Canadian Manufacturing

Fiat Chrysler rides SUV craze to major Jeep sales increase, but still falls short on earnings

Company profits of US$409 million for 2015 missed analyst expectations

Fiat Chrysler Automobiles is considering shifting production of the Jeep Wrangler out of Toledo, Ohio. PHOTO FCA

Jeep Wrangler production in Toledo, Ohio. PHOTO FCA

DETROIT—Fiat Chrysler says the worldwide SUV craze is here to stay, and it’s leaning heavily on the Jeep brand to improve its fortunes.

The Italian-American carmaker predicts Jeep sales will nearly double to 2 million worldwide by 2018, fueled by low gas prices and new models. To keep up, Fiat Chrysler plans to cut production of small cars in the U.S. so it can build more Jeeps.

The world’s seventh-largest carmaker raised its Jeep sales targets Wednesday after releasing disappointing full-year earnings for 2015.

Fiat Chrysler reported 2015 net profit of 377 million euros (US$409 million), down from 632 million euros a year earlier and lagging analyst expectations. Fourth-quarter net profit fell 40 per cent to 251 million euros.

Jeep was the bright spot. Fiat Chrysler sold 1.3 million Jeeps worldwide in 2015, up 21 per cent from the previous year. Without Jeep, Fiat Chrysler’s sales were lacklustre. The company sold 4.6 million vehicles overall, up slightly from 2014.

North American revenue jumped 33 per cent to 70 billion euros ($76 billion). Jeep sales rose 25 per cent in the U.S., where Fiat Chrysler says low gas prices are now a “permanent” fixture and more customers are gravitating to SUVs and trucks.

Fiat Chrysler CEO Sergio Marchionne said the company wants to find a partner to build small cars like the Dodge Dart and Chrysler 200 so it can make more Jeeps at its U.S. plants. Marchionne said Jeep plants are currently running at a pace that is “unsustainable.”

Marchionne didn’t say which U.S. plants could start making more Jeeps. But last year’s contract with the United Auto Workers union promised new vehicles for the Belvidere, Illinois, and Sterling Heights, Michigan, plants that now make the Dart and 200. The Belvidere plant is shut down this week because of slow demand, while the Sterling Heights plant is scheduled to close for six weeks next month.

“Whatever we put in place will deal with demand and unmet demand as we see it today,” Marchionne said.

Europeans also bought a record number of Jeeps last year, helping Fiat Chrysler’s European revenue rise 13 per cent to 20 billion euros ($22 billion).

But Fiat Chrysler’s revenue slumped by 25 per cent in Latin America, hurt by economic weakness in Brazil and Argentina. Revenue also fell 22 per cent in Asia, pressured by price competition from Chinese automakers and an interruption in shipments after the Tianjin port explosion.

“Brazil came out of left field and left most of us staring at uncertain market conditions,” Marchionne said in a conference call with analysts. “It’s very difficult to call the bottom of this market.”

A slowdown in demand for imported cars in China was also unexpected, Marchionne said. As a result, the company is refocusing its plans for Alfa Romeo’s growth on North America and Europe and away from China. The rollout of new Alfa vehicles will slow, but the company will stick to its plan of offering seven new models, including two utility vehicles, by 2020.

Full-year net revenue for Fiat Chrysler was 113 billion euros ($123 billion), up 18 per cent, and slightly beating analyst forecasts of 112 billion euros as compiled by information company FactSet.

Fiat Chrysler said it expects net revenue of 110 billion euros and a net profit of 1.9 billion euros in 2016.

In 2014, Fiat Chrysler set a target of selling 7 million vehicles per year by 2018. On Wednesday, Marchionne shifted away from that volume target and said the focus should instead be on hitting financial targets like revenue and net profit, which were revised upwards.

The 2015 results included Ferrari, which was spun off from its mass-market parent at the start of this year. Ferrari net profit dropped 4 per cent last year.

Fiat Chrysler’s shares fell 2 per cent to close at $7.45 on the New York Stock Exchange.

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