand's growth in China and its continued strength in the U.S.

If the slipping U.S. market is putting pressure on Jeep sales, that will be bad news for FCA's still-thin bottom line. The company has a heavy debt load: 25.3 billion euros as of September 30. It has a plan to pay that down, but it needs good results in the U.S. to fund its debt-reduction efforts and the long list of new products it needs to stay competitive and boost profitability.

Simply put, a slipping U.S. market, or a competitive landscape that drives FCA to boost its incentives at the expense of profit margins, makes its ambitious turnaround plans look dicey. Investors should tread very carefully, here.

A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early, in-the-know investors! To be one of them, just click here.

John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.