The road to 2018: Can FCA achieve its Five Year Plan?



The road to 2018: Can FCA achieve its Five Year Plan?

We cover Chrysler, Dodge, Jeep, Ram, and components on our 2014-18 Plan for Chrysler page.
Also see: Fiat/Alfa/Maserati/Ferrari plan • 2009-13 Plan • 2012-15 Plan • Plan by Region • 2015 • 2016

Sergio Marchionne and his team of brand CEOs have presented a plan to grow Fiat Chrysler Automobiles to seven million worldwide sales annually by 2018. It's a bold plan and makes some big assumptions about the worldwide light vehicle market over the next five years, something which is, as they say, subject to change without notice.

Among these assumptions are continued growth in China, rapid growth in India (making it the third largest new vehicle market in the world), and renewed strength in the Latin American (LATAM) region. Growth in the Asia-Pacific (APAC) region is expected to be especially robust: projections call for 554% growth in China, a 1,200% explosion in India and 960% jump among the other APAC markets, which include Australia and New Zealand.

Region CY 2013 CY 2018 % Growth
North America (NAFTA) 2,100,000 3,100,000 47.6%
Europe, Middle East, Africa (EMEA) 1,100,000 1,500,000 36.4%
Latin America (LATAM) 900,000 1,300,000 44.4%
Asia/Pacific (APAC) 151,700 1,104,000 627.8%
GRAND TOTAL 4,251,700 7,004,000 64.7%

Broken down by brand, the numbers look like this. (There is a good deal of difference in the grand total due to rounding.)

Brand 2013 2018 % Growth
Chrysler 350,000 800,000 128.6%
Dodge/SRT 431,882 600,000 38.9%
Ram 463,000 620,000 33.9%
Fiat Professional 431,000 600,000 39.2%
Jeep 732,000 1,900,000 159.6%
Fiat 1,500,000 1,900,000 26.7%
Maserati 15,000 75,000 400.0%
Ferrari 7,000 7,000 Capped
Alfa Romeo 74,000 400,000 440.5%
GRAND TOTAL 4,003,882 6,902,000 72.4%

The analysts are already complaining, mostly about the debt FCA is carrying and the amount of money to be spent on new products, despite the fact the investment capital will come from existing funds. Since there aren't any FCA shareholders yet, Fiat stock took the brunt of investor anguish.

What nobody is saying is that the new plan is impossible; Marchionne presented a plan they called impossible in 2009 and then proceeded to deliver on most of his forecasts.

The debt is troublesome but the investments are necessary to support the much-needed new vehicles, drivetrains and factories to give the company its largest overhaul in a long time. In Chrysler’s case, the Iacocca era might have seen the last change of this magnitude.

maseratiAmong the FCA brands, Maserati is predicted to enjoy the highest percentage of growth. Brand CEO Harald Wester is perfectly comfortable forecasting 400% growth in sales to 75,000 units worldwide by 2018, probably because the current order rate is up more than 300% over 2013 now. Even pessimistic analysts see Maserati doubling its sales this year. With the addition of the Levant SUV and the Alfieri coupe and roadster, the target should be easy to hit.

TAWA-Alfa4C

On the other hand, Wester also has Alfa Romeo, possibly the biggest challenge among all FCA brands. He is is starting with three cars, the new 4C, the MiTo, which has been tweaked but has not received a serious sheet metal makeover since its introduction in 2008, and the Giulietta, a 2010 model that got a light refresh this year. Last year Alfa sold 17,884 MiTos, about 29% of the number delivered at its sales peak in 2009,, and 45,920 Giuliettas, down almost 42% from 2011, its best year.

Wester's goal is a 440% improvement in worldwide sales from FCA’s weakest brand. While the expected spin-off of Alfa into a separate division was not part of the new plan, the investments and new autonomy will make Alfa close to an independent brand.

This is most likely Marchionne’s last, best effort to turn the brand around. If Alfa can overcome its penchant for delays and actually roll out the majority of the eight new products shown in the new five-year plan, it could regain much of its lost credibility. This would go a long way in attracting the volume of sales needed to hit FCA’s lofty goals.

Luca Cordera di Montezemolo has it easy: Ferrari is capping sales at 7,000 cars per year to maintain exclusivity (and pricing) so there is already more demand than there is supply.

Closer to home, Jeep is seen as the Chrysler Group brand with the most worldwide growth potential. Now that China production is a done deal Jeep is most likely well on its way to major growth. The addition of new, smaller models should boost international sales while the the Grand Wagoneer adds incremental sales in North America.

Rather than taking on the Expedition, Tahoe or Yukon, the Grand Wagoneer will extend Jeep's reach into the premium market. Marchionne says it will be designed and priced to compete with vehicles like Land Rover (though a more likely target would be Cadillac's Escalade). With the Maserati Levant, FCA will have better coverage of the CUV/SUV market than any other automaker.

Growth of both Ram and Fiat Professional brands depends largely on growth in world economies and demand for light commercial vehicles. The fact that GM is willing to send new customers to Ram by raising prices and cutting incentives is a bonus. Short-term profits are nice, but GM is playing a fool's game with its future as a fair percentage of those lost buyers won't be returning and will give their upgrade business to Ram.

Fiat-Strada-WebWhile the hints of a Jeep pickup are tantalizing, it's not really surprising that there won’t be a small pickup in the NAFTA region. The compact pickup market just isn’t that big here, though it is growing in other parts of the world. Fiat sold 134,000 Stradas last year, making it the best-selling Fiat Professional vehicle. This is the reason for the planned addition of a mid-size pickup to the Fiat Professional line: it’s a pickup sized for the rest of the world.

Early Ram ProMaster sales should not be worrisome; almost all of the Sprinters in the van's first days on the U.S. market were built for contracts with FedEx and UPS. Individual sales were very slow, beginning with nonexistent and growing to negligible until DaimlerChrysler and then Daimler AG got their distribution plans worked out and customers were ready to accept a nontraditional-style van.

Look for things to pick up as the new Transit replaces the Ford E-Series and Eurovan styling becomes the norm. It will be interesting to see if GM spends the money to develop a successor to the G-series Express and Savanna vans or simply goes shopping for a replacement.

The ProMaster City will be entering a segment that is already becoming crowded and is already dominated by the Ford Transit Connect. The ProMaster City’s biggest competition will likely be the NV200, built by Nissan and to be sold by both Nissan and General Motors. If, for once, FCA can put a decent engine under the hood from the beginning, it would have an advantage over the NV200, which does okay in city driving but struggles at highway speeds.

Chrysler’s new focus comes with a big challenge as this will be the test of its ability to offer serious competition in the mainstream passenger car segment and end its over-reliance on trucks. In most recent sales month, nearly four of every five Chrysler Group vehicles sold was a crossover, SUV, or truck. While this is profitable, it leaves the company vulnerable to changing consumer buying, such as those driven by a spike in fuel prices. It also makes it more difficult to achieve CAFE standards.

Chrysler-200-Detroit-Web

The 200 is going to have to be a major player because it’s up against some of the toughest competition in the industry, not to mention the inertia buyers who migrate from one Camry or Accord to another. Hopefully the 200 will inherit fleet sales that would have gone to the Avenger, giving the mid-size Chrysler a bit of a boost, but that won’t help much if it can’t retain previous owners and bring new ones into dealer showrooms.

In addition, the new mid-size and full-size crossovers, and their PHEV hybrid versions, will be fresh draws for Chrysler, transforming the brand into an almost full-line brand. The only link missing is a compact crossover and, for now, that’s Jeep’s turf.

The end of the Dodge Grand Caravan will also add sales to the Chrysler column if Chrysler can price the Town & Country properly and defend the vehicle from challenges from Honda, Toyota, and others — and dissipate the anger or disappointment of Dodge-loyal minivan buyers.

Proper pricing is also going to make or break the Chrysler 300, but now that it will be competing with the new Impala, it will need more than a facelift. The 300 is probably the weakest link in the Chrysler brand chain, as it’s the most poorly defined vehicle in terms of market and has dated styling. In its new market segment, the 300 is also up against the Ford Taurus, which outsold the 300 by over 10,000 units last year, even after factoring out sales of the Police Interceptor sedan. Al Gardner and his team will definitely have their work cut out for them and they’re going to need a hefty marketing and advertising budget.

Speaking of hefty budgets, Chrysler needs to be weaned off high incentives if Marchionne hopes to hit his profit goals. Though Chrysler Group's average incentive spending over the past year is lower than GM, Ford or Mercedes-Benz, Chrysler brand spending is the highest of any Detroit brand and second only to Infiniti among all brands. Chrysler also had the highest discounts of any brand. Jeep, on the other hand, had the lowest incentives and offered the least discounting of any Detroit brand.Chrysler-Incentives-Web

The new 100 is going to have to be compelling because it, too, will be entering a very competitive market. It will go head-to-head with the Ford Focus, Chevy Cruze, Toyota Corolla, and Honda Civic, so best-in-class, including the price, has to be the benchmark.

Looking at the goals and the assets to reach them, it’s hard to say whether Al Gardner or Tim Kuniskis will be working harder to meet the 2018 volume projections.

Based on the numbers in the presentation, it looks like Dodge is a shoo-in, needing only to achieve 0.6% growth over the next five years. But when the Avenger and Grand Caravan are factored out, Dodge’s 2013 sales came to 378,437 instead of 596,343. With that figure, Dodge brand sales need to grow 58.5%. Adding in the Canadian sales that were omitted from the Dodge presentation brings the total to 431,882, but the goal is still growth of 38.9% for a performance-oriented brand.

Dodge is really going to have to substantially re-work and revise the Dart and this time they’re going to have to pay attention to the window sticker. Chrysler has made a number of valid excuses, but the fact remains the base Dart is still not competitively priced in a price-sensitive segment. One suggestion is to remember that air-conditioning is standard on every one of the Dart’s competitors.

The Durango and Journey can be real contributors to Dodge's growth given some TLC. The Durango already outsells every large SUV except the Chevy Tahoe and it has the credentials to grow. The Journey has got to be one of the most under-appreciated models in the Chrysler line.

Rolling SRT back into Dodge was a good move: it puts all the performance under one roof and will make it easier to position the brand as a performance line. As with the loss of the Grand Caravan, it has to be hoped that buyers of the Chrysler 300 SRT will be willing to move to the Charger, Challenger or Jeep.

One of the big downsides of the loss of the Avenger is the loss of fleet volume. Of the Detroit automakers, Chrysler is the least dependent on fleet sales, but it will still be a big hit to take if Kuniskis and his team can't sell the Dart into the fleet market in larger volumes.

No one should be surprised to learn that Fiat brand’s best prospects are all outside of the U.S. Fiats play in a niche which takes a small portion of U.S. sales. Looking at numbers for the Chevrolet Spark and Ford Fiesta, Americans just aren't ready to downsize that much.

Getting things under control in the LATAM market is going to be more crucial to Fiat meeting its goal than even a sustained economic recovery in the Europe/Middle East/Africa (EMEA) market. If Brazil can get back on track, Fiat's prospects are much better.

It’s been an article of faith among economists and automakers that the BRIC countries (Brazil, Russia, India and China) are the greatest growth prospects in the world. In the long term, that's probably accurate, but as the Safe Haven statement says, past performance is not necessarily indicative of future results, and that is also accurate. The current situation with Russia has automakers pulling back; growth in the Chinese economy is slowing and Brazil is having problems of several types. India still looks pretty good but has its own set of unique challenges.

Growth in the NAFTA market has slowed considerably as sales have approached 16 million and until the job market and incomes grow enough to allow the millennials to enter the new car market, it likely won't grow much faster than it is now.

NAFTA-Growth-2009-2013-Web

When Fiat brought Chrysler out of bankruptcy, Sergio Marchionne was on record as saying an automaker had to be able to sell six million vehicles a year to be viable in the long term. With the goals outlined Tuesday, that number has apparently been revised to seven million.

The numbers say Marchionne's goal is doable, but it will require a lot from FCA: new products delivered on schedule; compelling new and refreshed vehicles that are ready to compete with the initial deliveries; more efficient, yet more powerful, engines - all with the goal of not only exceeding expectations but altering long-held opinions.

Fiat Chrysler Automobiles is shedding the last vestiges of DaimlerChrysler and Cerberus and it will be a better company without them. The largest challenge Marchionne and his leadership team must meet is upgrading the perceptions of FCA’s products in both new and existing markets.

Coming soon (probably May 8): worldwide plans, by region, including North America.

Also see 2014-18 Plan for Chrysler • 2009 Plan • 2012 Plan • Plan by Region • 2015 • 2016

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