FCA contemplates Tahoe, Expedition rival for RAM. Smart move, wrong move or too late?

RAM_pickup-Jeep-SUV-Reid_BiglandWhen Fiat Chrysler Automobiles revealed this week that they were contemplating building a full-sized SUV on the platform of the next RAM pickup truck to compete with the Chevrolet Tahoe/Suburban and Ford Expedition, I noticed a lot of “finally, what took them so long?” reactions, but also online replies that went along the lines of “they keep promising new vehicles and then delaying them”. Those commenters are probably right on both counts, but that’s not what this article is about.

My opinion on this vehicle is two-sided: on one hand I believe it fills a huge (no pun intended) hole in FCA’s North American line-up, one that has high profit margins for a limited budget, but on the other hand I don’t think this is the way of the future and they might have better ways to spend their limited R&D resources. And thirdly I’m not sure launching it under the RAM truck brand would be the best option.

Let’s start with the pros

A full-sized SUV based on the body-on-frame platform of their full-sized pick-up truck is not that expensive to develop than an all-new model on an all-new platform and it would spread the development costs of the pick-up truck platform over a greater number of potential sales. Besides that, these kinds of SUV’s typically sell for more than $ 50,000 and have profit margins north of $ 10,000 per vehicle. Full_sized-SUV-USA-Chevrolet_Tahoe-Ford_ExpeditionFCA claims the lack of such a vehicle is one of the main reasons why their North American profit margin lags that of its competitors GM and Ford, which are selling these high-margin vehicles in great numbers: in 2014 Chevrolet sold 150.000 units of the Tahoe and Suburban, GMC sold 70.000units of the Yukon and Yukon XL and Ford sold 40.000 units of the Expedition. The Expedition has last been updated in 2006, but its platform was launched in 2002, having sold almost 1 million units in the US during its lifetime. Even small-time pick-up truck players like Toyota and Nissan sell SUV versions of their Tundra and Titan: in 2014 Toyota sold 11.000 units of the Sequoia, but that car hasn’t been updated since 2008 when it sold 30.000 units. And Nissan sold 12.500 units of the Armada last year, even though it hasn’t had a major update since its introduction in 2003. Nissan has sold over 250.000 units of the model since its launch.

Weighing in the age of some of the players in the segment with their current sales figures, and assuming a Detroit Three player should easily outsell its Japanese rivals in its home market, I’d say the bare minimum sales potential for such a vehicle would be 30.000 per year in its first few years, a share of about 10% of the non-luxury part of the segment. For comparison: the RAM pick-up truck holds a share of more than 20% of the full-sized pick-up truck market in the US. This vehicle therefore could easily boost FCA revenues by $ 1,5 billion a year, potentially adding $ 300 million dollars to its bottom line.

I understand why Sergio Marchionne is considering such a move, and I have to admit I don’t understand what’s taken them so long. It’s a high-margin segment and they’ve been the only full-sized pickup truck player that doesn’t build an SUV on that platform for more than a decade.

What’s not to like?

RAM_1500-Pickup-US-car-sales-statisticsHowever, the non-luxury full-sized SUV segment is a shrinking segment, with its share of the total US market down from 4,5% in 2003 to 1,64% in 2012 before rebounding slightly to 1,77% in 2014 as General Motors, which holds three quarters of the segment, renewed its four models, and gasoline prices have dropped. If FCA had launched this SUV two years ago, the timing would have been perfect, but considering the RAM pickup truck is due for a major update in 2017, an all-new generation, including the SUV won’t arrive in showrooms before 2020. By that time, the car landscape may have changed big time: gas prices may have skyrocketed, consumer perception towards large, gas guzzling, truck-based SUVs may have turned sour and perhaps even the North American car market as a whole may have cooled from its current growth boom.

Besides, Fiat Chrysler as a group is already more dependent on North American truck and SUV sales than its competitors thanks to the success of the Jeep brand and the RAM pickup truck. A full-sized SUV would only add to that dependence and one-sided approach. It may be smarter to focus on strengthening its line-up of cars and crossovers, which can be marketed in multiple parts of the world, as it has done with the Jeep Renegade and the Alfa Romeo Guilietta (Europe) / Dodge Dart (North America) / Fiat Viaggio (China).

Auto-sales-statistics-China-Fiat_Ottimo-hatchbackSpeaking of China, the biggest car market in the world even when it’s no longer the fastest growing market, FCA has virtually no presence there at the moment, with sales of its two locally produced Fiat cars lacking any kind of potential, and local production of Jeep in this crossover- and SUV-hungry country starting up just about a decade too late. Wouldn’t FCA’s limited development budget better be spent on something else than just another gas guzzler aimed at a single market?

And what about alternative powertrain technology? FCA is nowhere in hybrids and plug-in hybrids (its first hybrid, the Chrysler Town & Country minivan, will be launched only next year), nor in EVs (the Fiat 500e was only sold in California, at a loss of $10,000 per vehicle to fulfill regulatory requirements of having at least one zero emission vehicle on offer). In the long term, I think their money would be better spent on a future of powertrain electrification than on an old-fashioned dinosaur.

Why launching it under RAM?

Dodge-Durango-auto-sales-statistics-EuropeThe RAM truck brand was split off from Dodge in 2009 to separate the commercial and pickup truck business from that aimed at passenger transportation. The current RAM line-up consists of medium and heavy duty pickup trucks, and cargo vans, while Dodge makes cars, minivans and crossovers, including the 7-passenger Durango large crossover. So even though the new full-sized SUV will be built on a body-on-frame pickup chassis, it still would make a better fit with Dodge than with RAM. Dodge is ditching the minivan and is aiming for a bold and ballsy American muscle car image, which might suit an aggressive looking, powerful and capable SUV.

Jeep_Grand_Wagoneer-ClassicOr maybe it would even fit in the Jeep line-up? Jeep is already working on a Grand Wagoneer, a luxury 7-seater crossover which launch date has (surprise, surprise) been postponed to 2019. But that vehicle is, according to FCA, aimed at buyers cross-shopping Range Rovers, so Jeep is looking for a premium image for its top-of-the-line vehicles, and a rugged, body-on-frame SUV wouldn’t quite fit in that image. The Range Rover and Range Rover Sport have just changed from that layout to a unibody monocoque, saving about 800 pounds of weight and improving passenger comfort and fuel efficiency. Still, I’m not 100% sure American consumers wouldn’t rather spend more than $ 50,000 on a Jeep than on a RAM.

What do you think? I’ll allow a maximum of two answers as there’s a lot of room for nuance. You can elaborate your choice(s) in the comment box below.

Is a full-sized SUV exactly what Fiat-Chrysler Automobiles and RAM need? (Max. 2 anwers allowed)

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