Fixes underway as Marchionne prepares company for his retirement
The plan made sense: build the new 2019 Ram 1500 in a different plant so that FCA could keep building the old one while the new factory was retooled and production ramped up. The one thing FCA CEO Sergio Marchionne wanted to avoid was loss of production of one of the most profitable vehicles, especially in these times of lower fuel prices and an unabated appetite for pickups in North America.
But launching the next-generation full-size pickup at the retooled Sterling Heights Assembly Plant north of Detroit has proved more challenging and expensive than expected, Marchionne said during a call with investors to discuss the quarter’s record earnings.
All global hands have been on deck to get the truck launched and that has added $300 million USD in cost to the bottom line. Ram shipments for the quarter were down 17 percent. Even now, the plant is “running at 60 percent of cycle today which is not where we need to be,” he said. “We allowed enough time in 2017 to get that installation up, but it’s proven to be challenging.”
There are two saving graces.
One: “The important thing to remember is that these are temporary costs,” Marchionne said. The company understands the issues and has put remedial plans in place to make up for production losses by the end of the year and meet all targets. FCA should be able to build 100,000 more Rams a year when the new plant is at full capacity late this year compared with capacity for 240,000 trucks at the Warren plant.
Let Elon sleep on the floor
And no, he will not sleep at the plant to address production issues, a reference to Tesla CEO Elon Musk who has a sleeping bag at the end of the troubled Model 3 production line. “I’m not sleeping on the floor,” said Marchionne, even though he has done it in the past. “You have to be Elon’s age to do it. I’m too old for that crap.”
The second saving grace: FCA is still building the previous-generation 2018 Ram at the Warren Truck plant and will continue to do so for the rest of this year and into 2019.
“One of the benefits of having the old truck, it will allow us to play in a price-sensitive part of the market. We have never done this before,” Marchionne said. “We can test the depth of demand for old to see if it can stay.”
But at some point FCA must commit fully to the new generation Ram which was completely redone with a new structure, materials, and features. It is a more expensive truck to make than the one it replaces but Marchionne said he expects to retain share and margins in the competitive full-size pickup segment.
Production in Warren must also eventually give way to the new Jeep Wagoneer and Grand Wagoneer that will be built there, using the Ram platform.
We sucked at Levante launch
Another problem area is Maserati where sales and shipments were down. The 2017 launch of the Maserati Levante was a huge disappointment to the boss who thinks highly of the product but does not mince words about its market launch. “Very poor execution. I think we sucked at the launch of the Levante.”
Since then, two things have happened. One was to change leadership. Tim Kuniskis took over as the new global head of Alfa Romeo and Maserati in February, replacing Reid Bigland. Kuniskis drew attention for his successful marketing of the Dodge brand including huge media hype for the Demon. Marchionne has tapped that marketing enthusiasm for his premium brands and called the New York debut of the Levante Trofeo a “reset for the U.S. market.”
Jeep Grand Cherokee for 2020
Marchionne said the premium brands have honed their technical skills, which will also benefit other brands and models, including the next Jeep Grand Cherokee coming in 2020.
Overall, FCA shipped 1.2 million vehicles globally in the first quarter, up 5 percent from a year ago, helped mightily by a 37-percent jump in Jeep with the new Compass and Wrangler
More Jeeps are on the way. Production of the Wrangler pickup will begin in Toledo by the end of the year. And efforts to improve in China will be helped by the new Jeep Grand Commander that was shown at the Beijing auto show and has been designed to better appeal to Chinese buyers. “We overestimated the value of the American DNA in the Chinese market,” Marchionne said. Future products will be similarly changed to better align with consumer demand.
I’ll wear a tie
Debt reduction remains a priority for Marchionne as he prepares to retire. The man known for his signature black sweater has promised to wear a tie to the June 1 presentation of the company’s new five-year business and product plan if the company successfully eliminates the net debt. The CEO joked that bets are underway as to whether he will show up wearing a tie to the investor day. He appears to be on track, taking another big bite out of the debt in the first three months of the year.
And he expects FCA profit margins to exceed those of General Motors and Ford. “If it doesn’t happen on my watch, I have no doubt my successor will be able to whack the crap out of both of them.”
He won’t delay his planned retirement for it. The CEO still plans to retire early next year at which time his successor will be announced by the board from a list of internal candidates. When an analyst pleads for him to stay on, Marchionne says the odds of an extended tenure are “between zero and nothing.”
Nor is he needed. With debt gone and a new five-year plan, his successor will start on a strong footing. “You don’t need me to get it down. The house is knee-deep in talent and I think we should give them space.”