Fiat Chrysler spends $1bn on US

The all-new Jeep Compass is one of over 30 new SUVs and crossovers due in 2017.

The all-new Jeep Compass is one of over 30 new SUVs and crossovers due in 2017.

Published Jan 9, 2017

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Michigan  - Fiat Chrysler Automobiles will invest $1

billion toward making three new Jeep models in the US, plus a Ram heavy-duty

pickup now built in Mexico, as President-elect Donald Trump pressures the auto

industry to hire workers and produce vehicles above the border.

The outlays

planned by 2020 include retooling factories in Michigan and Ohio and adding 2 000

jobs, according to a company statement. The Italian-American automaker

confirmed the Jeep brand will add the Wagoneer and Grand Wagoneer sport utility

vehicles and a pickup model to its lineup. After improvements to a plant in Warren, Michigan, the

site will be able to assemble Ram HD trucks now made in Saltillo, Mexico.

Fiat

Chrysler is circulating the plans before any potential criticism of the company

by Trump, who last week threatened General Motors with taxes for importing a

version of its Chevrolet Cruze from Mexico. Ford Motor has cancelled a $1.6

billion factory in the country and will invest $700 million into a Michigan

plant.

“The

expansion of our Jeep lineup has been and continues to be the key pillar of our

strategy,” CEO Sergio Marchionne said in the statement. He also highlighted

plans to export the SUVs and trucks. “We will finally have the capacity to

successfully penetrate markets other than the US which have historically been

denied product due to capacity constraints.”

The added

Jeep models have long been planned and analysts have been awaiting word on

where they would be built, Michelle Krebs, senior analyst at Autotrader.com,

said in an e-mail. “Investment in Jeep is smart money spent, and timing to ward

off President-elect Trump’s possible tweets at the pass doesn’t hurt,” she

wrote.

Read also:  Toyota stocks tumble after Trump criticism

Among major

automakers, Fiat Chrysler sells the highest percentage of light trucks, which

tend to be more profitable than cars. For this reason, it’s also been seen as

the most likely to benefit from the Trump administration and

Republican-controlled Congress reducing regulatory demands for improved fuel

economy, spurring a surge in the stock price.

“The sooner

those new models will roll out of the factories, the better it is to support

Fiat’s mix and therefore margins,” said Massimo Vecchio, an analyst at

Mediobanca in Milan.

“All major corporations are moving along the line of what Trump asked. They

could get in exchange very likely a massive cut in the corporate tax rate,

which is possible only if the US increases” its gross domestic product, the

broadest measure of economic activity, Vecchio said.

Mexico matters

Fiat

Chrysler employs more than 11 800 workers in Mexico at seven manufacturing

facilities, which shipped 477 000 vehicles in 2015, according to the company’s

website. Its models built south of the border include Ram trucks and vans in Saltillo and Fiat 500 small cars and Dodge Journey SUVs in

Toluca.

Having the

ability to make those big work trucks in the US as well as Mexico provides a

hedge against a potential tax on imported vehicles, which Trump has threatened

against GM and Toyota Motor, in addition to Ford.

Read also:  Nissan CEO hears Trump say 'America first'

“Politically,

it follows along with everything that’s going on, in terms of domestic

production,” said Tom Libby, an analyst with IHS Markit.

The company

is set to start producing a new version of its Jeep Compass SUV for the US

market at the Toluca plant. Its factory in Belvidere, Illinois,

which used to assemble the model as well as the Jeep Patriot and Dodge Dart

compact car, is being retooled to make Jeep Cherokee SUVs.

The added

products reflect “where the market’s going," Libby said. “That large SUV

category is very profitable, it’s very domestic-intended and it’s a hole for

them, so that makes all the sense in the world. Pickups are also doing very

well. You put the combination of the Jeep brand with a pickup and you just

can’t miss.”

BLOOMBERG

 

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