Dealer Dilemma: FCA US To Raise Sticker Prices

Numerous reports have indicated FCA is looking for a big-time merger. FCA’s CEO Sergio Marchionne is poised to step down from his post as soon as 2019. However, before that happens, he would apparently like to make a big deal. The problem is, who wants to take part in that deal or possible merger?

Reuters reports FCA has one of the largest “debt piles” in the industry, struggling to break even in Europe and isn’t particularly strong in Asia. They also reportedly have an operating margin of 3.4 percent, which is on the low side compared with their rivals. Given their apparent weaknesses, FCA is looking for a partner who has strengths in those areas. General Motors is one automaker that FCA is interested in working with; however, GM is reportedly not interested in working with them. However, they aren’t the only company Marchionne has reportedly reached out to.

In a Reuters report, a banker close to PSA Peugeot Citroen and General Motors said, “Marchionne has clearly planted the ‘for sale’ banner. He’s been sending out feelers everywhere in an attempt to create opportunities, but so far no one is biting.” Some industry insiders feel that Marchionne is attempting to drum up interest in a major deal with FCA. As one industry insider told Reuters anonymously, “Sergio is a great poker player: all the noise he is making aims at hiding the fact that in reality FCA’s golden years are nearing an end.”

To add to the recent interest in FCA US, the organization is about to raise their wholesale and sticker prices. According to a Wall Street Journal Report, FCA plans to raise sticker prices for its Ram and Jeep vehicles. For other brands, it will be raising the wholesale price, and keeping the MSRP the same. This limits the opportunity for dealers to make money on vehicle sales. The WSJ report indicates that the prices will go up, meaning that profits will be harder to come by, especially in the age on the informed consumer. The WSJ report talked to a dealer and explained, “Dealers were told the invoice price increase would be about 1%, or an average of about $250 a vehicle.”

Vehicle margins are obviously already razor thin, however now FCA is going to make the thinner? FCA’s decision likely means that dealers will put more emphasis on other parts of their business as they search to make up for lost revenue. This could mean digging deeper into F&I. It could also mean getting the most out of fixed operations. It appears that maximizing parts and service is now absolutely essential, as automaker directives have seemed to force the hand of dealers towards other profit centers.

How big is this move on the part of FCA US? Is this cost cutting strategy going to benefit FCA US or just cause a headache for their dealers? What would you do at your store to maximize profits if an your automaker did what FCA US is planning to do? Would you turn to parts and service or perhaps F&I for help?