Fiat Chrysler Automobiles (NYSE:FCAU) reported on Wednesday that its U.S. sales rose 8% in June, outpacing results at most of its rivals.
That gain was powered by strong results for FCA's Jeep and Chrysler brands. The midsize Chrysler 200 sedan is selling at more than twice the rate of a year ago, and Jeep continues to benefit from a consumer shift toward SUVs.
It's a good result that should help fatten the bottom line of FCA's North America unit when second-quarter earnings are reported in a few weeks. There are, however, two big concerns raised by today's numbers.
Why isn't FCA selling more pickups?
Like its Detroit rivals, full-sized pickups are among FCA's best-selling and most profitable products, and demand in recent months has been very strong.
That has been a challenge for rival Ford, which has had short supplies of its all-new 2015 F-150 for months because of the extensive changes needed at its factories to make the new trucks. That should have given FCA a huge opportunity to boost Ram sales -- but it hasn't.
Sales of the Ram pickup line were up just 1% in June. For the year to date, they're up just 4%. General Motors' Chevy Silverado line gained over 18% in June, and its sales are up almost 15% through the first half of 2015. And GM is winning additional pickup sales with its new mid-sized pickups, the Chevy Colorado and GMC Canyon.
From here, it looks like Ford's struggles have been GM's gain -- and not FCA's. But the Ram is a well-regarded, competitive product. Why haven't its sales gains been bigger?
The likely explanation: Commercial fleet sales are a significant driver of pickup sales at both Ford and GM. FCA has historically been less of a participant in this market. That may sound like a good thing, but it isn't: Unlike low-margin sales to rental car fleets, bulk sales of pickups to contractors and and similar companies are good, profitable business.
CFO Richard Palmer said in April that FCA is working to increase its sales to commercial fleet customers. And this seems like the right moment to be making that push: With demand for its new F-150 strong and supplies tight, Ford has been prioritizing retail deliveries over commercial-fleet sales.
GM has certainly made the most of this opportunity. It said on Wednesday that its commercial-fleet sales (across the board, not just pickups) were up 20% through the first six months. An FCA spokesperson declined to provide details on the company's fleet sales in June, but the sluggish sales increase for the Ram tells much of the tale. With Ford's factories back up to full speed, this might have been a big opportunity missed for FCA.
How much of FCA's sales gains are being driven by easy credit?
Across the industry, sales of small and midsize sedans have suffered as more and more buyers migrate to crossover SUVs. But sales of the midsize Chrysler 200 rose 153% in June to 18,560 vehicles, enough to out-sell GM's Chevy Malibu.
Large cars have been an even harder slog for most of FCA's rivals. Sales of the well-reviewed Chevy Impala were off over 41% in June, and Ford's Taurus posted a 20% decline. But the big Chrysler 300 again ran counter to the trend, gaining 11%.
What's driving these against-the-trend gains? It's possible that FCA has quietly stepped up its sales to rental car fleets. If so, it isn't saying.
But what we do know is that FCA is getting a boost from looser lending terms. A recent Reuters report, citing non-public data from J. D. Power, said that 26% of the Chrysler brand's sales involved subprime financing. The industry average is 12.7%, according to the report.
The good news is that subprime sales at the Ram and Jeep brands are both below the industry average, according to Reuters. But it's not just a quirk of the Chrysler brand. FCA has made much of the strong sales of its big Dodge Charger and Challenger this year -- but easy credit is clearly a factor with those two models as well.
A recent report by credit agency Experian on the surge in popularity of "muscle cars" noted that 22.8% of buyers of the Dodge Charger sedan had credit scores of 600 or less, as did 18.3% of buyers of the big Dodge Challenger coupe. And roughly half of the buyers of both cars used loans with very long terms, between 73 and 84 months, according to the report.
That's not necessarily a bad thing. But here's the concern for investors: If the economy starts to turn, if credit tightens up, that's a big pool of customers that will start to shrink quickly.
The upshot: These gains may be more fragile than they appear
The real question is this: Will these sales gains boost FCA's bottom line -- or more to the point, its profit margins in North America?
Marchionne has so far displayed a deft ability to keep his mashed-up automaker afloat. But if he can't boost its profitability -- and soon -- then FCA may be in big trouble once the next economic downturn arrives. Stay tuned.