Fiat Chrysler Raising Prices to Lift its Profit
Fiat Chrysler raising prices to lift its profit
Apr 21, 2015
Fiat Chrysler Automobiles NV is raising the sticker price on some of its best-selling vehicles--Ram and Jeep--and boosting wholesale prices on those and other brands, aiming to narrow a profit-margin gap with its Detroit rivals.
The Italian-American auto maker is under pressure to boost its profitability in North America, where its operating margins have plateaued at about 4% of revenue, roughly half the level of rivals General Motors Co. and Ford Motor Co.
The largely across the board increase, confirmed by dealers, comes as demand for Ram trucks and Jeep sport-utility vehicles is sizzling. U.S. car and light truck sales rose 5.9% last year, while Fiat Chrysler's market share jumped to 12.7%, from 11.5% in 2013.
A spokesman for the auto maker's U.S. unit declined to comment.
Dealers said the decision to raise wholesale prices on most models while holding the line on many sticker prices could cost them hundreds of dollars in profit on each vehicle sale.
Trade publication Automotive News earlier reported the wholesale pricing change.
Chuck Eddy, owner of a Fiat Chrysler store in Austintown, Ohio, and a member of the auto maker's U.S. dealer council, said dealers were told the invoice price increase would be about 1%, or an average of about $250 a vehicle.
Other dealers said the company is hiking invoice prices on its Ram pickups by as much as 3%, or more than $1,000 on some models. Sticker prices on the trucks are going up between $250 and $330 and on some Jeep Grand Cherokees by $100.
For instance, the invoice on a 2015 Ram 1500 light-duty crew cab 4x4 truck in March was about $33,300, giving the dealer an about $2,500 margin on the truck. In April, the invoice price rose to about $34,400 and the company tacked on $250 to the sticker price. The combination reduced the dealer profit to about $1,600.
Fiat Chrysler Chief Executive Sergio Marchionne recently has called for consolidation in the global auto industry to address the huge investments required to develop more fuel-efficient and safer vehicles. Auto makers collectively have pledged to invest hundreds of billions of dollars over the next decade, and Mr. Marchionne has said strategic tie-ups or outright mergers could help lessen the financial burden of meeting stricter emissions regulations and adding new technologies.
Fiat Chrysler executives previously said the company's lower margins in part are a result of having to spend more on overhauling factories and developing new models to revive a business that was starved of investment under a previous owner.
The company also is intent on keeping a five-year winning streak going in the U.S. For 60 consecutive months, dating back to shortly after it emerged from bankruptcy, the auto maker has posted year-over-year monthly sales gains. The gains are fueled by a consistent growth in the light-vehicle market, cheap loans, and new products entering its portfolio.
Analysts have suggested the auto maker may be trading profit for market share. In a recent research note, Sanford C. Bernstein's Max Warburton called Fiat Chrysler's profitability "bizarrely poor" and said its low profitability raises questions about the auto maker's ability to weather an inevitable downturn after several years of growth.
Fiat Chrysler dealers said they worry the squeeze on their profit will limit their ability to arrange attractive deals or beat rivals' offers, ultimately hurting the company's sales. The dealer profit on a new car sale has been steadily slipping, to about 3.5% last year from nearly 5% a decade ago, according to the National Automobile Dealers Association.
Mr. Eddy said he understands the car maker's need to boost revenue to fund new-car development. In trying to explain the move to dealers, Fiat Chrysler executives said they had studied the auto maker's margins compared with GM and Ford and felt they were at a disadvantage, he said.
"My concern is [they] don't put so much on our backs that we become unprofitable," Mr. Eddy said. "We need to have a good balance."
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