US: Fiat Chrysler uses smart pricing to lower gap with rivals image

Fiat Chrysler Automobiles, the third largest US automaker and the world’s seventh biggest, is lifting earnings margins by delivering more vehicles from hot brands such as the Ram, Jeep and Hellcat and also lowering dealer incentives.

The automaker is aiming to lower the massive gap in terms of profits between itself and its larger US rivals – GM and Ford. During the past quarter the carmaker earned an operating profit of $1.4 billion in North America, while Ford took home $2.6 billion and General Motors another $2.8 billion. FCA chief executive officer Sergio Marchionne announced the company’s operating profit in the region more than doubled, as they “got smart on pricing.” In recent years, FCA’s Detroit rivals have been posting earnings margins that were constantly two to three times higher and Marchionne knows these are the figures that matter. An automaker with low profit margins will be less interesting to Wall Street investors and have smaller stock prices that yield lower investments.

But this year, industry experts and analysts hint that strong demand for certain models, such as the Ram 1500 Laramie Limited and its Dodge Challenger and Charger Hellcats, along with the usual hike in Jeep deliveries have finally lifted average transaction prices for FCA. The carmaker also done less fleet sales that are not as profitable as retail deliveries, had incentives under the threshold and lowered dealer discounts. Marchionne also managed to deliver on the company’s profit margin goal – jumping from 4.9 percent last year during the time frame to 7.7 percent in the second quarter.