Normally, automotive manufacturers are looking for as many ways as they can to get vehicle orders, but Fiat Chrysler Automobiles (NYSE:FCAU) is putting its foot down when it comes to the Dodge Charger and Challenger Hellcat models. But why would Fiat Chrysler tell its dealers to accept fewer orders when it ultimately wants to sell more cars?
Sales gone mad
The Dodge Challenger and Charger Hellcat models have grabbed a lot of attention for Fiat Chrysler, and orders have been pouring in for these high-powered cars. But there's a limited number of these cars to go around, and Fiat Chrysler has gotten wind of tactics being used by unscrupulous dealers to take deposits for cars that may take far longer to arrive.
In a blog post titled, "Avoiding Hellcat ordering disappointment," Fiat Chrysler's Senior Vice President of Communications, Gualberto Ranieri, describes problems with a small number of Dodge dealerships taking orders when they are in no position to fill them in any reasonable amount of time.
He provides this diagram to show whether or not a dealer is eligible to receive a Dodge Hellcat.
Why the blog post?
What these policies are trying to prevent is a situation where some dealers acquire Dodge Hellcats and let them sit on their lot while the dealer tries to attract a higher price. In the meantime, customers elsewhere have to wait longer for their cars.
Besides helping its customers, there are other reasons for the blog post that warns potential Hellcat buyers. For one, Fiat Chrysler does not want these customers to have to wait for longer than they expected and get angry with Dodge itself.
Second, the post makes the tactics of these dealers public, and helps customers become more knowledgeable about them. This, in turn, should make it tougher for dealers to take deposits without expecting to have cars available for delivery when they claim.
Third, it helps spread the orders that may accumulate at unscrupulous dealers promising cars sooner than they can provide them to honest dealers following the allocation guidelines. By doing this, Fiat Chrysler can continue delivering a fixed number of Hellcats to all dealers, since more dealers will have some depth to their order book.
While the problems with certain dealers are causing some issues for Fiat Chrysler, the demand for the Hellcat is certainly positive. The Hellcat versions of the Charger and Challenger are new for the 2015 model year, and their success adds to the sales numbers Fiat Chrysler is trying to drive up under its five year plan. Under the plan, the automaker group want to increase sales from the 4.6 million from 2014 to 7 million by 2018.
Additionally, with the car seeing such demand, Fiat Chrysler will not have to offer the incentives it's sometimes forced to offer on vehicles where supply exceeds demand. This should allow the automaker to attain strong margins on the Hellcat vehicles and provide a boost to Fiat Chrysler's overall margins.
Taking on the competition
Having been brought back for the 2008 model year and not receiving a major overhaul since, the Dodge Challenger has now gone the longest without a major refresh among the American muscle car trio.
Of particular interest this year is the 2015 redesign of the Ford Mustang, which could put pressure on the older Challenger. The demand for the Hellcat shows there is still interest on the high-end for the Challenger, and this could help sales of the vehicle during a time when lower end versions may find sales more difficult.
The bottom line
By putting out a blog post to alert customers, Fiat Chrysler is trying to protect customers, its profits, and its reputation. But the circumstances that required the post give insight into the demand for the Hellcat versions of the Dodge Charger and Challenger.
As always, automotive investors should continue watching for hints from automakers to get clues for how much demand particular vehicles are seeing.
Alexander MacLennan owns shares of Fiat Chrysler Automobiles N.V. and Fiat Chrysler Automobiles N.V. 7.875% Mandatory Convertible Bonds. Alexander MacLennan has the following options: long January 2016 $10 calls on Ford. The Motley Fool recommends Ford. 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.