MILAN - With lower gas prices shifting North American driving preferences toward bigger vehicles, Fiat Chrysler (FCAU) has accelerated its transition away from passenger cars with an impact on its manufacturing footprint across the globe.
Fiat Chrysler Automobiles CEO Sergio Marchionne gave out pieces of the plan to exit the small- and midsize car business in the U.S. and shift factories to hotter-selling SUVs and trucks. The company will keep selling muscle cars like the Charger and Challenger, the 300 sedan and premium brands like Alfa Romeo.
Marchionne said that the plan would create more jobs, but where all the positions will end up and whether the U.S. will lose employment still isn't clear.
He has said previously that the market shift in the U.S. to trucks and SUVs is permanent, aided by low gasoline prices, and that Fiat Chrysler would adjust to it.
The North American market, he said, "is relatively healthy in areas where we function well," like Jeep and Ram.
"It has gotten a lot stickier on the passenger car side," he said. "I think the call that we made to exit those businesses as producer in the United States in hindsight was probably one of the best calls we made."
The production changes will bring an increase in North American jobs, but some of the production will be moved to Mexico, Marchionne said.
Some temporary layoffs will take place as plants are retooled from cars to trucks, he told analysts on a conference call. Marchionne called the transition painful but said it would be finished by early 2018.
Here's what we know about the production plans so far:
- FCA will retool a factory in Sterling Heights, Michigan, north of Detroit, so it can make a new Ram pickup truck that will come out early in 2018. The plant, with 3,000 production workers, now makes the Chrysler 200, a slow-selling midsize car that is among the segments that FCA plans to exit.
- A factory in Warren, Michigan, that now makes the Ram pickup will be retooled to make the Jeep Wagoneer or Grand Wagoneer, an SUV that's larger than the Jeep Grand Cherokee. The plant with 4,000 production workers, would keep making the Ram until Sterling Heights begins making the new truck.
- Production of the aging Jeep Compass and Patriot compact SUVs would move to Toluca, Mexico, when a new version comes out. Those are now made at a 4,000-worker factory in Belvidere, Illinois. The Illinois plant also makes the Dodge Dart compact car, a market that FCA also wants to exit, so its future may be in peril. Last year's contract with the United Auto Workers union promised new vehicles for Sterling Heights and Belvidere.
- FCA is talking with other manufacturers to make small and midsize cars, but Chief Financial Officer Richard Palmer said he couldn't discuss the talks.
- FCA will continue to make larger rear-wheel-drive muscle and luxury cars, and it should be able to grow in that area, Marchionne said. But it's possible, he said, when the plans are finished that "the true passenger car side will represent the lesser portion of our portfolio than it does today."
That doesn't include Alfa Romeo, which is being built in Italy for export under plans to shift Italian production to higher-margin premium models.
"I am not concerned about the competitiveness of the U.S. market as it applies to Alfa," Marchionne said, adding he also was reassured by Alfa's marketability in China after a recent visit.
FCA also announced Tuesday that it would invest $74.7 million at its Trenton, Michigan, engine plant near Detroit so it can build a future four-cylinder engine. The move doesn't create new jobs but retains 245. The company gets a $770,000 state tax break.
The CEO also complained about the lack of clarity in the European regulations as automakers deal with greater scrutiny in the wake of the VW (VLKAY) diesel admissions scandal. Marchionne said he agrees with Germany's transport minister that regulations aren't clear, and some automakers interpret them differently than others. "I think we have done our best to meet those standards over time," Marchionne said.
North America was the clear force behind first-quarter FCA earnings.
The Italian-American carmaker reported a net profit of 478 million euros ($539 million) in the first quarter, up from 27 million in the same period last year, a figure that had been adjusted to exclude the recently spun-off Ferrari division.
Net revenues rose 3 percent to 26.5 billion euros.
Fiat Chrysler said its North America adjusted earnings before interest and taxes doubled to 1.2 billion euros on higher revenues, lower advertising spending and lower recall campaign costs. Sales of Jeep, Ram trucks and minivans led an 8 percent boost in regional sales to 634,000 vehicles.