It might be the automotive industry's best-kept secret this year, but sales of Fiat Chrysler Automobiles' (NYSE:FCAU) Jeep brand are absolutely on fire. Just last month Jeep sales surged an extremely impressive 47%, and it wasn't a one-month wonder, as the brand's year-to-date sales remain 45% higher compared to last year's same nine-month time frame.
This is great news for FCA, which was recently added to the New York Stock Exchange. However, as the automaker remains heavily debt burdened with a massive and expensive turnaround plan, it will need its Jeep brand to do something it hasn't done before: go global. Here's one vehicle that will become a key player in FCA's plan to conquer the globe.
The uphill battle
For some additional context, let's look at the uphill battle Jeep faces as it goes from being largely a U.S. seller to being a worldwide brand. As of last year, Jeep sales reached just over 550,000 in its NAFTA region, which is mostly comprised of the United States. In Jeep's Asia-Pacific/Africa region, sales failed to reach 100,000. Even worse, its Europe and Latin American regions posted sales of 54,000 and 26,000, respectively. For comparison, Ford's Kuga (Escape) and EcoSport respectively sold more than 66,000 and 33,000 units through the first six months of 2014, in China alone.
All in all, last year, global Jeep sales barely topped 730,000 -- and management is trying to boost those sales to nearly 2 million by 2018, a tough task to be sure. Consider that the previous four years of Jeep global sales gains have checked in at, 24%, 41%, 19%, and a meager 4% gain in 2013. Also, those gains were on a smaller base volume than Jeep's sales will be going forward on the march to 1.9 million by 2018. To reach that 1.9 million mark globally, Jeep will have to improve its sales by more than 25% annually through 2018, a tough task to be sure. Where will the sales come from, and what vehicle will become a key player?
What, where, and how?
The answer is fairly simple, but rather than just saying "everywhere outside the United States," we'll say China is going to be a focal point for Jeep. It expects China to help boost its Asia-Pacific/Africa region sales by roughly 45% by 2018. In addition to that, FCA expects Jeep sales to balloon 50% in its Latin American region, led by what will become one of its new global powerhouse products: the Jeep Renegade.
Why will the brand-new Jeep Renegade work with FCA's new global strategy? For one thing, the Renegade is roughly 16 inches shorter and two inches narrower than the popular Cherokee SUV, and thus will become Jeep's smallest SUV offering. While it may or may not catch on in the United States, its compact size is perfect for emerging markets' often narrow roads and will still offer powerful and more fuel-efficient engine options -- as well as additional safety and technology perks.
Furthermore, the Jeep Renegade will take a step to optimize the brand's overall offering. Looking at Jeep's SUV lineup in terms of smallest to largest, from segment B to E, it plays out like this.
To better optimize Jeep's vehicle segment lineup, the brand will offer only one C segment vehicle instead of both the Patriot and Compass, while recently introducing the Renegade to rope in an incremental consumer looking for an even smaller SUV. In addition to its smaller size appealing globally, the Renegade will offer a Trailhawk edition, which will be built to endure intense off-road situations with a taller clearance, 4WD, and other perks -- all of which should help the Renegade gain more traction here in Jeep's bread-and-butter region, North America.
In a way, Jeep is taking a page out of Ford's book in its global SUV strategy that has witnessed the Kuga (essentially the Escape with slight tweaks according to the region) and smaller EcoSport help grow the Blue Oval's market share across the globe.
In fact, Jim Farley, Ford's executive vice president of global marketing, sales, and service, told Autonews that its global demand for utility vehicles has jumped 88% since 2008 -- faster than any other vehicle style.
Why is it important?
It might be easy to brush off the Renegade as just another product, but to Jeep and FCA it's much more. Investors have dismissed FCA's turnaround plan as nearly impossible due to a lack of funding, and that has to change or FCA faces an extremely difficult future. "FCA does not have the balance sheet to weather a potential cyclical downturn, of which the probability has clearly increased in recent months," Stuart Pearson, a London-based analyst with Exane BNP Paribas, said in a note according to Bloomberg.
That's why FCA recently announced it would spin off its super-luxury Ferrari brand to raise roughly $4.7 billion to help pay off debt and fund its ambitious global expansion strategy. That move sent a wave of enthusiasm to investors, promptly sending the stock up 19% after the announcement.
However, that's a short-term solution. A long-term solution for FCA, and bottom-line realization, is that it needs its Jeep brand to catch fire worldwide, just like it has here in the United States. Without global success, and if the Jeep Renegade fails to lead the charge, FCA's attempt to conquer the globe could turn into a bumpy ride.
Daniel Miller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.