By Christina Rogers
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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