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