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Can Fiat Chrysler Turn Big SUV Sales Into Big Profits?

By John Rosevear - Sep 1, 2015 at 6:23PM

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Sales at FCA's Jeep brand continue to be white-hot as consumer demand for SUVs surges. But other parts of the company are lagging as FCA cuts discounts in a bid to improve profitability.

Surging sales of the compact Jeep Compass helped power the iconic SUV brand to a record month in August. Source: Fiat Chrysler Automobiles.

Fiat Chrysler Automobiles (FCAU) said on Tuesday that its U.S. sales rose 2%, a stronger-than-expected result driven by big sales of pickups and SUVs.

Most analysts had expected declines across the industry when compared to last August's sales, because of the later timing of the Labor Day holiday weekend this year. FCA, like several key rivals, defied predictions as consumers continued to snap up its hot SUV models. But will that translate into the profits that the Italian-American automaker so urgently needs?

Jeep sales continue to be hot, most other models not
The big story with FCA's U.S. sales is the continued success of the Jeep brand. The iconic SUV brand has been on an absolute tear for what seems like years now, with sales continuing to surge across the model lineup.

That tear continued in August. Jeep brand sales rose 18%, enough to give Jeep its best month for U.S. sales ever, FCA said. Sales of the smaller Compass (up 58%) and Patriot (up 21%) were especially strong -- but the Wrangler and midsize Cherokee both beat last year's totals to post their best August results ever. 

FCA's Ram truck brand posted a 6% gain for the month over year-ago results, as its ProMaster  vans continue to gain traction in the commercial-fleet markets. Sales of the Ram pickup line were up 4%, a relatively modest result given the big increases posted by some rivals. But FCA has been working to reduce its incentives on the Ram pickups, which had long been the most generous in the industry; that may have been a factor.

Elsewhere, the results were less impressive. While the Chrysler 200 sedan managed a big 30% year-over-year increase, it's possible that many of those were lower-profit sales to rental-car fleets. (FCA didn't disclose fleet-sales details on Tuesday.) Sales of the bigger Chrysler 300 and Dodge Charger were both down sharply, in line with broader trends as more buyers are choosing SUVs over sedans.

Sales of FCA's once-vaunted minivans were also down sharply. The Chrysler and Dodge minivans are dated products that are being overshadowed by newer rivals (and strong new minivan alternatives, like crossover SUVs). An all-new version of the Chrysler Town & Country minivan is in the works; FCA is expected to discontinue the Dodge Caravan as it refocuses the Dodge brand on performance-oriented vehicles.

The upshot: The sales mix is promising for profitability
For FCA, August's sales results were mostly good news. The company urgently needs to increase its profitability in North America, which has lagged far behind rivals' despite strong sales of pickups and SUVs, which should be very profitable products. It made some progress last quarter, but much more progress is needed -- and soon.

The subdued gains for the Ram pickup line might raise some eyebrows, but if it's a result of more discipline around incentives, then it may be a good thing for FCA's bottom line. The Ram lineup posted big sales gains in many months over the last few years, but I suspect that most FCA shareholders would be happy to trade flashy monthly sales gains for higher average transaction prices and increased profitability.

We'll know more as data on August's incentive payments is released over the next couple of days. FCA is selling a lot of trucks and SUVs, but it remains to be seen whether that will translate into fatter profits.

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