It’s been just over two weeks since Fiat Chrysler Automobiles CEO Sergio Marchionne casually revealed that he might have to move Jeep Wrangler production out of its historic home in Toledo, Ohio.
In his comments, Marchionne said that it would be prohibitively expensive to build an aluminum Wrangler in Toledo, if that’s what Jeep decides to do with the 2017 redesign.
I think everyone -- myself included -- immediately assumed that Marchionne was talking about the need for extensive retooling, maybe even a second body shop or paint shop.
FCA is already carrying an oversized debt load compared to its competitors, I initially reasoned. Maybe they just can’t afford it.
But after thinking about it awhile, I don’t think that’s it.
I believe that the real reason FCA may be forced to move Wrangler out of Toledo is that it can’t afford to shut the plant down long enough to make the complicated switch to aluminum.
In short, it’s because -- unlike Ford’s costly switchover of the F-150 at its Rouge assembly complex -- FCA doesn’t have a Kansas City to pick up the slack.
Consider the numbers.
Through September, dealers just in the United States have sold 134,068 Wranglers -- an average of about 14,900 per month. On Oct. 1, the automaker had 31,543 unsold Wranglers in the U.S. -- a 54-day supply.
These numbers are notable because Toledo, the single plant that produces the Wrangler, has been working six days a week, 20 hours a day for months on end, and it can’t keep up with U.S. demand. That doesn’t even take into account demand for Wrangler in Canada, Mexico, Europe and overseas.
Earlier this year, Jeep brand head Mike Manley told me that the brand was specifically limiting Wrangler shipments overseas just to try and meet demand from U.S. dealers.
Wrangler is a hugely profitable vehicle for both Jeep and FCA. It sells year round with little or no money on the hood and to a wide demographic of consumers. Its development costs are more than paid for, in part because Wrangler doesn’t get upgraded very often.
Assuming its current production rate of about 19,500 Wranglers per month and a conservative estimate of Wrangler’s profitability at $5,000 per unit, that’s almost $100 million in lost FCA profit per month that Wranglers aren’t coming off the line.
If an absolutely flawless changeover to an aluminum assembly process took eight weeks to complete, that lost $200 million would be a third of all the profits Chrysler Group reported in the second quarter this year.
It really may be as simple as that.
It’s not that Marchionne wants to move Wrangler out of Toledo. It’s that he can’t afford to shut off the money spigot flowing there now.