Tens of thousands of new vehicles need to be sold. Fast.
The good news is that FCA and PSA have just signed the dotted line agreeing to a 50-50 merger. The not so good news for FCA is that it has too many unsold cars at the moment and it only has itself to blame for the problem. You see, FCA has been using a data-driven production strategy to determine how many vehicles to build. Its dealerships, however, are not fans of this because they can't sell everything FCA wants to ship to them.
But according to a new Bloomberg report, FCA is currently making an all-out push to sell off tens of thousands of vehicles its dealerships haven't even ordered. This plan includes the most aggressive discounts in nearly a decade when the financial crisis was at its peak. Internal marketing documents seen by Bloomberg reveal big discounts on certain 2019 model-year Dodge, Jeep, and Ram models.
In fact, FCA sales staff have been asked to work overtime to pressure the automaker's 2,400 dealers to accept more vehicles and reduce the unassigned inventory to zero before Christmas. But why build more vehicles than FCA dealers can sell in the first place? Because reducing production means a lower return on billions invested in a vehicle, meaning it's often cheaper to overproduce and use incentives later on. This is apparently what's happening, though FCA denies this.
Then again, FCA had an oversupply of 40,000 unassigned cars in the third quarter of this year that was later downed to 5,000. However, the number increased to 60,000 in November and 70,000 in December. As of last week, the number was at 25,800.
One discount method currently being used is employee pricing for everyone, which is typically pretty rare in the industry. While this strategy is working for some FCA brand dealerships, it's causing headaches for others. In short, the company's data-driven build system doesn't always match market demand. For example, the current overstock inventory includes 2019 Ram HD Bighorn pickup trucks with 20-inch wheels that cost an extra $1,600, but dealers want those trucks with the standard 18-inch wheels.
Some dealerships who don't even need more inventory are not willing to accept more vehicles due to undesirable configurations that will be difficult to sell. Although hot-selling models like the Jeep Wrangler and Gladiator don't always have big incentives, right now is probably a good time to at least have a look. Meanwhile, dealerships have more or less accepted FCA's production strategy as the new status quo, for better or worse.