Bloomberg News

Chrysler Luring Toyota Owners Helps Lift U.S. Share

September 02, 2014

2014 Jeep Grand Cherokee

As Chrysler Group LLC’s Jeep benefits from consumers’ renewed attraction to SUVs, the company also has been aided by strong demand for Ram pickups and Town & Country minivans. Source: Chrysler via Bloomberg

Stan Glaser’s driveway used to be filled with Toyotas. Yet when it came time to trade in his old Toyota truck, he shifted loyalties to Chrysler Group LLC’s Jeep brand, buying a $41,000 white Cherokee sport utility vehicle.

“We’ve been Toyota people for a long time and we switched,” said Glaser, 61, a retired graphic artist from Yorba Linda, California, who shopped Toyota SUVs. “It was a combination of the technology, the look and the size of the Cherokee. I’m a gadget guy. Guys look for bells and whistles and fun stuff.”

Chrysler is on an unprecedented winning streak. As Jeep benefits from consumers’ renewed attraction to SUVs, the company also has been aided by strong demand for Ram pickups and Town & Country minivans. That helped propel its U.S. sales up 12 percent last month, the largest increase of any major automaker, according to the average of eight analyst estimates compiled by Bloomberg. The companies report August sales tomorrow.

That would be Chrysler’s 53rd straight month of rising sales -- about 4 1/2 years -- after almost being given up for dead before its government-sponsored bankruptcy in 2009. The streak coincides with the leadership of Chief Executive Officer Sergio Marchionne, who ordered an overhaul of Chrysler’s lineup when he took control after its spin through Chapter 11.

Now the Auburn Hills, Michigan-based automaker is preparing to officially combine with Fiat SpA (F), which Marchionne also heads, in October to create the world’s seventh-largest automaker. And it’s pressing its advantage with hot models and generous incentives that have it gaining ground on competitors such as Ford Motor Co. and Honda Motor Co.

‘Continually Pushed’

“Chrysler just continues to surprise us with the strength they have,” said Michelle Krebs, senior analyst for researcher Autotrader.com. “The prospects weren’t good for Chrysler coming out of bankruptcy, but Marchionne had a vision for where Chrysler could go and he continually pushed the company.”

Chrysler is the only large automaker expected to post a sales gain of more than 10 percent for August, according to the analyst estimates. Industrywide light-vehicle sales are forecast to be little changed at 1.5 million, due mainly to the month having one fewer sales day than last year, according to the average of 10 estimates. Adjusted for seasonal trends, the annualized selling rate may climb to 16.6 million, the average of 14 projections, from 16.1 million a year earlier.

For the full year, analysts estimate deliveries of new cars and light trucks will rise to 16.3 million, the highest since 2006, when 16.6 million vehicles were sold.

Trade-In Evidence

Nissan Motor Co. (7201) is the only other major automaker expected to report an August increase, with a 2.7 percent rise. Ford and General Motors Co. (GM:US) may see declines of 1.2 percent and 0.1 percent, respectively. Toyota Motor Corp. (7203) sales will drop 3.3 percent and Honda’s will slide 9.1 percent, according to the estimates.

Chrysler’s comeback is apparent from the trade-ins rolling into Chuck Eddy’s Youngstown, Ohio, dealership. He once sold mostly to a small, loyal following of buyers looking for a cut-rate price on a second-rate car. Now his used-car lot is filling up with Range Rovers and Toyotas.

“These aren’t reworked Chrysler owners anymore,” Eddy said of the new buyers coming into his showroom to shop for Chrysler, Dodge and Jeep models. “They are Ford (F:US) owners, Toyota owners, Range Rover owners.”

Since bankruptcy, Chrysler has introduced a well-received redesign of Jeep’s flagship model, the Grand Cherokee, and resurrected the smaller, lower-priced Cherokee SUV, with an edgy look that has attracted attention and buyers. Chrysler also overhauled the design of its Ram pickup, which was selected by journalists as 2013 North American Truck of the Year.

‘Huge Opportunity’

This year through July, sales jumped 44 percent for Jeep and 19 percent for Ram pickups, leading Chrysler’s trucks to a 30 percent gain.

“You have to be competitive because everybody builds a good product,” Eddy said. “But our content and our quality, combined with our pricing, makes a huge, huge opportunity for the dealer.”

Even so, Chrysler continues to increase discounts to gain ground. Chrysler’s incentives rose 12 percent this year through July to $3,249 a vehicle, according to researcher Autodata Corp. That’s more than the industry average of $2,702, while trailing Ford’s $3,306 and GM’s $3,394.

Low financing rates also are helping Chrysler and other automakers. Chrysler is offering no-interest loans for as long as 72 months on the 300 and 300C sedans, while Ford and GM are advertising similar financing on some models.

‘Getting Attention’

“Those are definitely getting attention from customers,” Jessica Caldwell, senior industry analyst for Edmunds.com, said of the interest-free loans. “It’s a strong month, and we’ve seen it pick up in the second half.”

The combination of good deals and good products boosted Chrysler’s U.S. market share to 12.1 percent in the first seven months of 2014, from 11.2 percent a year earlier, according to Autodata. The group is on pace for a fifth year of outpacing the industry’s growth and its biggest share since 2007. Chrysler had as much as 16.2 percent of U.S. sales in 1996 before falling to 8.9 percent in 2009, its bankruptcy year.

Ford, Honda (7267) and Hyundai Motor Co. all lost U.S. market share during the first seven months of 2014. Toyota’s share ticked up to 14.4 percent from 14.2 percent, bolstered by its Lexus luxury line. That’s down from 17 percent in 2009, before the Japanese automaker endured a recall crisis and production losses from the 2011 earthquake and tsunami.

SUV Love

Chrysler’s Jeep brand is buoyed by America’s renewed love affair with the SUV. For the first time, more people are buying SUVs than sedans, led by a stylish crop of new products, including the Cherokee and Grand Cherokee, the Toyota RAV 4, the Ford Escape and the Honda CR-V.

SUVs, including crossovers, made up 36.5 percent of new-vehicle registrations this year through May, compared with 35.4 percent for sedans, according to IHS Automotive. Sedans, which held the top spot for decades, had led 36.6 percent to 33.9 percent a year earlier, IHS said.

“SUVs have done relatively well,” said Caldwell. “And with Jeep, the company has concentrated on better fuel efficiency and on smaller models, which are popular right now.”

Changed Landscape

That’s a reversal from 2006, when rising gasoline prices exposed Detroit’s dependence on big, fuel-thirsty SUVs and began the U.S. automakers’ descent.

Today, with their best models in a generation, those automakers are booking hefty earnings and offering fuel-efficient SUVs, trucks and sedans. Chrysler has been profitable (CGC:US) in 11 of the last 12 quarters. In the three months through June, its modified operating profit jumped 22 percent to $985 million on surging sales of Jeep SUVs and Ram trucks.

Chrysler, rescued by Fiat five years ago, now provides most of the income for what will become Fiat Chrysler Automobile NV in October. The new company will be incorporated in the Netherlands, headquartered in London and have its main stock listing in New York.

Chrysler does the majority of its business in North America, so the automaker is getting a boost from a strengthening U.S. economy. Consumer sentiment rose in August as Americans said their finances are improving due to growth in jobs, wages and wealth, according to the Thomson Reuters/University of Michigan survey.

Consumers “think their jobs are secure, the economy is good, the future is bright, so now’s a good time to buy a car,” Jeff Conrad, Honda senior vice president for U.S. sales, said in an Aug. 28 interview. “August is always known as the month to get a new car, so business is good right now -- for everybody.”

Glaser, the longtime Toyota owner, said he got the special Trailhawk off-road package on his Cherokee so he can indulge his passion for his GPS scavenger-hunt hobby. And no Toyota gave him the same combination of size and capability.

“I don’t spend a lot of time thinking ‘Where can I go with my Trailhawk?’” he said. “But I like knowing I’ve got a car that can do it.”

To contact the reporters on this story: Mark Clothier in Southfield, Michigan at mclothier@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Keith Naughton, John Lear


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