VOLUME XIII,  ISSUE 3 - JULY- AUGUST,  2018

mopar memos The latest news, rumours & Info!

Fickle Consumers Mean Strange Future For FCA

 

I was just recently reading the 60th anniversary edition of Autoweek magazine. It was a fun read, to see where cars, drivers, and racing were 60 years ago and where they are today. One story I really liked was about all of the predictions various writers in the magazine have made over the years that ended up being completely wrong. For example, long before cell phones, in the 1970’s CB radio sales boomed. CB radios let people in one vehicle talk to people in another vehicle (as long as they were within five miles or less of each other). This was amazing—you could communicate from the car. This was paradigm shifting they thought at the time. The Autoweek story saw a future where CBs would become standard in cars the way an AM radio and a heater had become standard by then.

 

Of course, we look back with hindsight and can think this was obviously wrong, but back then it wasn’t. Hey, I had a CB radio in my car. But the limited range of CB radio doomed the product to becoming a specialty item that is now used mostly by over the road commercial drivers.

 

This got me to thinking about what the future for us Mopar fans will bring. There are a lot of changes afoot at FCA (Fiat Chrysler Automobile). There is a lot of uncertainty about the future of emissions regulations and electric vehicles, hybrid vehicles, diesel engines and, last but not least, oil prices and the oil industry. Business hates uncertainty; it thrives in steady, predictable times. Our times are anything but that.

 

Consumer demand for vehicles is mostly reactive, not proactive. When gas was cheap we drove big, heavy cars with gas guzzling engines. Yes, you could get Chrysler products with the famed slant-six engine designed for the frugal amidst the working and middle classes, but generally speaking, cheap fuel meant big engines.

 

Then came the first oil embargo in 1973. Within a week gas prices doubled in this country and the economy was crippled. Twenty-five cents jumping to 50 cents doesn’t sound like much today, so put it into a modern context. As I write this, the average price of mid-grade gasoline is a few cents over $3.00 per gallon. So imagine the impact on your life, the business you own or work for, and the national economy if by the end of next week gas was over $6.00 a gallon. And not just gas, but diesel fuel that our nation’s truck fleet needs to keep goods flowing from manufacturer to stores to you. And also jet fuel for the 87,000 flights per day that crisscross the United States. This is life changing, economy crippling stuff. Hell, the first oil embargo led to the Ford Pinto. ‘Nuff said.

 

Changes in oil supply have coupled with changes in consumer tastes already in ways that have impacted us as car enthusiasts. Gas prices rose steadily from 2003 to 2008, going from about $1.60 a gallon to a peak of $4.72 a gallon by July 2008. This five-year trend changed automotive history. People lost interest in the big SUVs that were the trend in the 1990s as gas prices trended downward for the whole decade. As the 2003-2008 price increases seemed like they were never going to end, consumers moved to smaller, more efficient vehicles and dumped their big truck-based SUVs in droves. The second generation of the Toyota Prius launched in 2004 (this was the first Prius as we know them today, the first generation is hardly recognizable as a Prius), and sales built steadily until plateauing in 2014. Other manufacturers jumped on the hybrid wagon and many gas/electric hybrids are on the market now.

 

Electric cars became a viable option during this same period of rising gas prices. Tesla comes to mind of course. But there’s also the Chevrolet Volt (technically a hybrid, but it can go 70 miles on pure electric power), and Chevy’s Bolt, a true electric car. Nissan’s leaf, BMW’s i3, and even our brand, FCA, has the Fiat electric 500e for sale.

 

This period, 2003-2008, changed the automotive landscape as dramatically as any period in automotive history. Electric and hybrid technology is mature and here to stay. Diesel engines went from a nasty, smoking, noisy dead-end experiment in the 1970s to a viable low emissions option for today’s passenger cars.

 

Starting in 2011 gas prices began a five-year long downward trend, eventually plunging to below $2.00 a gallon by 2016. Consumers, reactive as always, began ditching their small cars and jumping back into SUVs and a new category, CUVs (Crossover Utility Vehicles). The CUV is a logical extension of consumers love for certain features of big SUVs—high seating position for easy entry and exit, high sight lines, and extra room for people, cargo and luggage—but with a smaller size and better fuel mileage than true SUVs.

 

CUVs are about as exciting as a refrigerator. They function well, and designers try to make them look attractive, but there’s only so much you can do with their ungainly proportions. But most consumers look at cars the same way they do refrigerators, as appliances to accomplish a task. Instead of keeping food cold, four wheeled appliances get you from point A to point B. That’s really all that the vast majority of car buyers ask of their vehicles. Remember, if you’re reading this, you’re an enthusiast, you are not the average car buyer.

 

All of this brings me to our current Mopar world and its uncertain future. The decline in fuel prices and increase in demand for larger vehicles has already changed the options we have for new FCA vehicles. Gone are the only mid-sized cars FCA made, the Dodge Dart and Chrysler 200. They had to go so that their production facilities could be switched to turning out Jeeps and RAM trucks to meet the growing demand for these vehicles. Living in Los Angeles, traffic is a fact of life. My wife’s 2016 Prius delivers better mileage in stop and go traffic than it does at 75 MPH on the open road. I once drove it 300 miles round trip, starting in Santa Clarita, looping down to San Diego and back with a lot of traffic at points on the way and the car averaged 68 miles per gallon. Sixty-eight MPG. That’s about $13 to cover 300 miles. The appeal of this kind of vehicle to many people who live in the larger cities is easy to see. I would have loved to have a Dodge Dart hybrid in my garage instead of a Prius, but FCA has never gone the hybrid route, so that wasn’t an option given my wife’s long commute and need for a high fuel mileage car.

 

All that is left in the FCA brand line is full sized cars, Jeeps, vans and RAM trucks. And recent news indicates that more changes are on the way. In recent meetings with investors, FCA left Chrysler out of their five-year plan entirely, along with a couple of their other brands. And in a way, dropping Chrysler makes sense for FCA, a worldwide company. Chrysler as a brand has only two models of vehicles for sale, the 300 sedan and the Pacifica minivan. And even worse, Chryslers really only sell in the USA; sales outside of the states are almost non-existent. Sedan sales are dying as consumers show an ever growing appetite for CUVs over sedans.

 

We do know that a next generation platform is coming to replace the current LX/LC/LD platform used for 300s, Challengers and Chargers. But why should FCA bother to make a Chrysler brand car on the new platform? If Chrysler as a brand disappears, unlike some other OEMs, their dealers won’t suffer much more pain than changing their signs. This is because all FCA dealers carry Chrysler and Dodge, and almost all of them carry Jeep and RAM as well. So dealers will just sell more of the other brands.

 

If Chrysler disappears, there won’t be much impact on the overall lineup. So they lose the 300, so what? Dodge is still going strong and moving more and more to a high performance, sports car-like brand image. No 300, OK, the dealers will sell more Chargers rather than dividing the sales between the two sedans. And the Pacifica is already available in a Dodge flavor, the Grand Caravan minivan. So again, they’ll just sell more Grand Caravans rather than dividing sales between that minivan and the Pacifica. And just like that, poof, there goes Chrysler.

 

Dodge has a much larger product line than Chrysler. They have the Durango SUV, the Journey (which Dodge calls an SUV but it’s really a CUV), the four-door Charger, the two-door Challenger, and the Grand Caravan minivan. These five models pretty much cover the consumer car market. And with Jeeps and RAMs on the same dealers’ lots, FCA has a lock on the true SUV and truck market. Right now, FCA can’t quite make enough Jeeps to satisfy worldwide demand.

 

With the United States success at fracking making us once again one of the largest producers of oil in the world, you’d think we’d be safe for a while from rising fuel prices wouldn’t you? But you’d be wrong. Demand for oil currently is matching production output worldwide. And demand is rising. But unlike in the past, extra capacity in the world to increase production of oil is disappearing. We’re close to the point where all of the oil we can produce will just barely match demand, and demand is growing. The precarious position of the Iran deal has already caused a drop in supply from Iran. Venezuela is a basket case of a county and its production is unreliable on the best of days. And even though the United States withdrew from the Paris accord to reduce greenhouse gas emissions, the rest of the world did not withdraw. So the whole world is still working on increasing average corporate fuel economy every year, and promoting electric, diesel and hybrid vehicle production.

 

Which market forces will win? Will the world’s focus on ever more efficient vehicles reduce the rate of growth of demand for fossil fuels enough to keep demand below supply, thus keeping prices down? Or will the move back into larger vehicles raise demand above supply and start another multiple year upward price trend? Who knows? I sure don’t.

 

And what will become of Chrysler as a brand? It will certainly be awkward if Chrysler disappears as a brand from a company named Fiat Chrysler Automobile. But brands disappear -- just ask Pontiac, Oldsmobile, Mercury…or Plymouth. On this one I’d say this is a real possibility, maybe even a probability. I hope I’m wrong and that someday I’ll look ruefully back on my lousy prognostication skills. No matter what, buckle up, this is going to be a turbulent ride.  

MoparMax covers all automotive things Mopar. A new issue of MoparMax.com is published on or around the 15th of each month and is updated throughout the month.

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