Chrysler to stop making cars

Late last week FCA announced steps to reposition US manufacturing towards trucks and SUVs, and halt production of small and midsize vehicles entirely by 2017. CEO Sergio Marchionne said he expects the automaker to cease production of passenger cars in the US by the end of Q1 2017, and that FCA plants that currently make cars will shift production to trucks and SUVs. This comes as FCA reported a 2% decline in North American sales volume for Q2 2016 amid weaker demand for compact and midsize sedans, however, increased sales of trucks and SUVs contributed to overall revenue growth of 2%.
Brent Snavely

Detroit Free Press

The company may be called Fiat Chrysler Automobiles, but by early next year, it won't be making automobiles in the U.S.

Instead, Fiat Chrysler's U.S. plants will be focusing entirely on pickups and SUVs for the Ram and Jeep brands.

Fiat Chrysler is winding down production of the Chrysler 200 and Dodge Dart and will primarily produce Jeep SUVs and Ram pickups in the U.S. The company's remaining car models will be made in Mexico, Canada or other foreign nations.

Ending passenger car production in the U.S. is part of CEO Sergio Marchionne's multibillion-dollar plan to increase profit margins to match competitors. It's a bet that recognizes the growing popularity of SUVs in America, low gas prices and lower cost of producing vehicles in Mexico.

"By the time we finish with this, hopefully, all of our production assets in the United States — if you exclude Canada and Mexico from the fold — all those U.S. plants will be producing either Jeeps or Ram," Marchionne said Wednesday during a conference call with Wall Street analysts after the automaker reported second-quarter earnings.

The Jeep and Ram brands have been driving sales gains recently, with the Dodge Dart and Chrysler 200, highly touted when they were launched, have been disappointments.

"There will be no passenger cars that will be produced in the U.S., and therefore, our expectation is that concentration will give us the possibility to get very close" to the 12.1% profit margin that General Motors reported as part of its second-quarter earnings last week.

Marchionne has been trying for years to increase its North American profit margins and match crosstown rivals Ford and General Motors. His realignment will help the automaker finally reach that goal. That plan also includes moving production of the replacement for the Jeep Compass and Patriot to Mexico.

"I think our biggest task now is to close the operating margin gap with our competitors. That remains a permanent fixation that we have inside the house," Marchionne said. "I think we will be de-carred in the U.S. by (the first quarter) of 2017."

A major piece of the puzzle is shelving the Chrysler 200 in Sterling Heights. The automaker said earlier this week production will end there in December.

On Tuesday, FCA announced that it plans to spend $1.49 billion to retool its Sterling Heights, Mich., Assembly Plant to make the Ram 1500, which will move from its current plant in Warren when production begins in 2018.

Another piece of the plan is to move production of the Jeep Cherokee from Toledo, Ohio, to Belvidere, Ill., so it can expand production of the Wrangler in Toledo. FCA said last month it plans to spend $1 billion to retool its plants in Toledo, Ohio, and Belvidere, Ill., and create 1,000 new jobs.

UAW President Dennis Williams — who has frequently criticized automakers for moving production to Mexico — said Tuesday that FCA's recent investments were discussed last year as part of the union's contract negotiations.

The Sterling Heights investment "is great for all of our members and all of the employees at FCA and for the local communities," he said.

In negotiations with the Detroit Three last fall, the UAW won raises for entry-level members hired after 2007, moving most to about $29 per hour from $19.28 over the next eight years.

That agreement, combined with other benefits, erodes the ability of the Detroit Three to make a profit off lower-priced small cars in the U.S.

"When you look at the economics of car manufacturing ...the margins that we were getting from our experience of both the Dart and the Chrysler 200 ...yielded returns that would not, on a competitive basis, match even anything close or remotely close to what we could derive from utilization of those assets in the Jeep or Ram world. So we have made that shift," Marchionne said.

Despite FCA's plans to stop producing the Dart and Chrysler 200, Marchionne continues to say he is looking for a partner willing to make those cars for the automaker.

“I think we have made progress. We’re not in a position to announce anything," Marchionne said.