The automotive world was very different in 2010, after the financial crisis.
US sales had cratered. And fuel was expensive, spiking above $4 a gallon in some parts of the country. SUVs were stigmatised as gas-guzzlers.
Bring on the electric cars and the hybrids, the Teslas and the Priuses!
Chrysler was coming off a bailout and a bankruptcy, along with a shotgun marriage to Fiat, arranged by the federal government.
New CEO Sergio Marchionne had to keep the newly conjoined Italo-American car maker alive. He and his team weren’t able to peer six years into the future and ask any big questions about the cars and trucks they were selling.
Fast forward to now. Fiat Chrysler Automobiles returned to the public markets and, in the first quarter of 2016, reported yet another year-over-year increase in profits.
But FCA is going through another big transformation. The company is killing two passenger cars, the Chrysler 200 sedan and the Dodge Dart. This is because Marchionne believes a permanent shift has occurred in the US market and that customers want mainly crossovers and SUVs. He’s said as much on previous quarterly earnings calls.
Even though 2015 was a record year for the US market, with 17.5 million new cars and trucks sold, and even though Marchionne told analysts that FCA doesn’t see any major changes taking place in 2016, he thinks the head-to-head among market-share leaders in the US is going to heat up.
“There’s no doubt that the market has gotten tougher and much more competitive,” he said. “But we don’t expect the market to collapse, and it’s healthy in the markets where we function well,” by which he meant SUVs, particularly the Jeep brand.
But he added that “exiting passenger [will be looked back on] as one of the best decisions we made — [the information we have now] wasn’t available to us in 2009-10, or we would have acted differently.”
Americans haven’t stopped buying vehicles that aren’t SUVs, crossovers, or pickups, but the competition in the passenger-car segment is intense — and the profits just aren’t as robust as what car makers like General Motors, Ford, and Chrysler can bring in with trucks.
For FCA, it’s important to rake in profits now so that it can improve its debt position. The company is carrying $1.7 billion more, at $7.5 billion, than it did when it last reportedly quarterly results in January (FCA reports in Euros, so those figures are converted).
Arguably, if FCA hadn’t clung to cars, it could be selling more SUVs in the US and also China, which is turning out to be a big SUV market as it matures and grows (with about 20 million in annual sales, it’s now larger than the US market). That would currently be helping it move its debt in a better direction and allow for higher R&D spending, where it currently lags its rivals.
Not being able to build as many Jeeps as it wants has also created another problem for FCA: the automaker has to decide whether to sell Jeeps in the US or overseas, invariably frustrating demand in one market.
Not a bad problem to have, but it all goes back to FCA’s inability after the financial crisis to bet on SUVs at the expense of cars.