Fiat Chrysler Automobiles NV (NYSE:FCAU) will be raising the price on some of its bestsellers like Ram and Jeep. The automobile company is also raising the wholesale price on other brands to narrow the profitability margin gap with its rivals.
Fiat Chrysler’s operating margins have remained static at about 4% of the revenue in America. This is about half the margins of other automobile manufacturers like General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F). The move to increase prices can, therefore, be seen as Fiat’s attempt at boosting its profitability in North America.
The demand for Ram Trucks and Jeep SUV has been rising at a fast pace. The wholesale price increase, therefore, comes in the backdrop of high demand. Light truck sales rose 5.9% in 2014 and Fiat Chrysler’s market share jumped 12.7% in 2014 from 11.5% the year before.
According to dealers, the company’s move to increase its wholesale price while keeping the sticker price the same will squeeze their profit margins.
There are differing reports on how much the increase is with some dealers reporting an increase of 1% and others reporting a hike of up to 3%.
Fiat Chrysler’s CEO, Sergio Marchionne, has called for the consolidation of auto makers across the world to make the huge investments needed to develop more fuel efficient and safer vehicles. He has further stated that mergers and tie-ups would help lessen the enormous financial burden of meeting stricter emissions regulations.
Fiat has stated that its lower profitability is in part due to having to spend more on developing new models and overhauling factories. The company is also intent on keeping the month on month increase in sales for the last five years.
Analysts have stated that auto makers may be sacrificing profitability for a gain in market share. Fiat Chrysler’s dealers are worried that the squeeze in their profit will limit their ability to compete.