DETROIT -- Fiat Chrysler is squeezing U.S. dealerships' profits by increasing vehicle invoice prices -- but not the corresponding sticker prices.
Dealers now will pay 1 percent more for the Chrysler, Dodge, Jeep and Ram vehicles they sell, or $300 on a vehicle with a $30,000 invoice.
The increase is part of a larger effort by FCA US to boost profits. The automaker's corporate profit margin is half that of General Motors and one-third that of Ford Motor Co., says an analyst.
The National FCA Dealer Council was informed this month via a conference call from Reid Bigland, FCA US' head of sales. Bigland said the price increase was effective immediately, according to people on the call.
"It will impact some dealers' profits. It will reduce their front-end gross," said one Midwest dealer, speaking on condition of anonymity.
Notably, both Fiat and Alfa Romeo brand vehicles were exempted from the pricing move.
An FCA US spokesman declined to discuss the wholesale pricing increases, saying it was an internal issue between the automaker and its dealers.
FCA's higher invoice prices have decreased the spread between the invoice and sticker prices on some vehicles to very small amounts.
For example, a base 2015 Dodge Dart SE has a sticker price of $16,495 before delivery. Its revised factory wholesale price is just $15 lower, at $16,480. Before the 1 percent price boost, that spread was $178.
Or consider a $20,695 base model 2015 Dodge Journey SE (American Value Package).
It now has a factory wholesale price of $20,605 -- just $90 less than the sticker price -- compared with its previous invoice price of $20,401, a spread of $294.
While Fiat Chrysler dealers are paying 1 percent more to the factory for their inventory, it's difficult to put that increase into perspective because of the complex nature of vehicle pricing.
The narrower spread between the invoice and sticker prices does not mean that dealers' profit potential is evaporating. That's because factory payments to dealers such as dealer holdback, dealer cash and cash incentives for achieving sales goals significantly reduce the true cost of the vehicle to the dealer, boosting profits.
For instance, the dealer holdback on the base 2015 Dart SE is $519, while the holdback on the Journey is $621.
Greg Dougherty, partner with Crowe Horwath, a top dealership accounting firm, said the median FCA dealer grosses about $1,100 per vehicle.
The impact of a 1 percent wholesale price increase will cause "an erosion of their margins of a few hundred dollars per unit."
Dougherty said FCA isn't alone in turning to dealers to improve its own bottom line.
"We're seeing all manufacturers squeeze the margins with their dealers, so it becomes increasingly difficult for dealers to make a profit when they're selling new vehicles," he said.
The National Automobile Dealers Association says the average gross profit per new vehicle sold in the United States during the first two months of 2015 was $1,181, and the gross margin as a percentage of selling price was 3.6 percent. However, the figures include luxury vehicles, which have much higher per-vehicle profits.
