Mike Manley’s priority is to solve the problems in China. More than the debt target, the reposition of Fiat or the revival of Alfa Romeo plan, his main task is to address the sales issue of Jeep in the world’s largest market. It was the main cause of the tumble of the stock price in late July, when Manley took over as FCA’s first non-Italian CEO.
Marchionne did the first part of the task by localizing the production of most of Jeep models. But the second part is still to take place as the popularity of Jeep brand dissipates. The latest results indicate that all locally made Jeeps posted big sales declines. In July, Jeep total sales fell by 29% to only 9.200 units, which is definitely higher than the market’s average fall of 5%.
Despite the launch of the Grand Commander, whose sales counted for 22% of Jeep sales in July, the brand was negatively affected by lower demand of the locally-made Cherokee (-58%), Compass (-37%) and Renegade (-43%). The good start registered by all of these models suddenly stopped and now they post big declines. But why? What has changed and why consumers in China don’t want Jeeps anymore?
Jeeps are globally known for their capabilities in all kinds of roads. They are the best example of a real off-road. Most of the consumers in China are located in big cities, where the driving is quite an easy task (excluding the traffic jams) and doesn’t require big off-road capabilities. Therefore, most of the consumers show preference towards crossovers or frugal SUVs.
The current positioning of Jeep may be right in North America, Brazil, India and Europe, but it doesn’t work in China. Anyone would argue that the latest Jeeps are closer to a car than to an off-road (Compass for instance). However, even the smallest Jeep, the Renegade, features more aggressive and boxy design than its frugal competitors. Maybe is time for dedicated models for China, just as they just did with the Grand Commander.
When Jeep officially started to produce its models in China, there were 67 SUV brands and 167 SUV models available. By June this year, there were 81 brands and 256 different models. Most of the growth came from the Chinese brands, which realized that the best way to gain traction is through more SUVs. At the same time, the the SUV segment has posted lower growth rates during the last 12 months. JATO’s latest data show that its sales grew by 8,7% in H1 2018, compared to the 13,5% increase posted in H1 2017 vs H1 2016.
Premium or mainstream?
Jeep has two faces: the mainstream and the premium. The Renegade and Compass play in the mainstream segments, while the Grand Cherokee is part of the premium segments. However, the brand is not known for being premium, or a direct rival to Mercedes, BMW or Audi. This unclear positioning doesn’t help the consumers in China, where Jeep is stuck between the premium German brands and the mainstream lower-priced Japanese and Korean offerings.
The future of FCA is closely related to the commercial performance in China. As long as Jeep doesn’t change its current positioning, pricing and model line up, it is likely to see lower demand in the future. Jeep is by far the biggest volume and profit driver among all the FCA brands, and this should be enough to focus most of Manley’s effort on this issue.