Amid falling sales, Jeep might have finally hit a roadblock
Jeep has been Fiat Chrysler Automobile's most dependable growth engine in recent years, but the division has hit a bump in the road.
The question now is whether Jeep has encountered a mere pothole or a full roadblock when it comes to continuing to power Fiat Chrysler's sales and profits.
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At a time when SUV sales are soaring, the iconic brand should be flying high in the U.S. Gas prices are low, car sales are declining and consumers are snapping up trucks and SUVs with gusto.
Jeep's U.S. sales, however, have dropped 13% over the first half of the year in the U.S. to 406,291 compared to the same period in 2016.
Cox Automotive shows the brand losing the most market share this year of any of the 20 nonluxury brands it rated in a recent report. Through June, Jeep's share of U.S. auto sales was 4.8%, down from 5.4% for the first six months of last year, according to Autodata.
Yet there is no denying how important Jeep is to Fiat Chrysler. Even with the decline, it's the best-selling brand in the company's stable, with sales four times that of Chrysler and almost 28 times that of Fiat in the U.S. It represents more than 38% of the Auburn Hills automaker's sales.
The company knew sales would decline this year and will rebound as Jeep rolls out a strong roster of new and updated vehicles over the next several years, predicts Mike Manley, head of Jeep and Ram.
"If you look underneath the numbers, we’re doing exactly what we said," Manley said. "We’re in plus or minus 1% of exactly where I thought we would be in the U.S."
Jeep also remains on target to hit the company's goal of selling more than 2 million Jeeps globally by 2018. That would be four times what the brand sold in 2008.
"Most investors we speak with do not know how significant Jeep is to the (Fiat Chrysler) group," Morgan Stanley analyst Adam Jonas said in a report last week.
Jonas said Jeep will account for about 45% of Fiat Chrysler's sales, 55% of revenue and nearly 75% of Fiat Chrysler’s operating profit.
This year, Fiat Chrysler replaced two Jeep SUVs — the old Compass and Patriot — with an new Compass and has strategically reduced sales to corporate and rental car fleets in order to focus on more profitable sales to individual customers.
Jeep also has a robust lineup of new products and key updates on the way over the next four years. Those plans include:
•The Cherokee, which started rolling off the line last month in Belvidere, Ill., after production was moved from Toledo, is scheduled for a refresh in the first quarter of next year.
•An updated version of the Renegade in 2018
•The brand's flagship model — Wrangler — is likely to be unveiled later this year at the Los Angeles Auto Show.
•A Jeep pickup truck planned for 2019
•A new Grand Cherokee and Wagoneer in 2020,
"Yes, Jeep is an iconic (brand), but I think them being down what it has been is surprising," said Michelle Krebs, executive analyst at AutoTrader.com. For Fiat Chrysler to succeed, "they need to get Jeep back into the prominent position it had been in."
Not all analysts sound concerned.
"I think this is exactly what they anticipated," said Dave Sullivan, a locally based analyst for AutoPacific. "They had two vehicles that were not competitive at all in the crossover market … and they were extremely heavy with fleet sales with the Compass and Patriot, so I think it’s exactly what they knew was going to happen and not a surprise at all.”
Sullivan said consumers continue to purchase some Jeep SUVs that have not been refreshed for several years. Even without a recent update, Grand Cherokee sales represented a bright spot for the brand, with sales up 16% through June compared to last year.
But Jeep also faces a changing market. While consumers' shift toward SUVs should be good news for the brand, Jeep will face tougher competition in the coming years, according to Jessica Caldwell, senior analyst with Edmunds.com.
“The issue now is that because SUVs are so popular in the market, other auto companies are heavily investing money in this space," Caldwell said. "Jeep has kind of always had that corner on this market, (but) a lot of other car companies are trying to encroach on their territory."
Jeeps are also sitting on dealer lots longer in the U.S.-- an average of 83 days in June compared to 71 days last June. The industry average is 74 days, according to Caldwell.
"Jeep is down, but given that they're an SUV brand, they're probably better poised to bounce back and it's not just one product that is going to help them do that, but the host of products that they have coming ... should definitely help,” Caldwell said.
Fiat Chrysler isn't entirely dependent on Jeep. Ram, the next largest brand by volume after Jeep in 2017, has had a solid year, with sales up 8% over last year at 279,595.
Fiat Chrysler CEO Sergio Marchionne even said earlier this year that Jeep and Ram could be spun off into a standalone company. In April, Jonas estimated the Jeep brand's value at $22 billion.
"Jeep is much stronger than the (Fiat Chrysler) brand," Caldwell said. "People know exactly who they are and what they are. ... (It) gives them an advantage as long as they keep true to that identity."