Why Fiat Chrysler Automobiles' U.S. Sales Are Sliding
Fiat Chrysler Automobiles (NYSE: FCAU) said that its U.S. sales fell 11% in January due to a big drop in sales to fleet customers. FCA's retail sales were flat year over year, the company said.
The drop was FCA's fifth consecutive monthly year-over-year sales decline in the U.S. What's happening?
The big Dodge Charger sedan sold well after a 2015 revamp, but sales have since faded. Image source: Fiat Chrysler Automobiles.
About that big drop in fleet sales
FCA said that it sold 42,868 vehicles to U.S. fleet customers in January, a drop of 31% year over year, as it continued its strategy of reducing sales to rental-car companies in an effort to boost its profitability and the resale value of its vehicles. (Higher resale values would allow FCA to offer more competitive leasing deals.)
Fleet sales represented 28% of FCA's total U.S. sales in January.
A mixed bag of results across FCA's brands
More than anything else, the highly profitable Jeep brand has been powering FCA's recent profits, in the U.S. and elsewhere in the world. But Jeep's U.S. sales fell 7% in January, on big drops for the Compass, Patriot, and Cherokee models. Declines for the Compass and Patriot aren't surprising, as both are set to be replaced soon by an all-new Compass -- but the 25% drop in Cherokee sales could be a concern. A bright spot: Sales of the (very profitable) Grand Cherokee were up 24%, to 17,301 sold.
Jeep Grand Cherokee sales rose 24% last month, a bright spot for the SUV brand. Image source: Fiat Chrysler Automobiles.
FCA's other U.S. profit powerhouse, the Ram truck line, also had a mixed result in January. Sales of Ram pickups were up 4%, but that gain came at a steep price: FCA's pickup incentives were about $6,800 per truck, according to J.D. Power data made available to The Motley Fool. That's very steep, and much higher than payouts at both of FCA's Detroit rivals. The Ram ProMaster commercial van managed a nice 43% sales gain on the month, however.
FCA's car brands are hurting. Chrysler sales were down 39%, and it's not hard to understand why. The brand's midsize 200 sedan has been discontinued, while its new Pacifica minivan isn't yet selling in the volumes of the old Town & Country model it replaced. The brand's only other model is the big 300 sedan, and big sedans are a hard sell right now: 300 sales were down 17%.
Dodge brand sales fell 17%. The compact Dart sedan is gone, sales of the big Charger and Challenger are down sharply, and the Durango SUV's sales fell 22% to 4,707. The Charger's 19% drop may have been related to the cut in rental-fleet sales, while the Durango's decline may have been (in part, at least) a side effect of the success of its upscale sibling, the Grand Cherokee. A bright spot: Sales of the elderly Journey crossover rose 9%.
After long delays, the Alfa Romeo Giulia sedan has begun arriving at U.S. dealers. Image source: Fiat Chrysler Automobiles.
The good news for FCA's Italian work-in-progress, Alfa Romeo: U.S. sales were up 59% in January. The not-so-great news: Total sales were just 108 vehicles. After months of delays, Alfa's all-new Giulia sports sedan has finally begun arriving at U.S. dealers, albeit still in small numbers as only 70 were sold in January.
Fiat brand sales fell 9% to 2,164 vehicles, as a 24% sales gain for the 500 wasn't enough to offset declines in the brand's other U.S. models.Sales of the luxury Maserati brand rose 69% to 889 vehicles sold, on the strength of the new Levante SUV.
The upshot: FCA needs some new product
Much of this month's drop was due to the fleet-sales cutback. That's hard to fault: Like its Detroit rivals, FCA is working to reduce its lowest-margin fleet sales and improve its vehicles' residual values. The effect should be animprovement in FCA's operating profit margins over time.
But FCA's larger issue is that many of its products are dated and not all that competitive with the latest entries from rivals. The Ram pickups still show well, but they've arguably been eclipsed by the newer Ford (NYSE: F) F-150 and Super Duty models and General Motors'(NYSE: GM) revamped Chevrolet Silverado and GMC Sierra. Both GM and Ford saw average transaction prices on their full-size pickups rise last month, while FCA's fell year over year -- a bad sign. (Ford also managed a solid 13% sales gain for its F-Series, outpacing both Detroit rivals.)
FCA's most recently launched vehicles, like the Chrysler Pacifica, have been well received, and the company has several more new products coming to market in the near future. Those new vehicles may be key to delivering further sales and profit growth.
10 stocks we like better than Fiat Chrysler Automobiles When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Fiat Chrysler Automobiles wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of January 4, 2017
John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.