WSJ: Chrysler Bets Big on New Jeep Wrangler

MLPP

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Nothing here we didn't know. Still a reminded how important Jeep and Wrangler is to FCA.

Chrysler Bets Big on New Jeep Wrangler

The SUV’s challenge is to bankroll next-generation investments at Fiat Chrysler as CEO prepares to leave


By Chester Dawson
Nov. 16, 2017 5:30 a.m. ET

DETROIT—Jeep’s rugged Wrangler is known for scaling mountains and crossing rivers. The sport utility’s next challenge is to forge a path for Fiat Chrysler Automobiles NV as Chief Executive Sergio Marchionne prepares to leave the company.

A revamped version of the SUV debuts this month, the first engineering overhaul since Daimler AG owned the brand in 2006. Designed to be more efficient and tech savvy, the new Wrangler is central to a plan to triple Jeep’s overall annual sales to as many as seven million vehicles globally, though it hasn’t said by when. That would top all of Ford Motor Co.’s world-wide sales last year.

Jeep’s sales were far smaller when Mr. Marchionne combined Fiat SpA with the bankrupt Chrysler LLC a decade ago. Mr. Marchionne has in the past said Fiat Chrysler needs to find a partner to help shoulder regulatory costs and technology investments, and the Jeep brand’s potential has been seen as a compelling opportunity for suitors.

But with Fiat Chrysler stock price at postmerger highs amid record profits, Mr. Marchionne’s merger talk has cooled. Intending to step down in 2019, he is now working on a five-year plan to be unveiled early next year for a still-unnamed successor.

The Wrangler is critical to Mr. Marchionne’s effort to get Fiat Chrysler in a healthier spot by paying down debt and investing in new areas, such as electric cars. In addition to being a cash cow, the SUV is a central cog in a $3.5 billion overhaul of the company’s North American factories that is designed to lessen reliance on low-margin passenger cars and double down on profitable pickups and SUVs.

Shortly after the new Wrangler starts rolling out of a factory in Toledo, Ohio, a redesigned Ram 1500 pickup will be produced at a Sterling Heights, Mich., plant that previously made a Chrysler sedan discontinued last year.

Goldman Sachs estimates the Ram and Jeep lines are worth a combined $40 billion when stripped out of the broader company, which also includes other U.S. brands as well as Italy’s Fiat and Maserati. The current stock market value of Fiat Chrysler is $26.5 billion, reflecting losses at brands like Lancia and far lower profit from Dodge vehicles than Jeeps and Rams.

The Wrangler and Ram pickups together deliver more than a third of the company’s North American revenue, according to a WSJ analysis of sales volumes and average transaction prices. And they generate the vast majority of the profit.

To free up space to build more Wranglers, Fiat Chrysler moved assembly of the popular midsize Cherokee SUV to Illinois from Toledo. It also plans to update the Cherokee early next year. Mr. Marchionne told analysts in October that successfully carrying out the three model launches over the next 90 days is the “biggest risk” to a near-term profit target and efforts to eliminate net debt.

Critics question one pillar of Mr. Marchionne’s plan, which involves investing in factories focused on a single model or product type. Other auto makers assemble multiple body types on the same assembly line to increase flexibility.

Fiat Chrysler could be hurt if demand for trucks and SUVs falters, as often happens when gasoline prices climb, said Ron Harbour, a manufacturing consultant at Oliver Wyman. “If there’s a swing back to cars, they’ll have to spend billions to retool again,” he said.

Jeep’s newest Wrangler, the brand’s most linear descendant of the World War II military jeeps, is set to debut at the Los Angeles Auto Show this month. Fiat Chrysler has said little publicly, but the revamped version uses more aluminum, a more efficient multi-gear transmission and a more modern dashboard with upgraded infotainment options.

In Toledo, where the Wrangler has been built since 1992, the company will for the time produce both older versions and new ones on separate assembly lines to address supply concerns. The version on sale since 2007 is leaving dealer lots with virtually no discounts: The average transaction price of $37,202 represents a 55% premium over the $24,000 base price, according to TrueCar.

Building two versions of the Wrangler at the same time will help keep up with demand and boost assembly capacity by nearly a third, but also adds complexity. The multiple plant changes have resulted in assembly line snafus and strained relationships with component suppliers struggling to meet deadlines, according to people familiar with the matter.

These people said Fiat Chrysler’s purchasing chief, Scott Thiele, told suppliers at a meeting in September the company was late in sourcing certain parts for the new Wrangler, and has experienced problems hitting planned volumes due to glitches with the Cherokee in Illinois. A Fiat Chrysler spokeswoman declined to comment on “internal business meetings.”

Fiat Chrysler’s track record for product launches is mixed. The company has had success with trucks, but recently canceled two cars that had been unveiled with considerable fanfare, including the Dodge Dart sedan, due to low demand. The rollout of a hybrid gas-electric version of its Chrysler Pacifica minivan also encountered problems early on.

Citigroup in a report last week said the company faces risks “’related to multiple and simultaneous production startups.” But the brokerage dropped its longtime “sell” recommendation on the stock, noting investors are focused on the upside from launching “the most expensive models in the lineup and presumably the most profitable.”

Fiat Chrysler aims to build 300,000 Wranglers annually, and could tack on up to 100,000 more depending on market reception for a Wrangler-based pickup due in 2019.

The company’s most ambitious targets would have Jeep owning 20% of a global SUV market that could eventually reach 33 million, Mr. Marchionne said. Goldman Sachs estimates Jeep currently has 5.5% of global SUV sales.

https://www.wsj.com/articles/chrysler-bets-big-on-new-jeep-wrangler-1510788186
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MLPP

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Another article from Toledo Blade just published:

http://www.toledoblade.com/Automoti...at-Chrysler-Toledo-Los-Angeles-Auto-Show.html

Whenever a new car makes its debut, hyperbole is a given. Auto executives gush hype as reliably as fall turns to winter.

But in the case of the next-generation Jeep Wrangler, which will make its debut this week at the Los Angeles Auto Show, it would be nearly impossible to overstate how important the vehicle truly is, both for Fiat Chrysler Automobiles and for the city of Toledo.

For starters, the Toledo-built Wrangler makes Fiat Chrysler a lot of money.

The company doesn’t provide profitability figures for individual models, but industry and financial analysts say the Detroit-built Jeep Grand Cherokee is likely Fiat Chrysler’s most profitable model outside of the company’s Ram trucks. The Wrangler, built at the automaker’s Toledo Assembly Complex, is not far behind.

"The base vehicle's obviously profitable and probably got a pretty decent margin in it. But when you start adding up all the options, all the bells and whistles, and you get into an Unlimited, or a Rubicon, or some of the other more capable versions, profitability gets to be pretty hefty,” said Joe Phillippi, senior analyst at AutoTrends Consulting in New Jersey.

According to data from TrueCar, an automotive analytics firm, the average transaction price for Wrangler this year is more than $37,000. That’s on a vehicle with a base price of less than $24,000.

Beyond that, the Wrangler is the Jeep franchise. It’s the model which all other Jeeps — and indeed, many other SUVs — are measured against. And as Jeep strives to grow global sales from 1.4 million units in 2016 to 2 million units by 2018, the new Wrangler has an unquestionably crucial role to play.

“Wrangler’s always been a huge contributor to Jeep and to the company as a whole. Wrangler is in strong demand, it rarely has incentives of any size and it generally has the lowest inventories,” said Michelle Krebs, an analyst with AutoTrader.com. “The other thing is that Jeep is a global brand and Wrangler is a global player. It has breadth of capability in terms of what it can do for sales, revenues, and profits.”

The redesigned vehicle is expected to be in auto dealers showrooms early next year.

But as big a role as Wrangler plays in Fiat Chrysler’s portfolio, it might play an even bigger one in northwest Ohio’s economy.

“It’s really a big deal economically for the city of Toledo,” said Bill Burkett, the city’s economic development commissioner and one of the key people involved in the 2014 discussions with the automaker about keeping Wrangler production in Toledo.

At that time, the company was kicking around the idea of moving the Wrangler elsewhere. In the end, Fiat Chrysler elected to keep the Wrangler here but move production of the Jeep Cherokee to a plant in Illinois.

Earlier this year, Fiat Chrysler completed its $700 million investment in its Toledo Assembly Complex to prepare the plant for the new Wrangler. The company has said the new model will lead to the creation of about 700 new jobs.

As of July, the facility had more than 4,700 employees, making it one of the city’s largest single employers and keeping auto manufacturing one of the linchpins of the regional economy.

“It’s something that we still do, and we do well here, and there’s a big payoff for it,” Mr. Burkett said.

Economic development officials say various studies have shown every automotive manufacturing job creates five to six additional jobs in the community. And two of the city’s more recent development projects were directly tied to the Wrangler’s future here.

Dana Inc. and Detroit Manufacturing Systems each announced plans in 2016 to open new manufacturing plants within the Overland Industrial Park after receiving contracts to supply the new Wrangler. Together, the two plants will have at least 500 employees within the next three years.

“We talk a lot about Dana and DMS,” Mr. Burkett said. “The truth of the matter is if the Wrangler would have gone somewhere else we wouldn’t have Dana and DMS going into the Overland site.”

It’s been nearly 12 years since Jeep launched an all-new Wrangler. That’s eons in normal automotive terms, but more or less on track with the historical cadence for that vehicle.

Dealers say the company has done a good job keeping the excitement up for the Wrangler over the last decade with a mixture of small updates and limited edition trim levels, but there’s no doubt it’s time for an upgrade.

“They did some really cool things with that vehicle to keep it fresh, even though that technology was getting long in the tooth,” said Ralph Mahalak Jr., a Jeep dealer in Monroe.

The current Wrangler doesn’t offer a number of safety and convenience features that have become commonplace in recent years, including a backup camera, blind spot monitoring, or adaptive cruise control. It’s also a gas hog, returning at best 21 miles per gallon on the highway.

Those faults haven’t seemed to hurt sales, though.

Through October, the Jeep had sold 163,533 Wranglers, putting the vehicle on the same pace as last year, which was its second-best year ever. Jeep sold a record 202,702 Wranglers in 2015.

Still, Fiat Chrysler has suggested at least some of those gripes — a lack of available technology and poor fuel economy — will be addressed with the new model.

The company hasn’t released much information about the upcoming Wrangler, but a report from the U.S. Environmental Protection Agency shows the new Wrangler Unlimited will get a 15 percent increase in highway fuel economy and an optional eight-speed automatic transmission. Photographs released by Jeep also show the Wrangler getting a heated steering wheel for the first time.

Those updates, dealers and analysts say, should broaden the Wrangler’s appeal, possibly luring in buyers who passed on the Wrangler before because it lacked a feature or two that were on their must-have lists.

Cosmetic changes appear more minor. The new Wrangler will still have its removable top, round headlamps, protruding square taillights, and flared fenders, preserving the basic and iconic shape. And Fiat Chrysler officials have promised the Wrangler won’t lose any of its off-road capability. The company has said, though, that it is using aluminum in the new vehicle, a departure from the all-steel body in the current one.

Even as anticipation ramps up for the new model, dealers say they’re having no trouble selling the current Wrangler. John Yark, the owner of Yark Automotive Group in Sylvania Township, said his Jeep franchise is having its best year ever with Wrangler, with sales up 22 percent over last year.

But Mr. Yark is also getting a lot of people asking about the new one.

“It’s conversation at this point, but I anticipate once we are in a position that we can order them that we’re going to get a lot of people who are going to want to have the first one in the neighborhood,” he said.

The vehicle will be officially debuted on Wednesday. The company has said it will go on sale sometime in next year’s first quarter.
 

AZCrawl

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“It’s conversation at this point, but I anticipate once we are in a position that we can order them that we’re going to get a lot of people who are going to want to have the first one in the neighborhood,” he said.

The vehicle will be officially debuted on Wednesday. The company has said it will go on sale sometime in next year’s first quarter.

Huh?!?!?!
 
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