Sergio Marchionne, CEO of Fiat Chrysler Automobiles, speaks with journalists at the North American International Auto Show in Detroit, on Jan. 15, 2018.Rebecca Cook/Reuters
As auto makers slash the number of passenger cars they offer and replace them with crossovers, profits in what has become the largest segment in the North American market will start to erode.
“You are going to see a downward pressure on margins,” Fiat Chrysler Automobiles NV chief executive officer Sergio Marchionne said on Thursday, a day after Ford Motor Co. announced it was scrapping all but two of its passenger-car offerings in North America, following a path taken by Fiat Chrysler in 2016.
Crossovers have became the new family vehicle in Canada and the United States, part of a shift in consumer demand to vehicles that offer more utility but without the fuel consumption penalty of truck-based sport utility vehicles.
Compact crossovers are now the largest segment in Canada’s vehicle market. Compact cars, which were the most popular vehicles in Canada for almost a generation, are now third, with full-sized pickup trucks ranking second.
This shift plays into the strengths of Fiat Chrysler, Mr. Marchionne told analysts and investors on a conference call, in part because it owns Jeep, a brand that it is expanding globally.
“In the case of Jeep, it’s such a unique set of attributes that I think, five years from now, we will continue to be able to preserve a special position for the brand and a set of margin generations that are reflective of the uniqueness of the brand,” he said.
Ford said it will cut its car offerings to just the Mustang sports car and a version of its Focus compact sedan, eliminating Fiesta, Fusion and Taurus, once the bestselling car in North America and one that led a Ford comeback in the 1980s.
“We’re going to feed the healthy parts of our business and deal decisively with the areas that destroy value,” Ford CEO Jim Hackett said on Wednesday. The car side of the business is facing declining customer demand and profitability, Mr. Hackett said.
This is also an issue for General Motors Co., which has the highest number of car offerings in North America.
Industry analyst Adam Jonas, who follows GM for Morgan Stanley Smith Barney LLC, said in a research report earlier this month that he values GM’s North American passenger-car portfolio at negative US$4-billion.
“While we don’t see strategic value in GM’s NA passenger car assets, we do see further scope for reduction in passenger nameplates,” Mr. Jonas wrote, listing a number of cars that included the Chevrolet Impala, assembled in Oshawa, Ont. and the Chevrolet Cruze.
GM has announced it is eliminating one shift of Cruze production at the Lordstown, Ohio, plant where the compact Cruze is made.
GM CEO Mary Barra said on Thursday on that auto maker’s first-quarter financial results conference call that the company invested in its passenger car operations in 2015 and 2016 and still sees opportunity in those segments.
“I think we’re well positioned in cars,” Ms. Barra said. “We’re always looking for efficiencies and we’ll respond to the marketplace, as you saw with the shift change we made in Lordstown.”
GM’s chief financial officer Chuck Stevens said several moves made by GM in recent years such as selling its Opel business in Europe and reducing its break-even point in South America by 40 per cent were all aimed at addressing passenger car profitability.
Redesigns of several crossovers should reverse the erosion in profit margins on those vehicles GM experienced in 2017, Mr. Stevens said.
“It’s not lost on us that crossovers are going to be more competitive,” he said.
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