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FCA profits as buyers drop sedans

by David Zatz on

Analysis. Two years ago, FCA US had a problem: they needed more factory space for their SUVs, and some of their most important plants were outdated and unfit for their current duties. Meanwhile, their front wheel drive sedans were struggling to find buyers.

Sergio Marchionne set into motion an ambitious “musical factories” plan. The Dart and 200 were dropped so their factories could be converted to Cherokee and Ram production. When the Cherokee moved out of Toledo, that plant would be refitted to make Wranglers; and the old truck plant would be renovated and make specialty trucks and overflow. The alternative was building new plants, or rebuilding abandoned sites.

It seems that the plan took hold just in time: sedan sales plummeted at competitors, causing consternation and hurting profits. Meanwhile, though FCA sales took a hit from the lack of compact and midsize sedans, more of the remaining sales were profitable SUVs and pickups.

In short, while FCA US raised its incentives and saw fewer sales in the first quarter of 2017 than in the first quarter of 2016, they sold a more profitable vehicle line.

Back in the mid-1990s, Chrysler was in a mildly similar situation. Replacing their cut-price Sundance/Shadow and Spirit/Acclaim with new Neons and “cloud cars” resulted in lost sales, but each sale was profitable — and the company made billions of dollars, when it had been in danger of failure. Then, too, the quality of sales proved to be more important than the quantity.

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