Will Chrysler's Old Detroit Tricks Help or Hurt Fiat S.p.A.?

Chrysler posted big sales gains in March, but there are some bigger reasons to worry.

Apr 1, 2014 at 6:05PM


Sales of the Jeep Grand Cherokee were up 26% in March, helping the Jeep brand to its best monthly sales total ever. Source: Chrysler Group.

Chrysler said on Tuesday that its U.S. sales rose 13% in March on strong gains in sales of Jeep SUVs and Ram pickups. 

It was the latest in a string of strong monthly sales gains that have seen Chrysler outpace nearly all of its competitors in what has been a sluggish new-car market. 

Old Detroit formulas bring big gains for Chrysler
So, what's working for Chrysler? Trucks and SUVs, plain and simple. That's worrisome for Chrysler's longer-term prospects, but in the near term, those are exactly the kinds of sales gains that will help boost the automaker's profits -- assuming Chrysler doesn't get too crazy with its incentives. 

Regardless of the incentives, Chrysler's sales were strong in March. Jeep brand sales were up 47%, paced by the Grand Cherokee. The big Jeep SUV posted a 26% year-over-year sales increase -- a tremendous result for what has historically been one of Chrysler's most profitable products.

There was more good news at Jeep. Sales of the evergreen Wrangler rose 12%, and sales of the new Cherokee continued to shine. The Cherokee, which began arriving at dealerships last October, posted its second-best sales month to date, up 17% over a good February result.

Chrysler's Ram pickup line also had a very strong month. Ram pickup sales were up 26%, a huge number in what has recently been a very sluggish market segment. That handily outpaced the 5% gain posted by Ford's (NYSE:F) F-Series pickups, and it came as Chrysler stepped up its already-high incentive spending on pickups.

It looks as though Chrysler is aggressively working to steal sales at the lower end of the market as General Motors (NYSE:GM) struggles to get market traction for its all-new 2014 Chevy Silverado -- a situation that has to be adding to GM's many worries at the moment.

Some worries behind the strong headline numbers
The ongoing sales gains for Chrysler's most profitable products is good news for parent Fiat (NASDAQOTH:FIATY), which is struggling to get on track in other markets around the world.

But while Chrysler's pickups and SUVs shine, nearly all of its cars are struggling. Dodge Dart sales were down 24%, sales of the outgoing Chrysler 200 sedan were down 55%, Dodge Avenger sales were down 30%... the numbers were grim across the board with the exception of the big Dodge Charger, which posted a 15% gain, and an overall increase for the Fiat 500 thanks to a new model variant.


Dodge Charger sales rose in March, but most of Chrysler's other cars did poorly. Source: Chrysler.

Chrysler's current car lineup just doesn't compete all that well, and that's a concern. Detroit's automakers were criticized for years for their over-reliance on truck and SUV sales -- which made for good profits in good times, but left automakers exposed when the market turned toward more fuel-efficient options, where the Japanese automakers have long excelled. 

Detroit automakers were also criticized for years for their over-reliance on incentives, making big discounts to keep less-competitive products moving -- or put another way, for prioritizing sales totals over profits.

Ford and GM have learned their lessons on both fronts. Both have shown much more discipline on incentives in recent times, and both have pushed hard to develop competitive, fuel-efficient smaller vehicles. Chrysler has been putting more effort into its cars -- the Dart is a fairly strong entry, and the all-new Chrysler 200 looks very promising -- but so far, the sales gains haven't materialized.

Still, Chrysler's first-quarter profits should be solid thanks to all those trucks and SUVs. Right now, the old Detroit formula is working for Chrysler. But that will need to change if the Fiat-Chrysler marriage is going to prove profitable over the long haul.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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