Chrysler Should Dump Fiat in US

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Fiat Chrysler Automobiles N.V. (NYSE: FCAU) has had an extraordinary run in the United States, particularly because of Jeep sales. The one embarrassment the company continues to face is sales of its Fiat models, which barely topped 2,500 last month and were down 19%. The brand is a waste of whatever resources Fiat Chrysler gives it, and it burdens the parent with an uphill battle it almost certainly cannot win.

In the first six months of 2016, Fiat Chrysler sold 1,152,259 cars and light trucks in the United States, up 6% from the year earlier. Jeep accounted for the success with sales of 468,131, up 17%. In turn, sales of the Jeep Compass (48,033, up 80%) and Renegade (52,237, up 262%) were the foundations.

In the first six months, Fiat sales were 17,735, down by 19%, the same rate as for June. Sales of the Fiat flagship product, the 500, dropped 48% to 7,932.

Current sales are not the only problem Fiat Chrysler faces. Fiat has been brutalized for poor quality. It ranked next to last in the J.D. Power 2016 U.S. Initial Quality Study, and in the bottom quarter of the J.D. Power 2016 U.S. Vehicle Dependability Study. In the Consumer Reports 2015 Annual Auto Reliability Survey, “The Fiat-Chrysler brands (Chrysler, Dodge, Jeep, Ram, and Fiat) finished at or near the bottom again.”

Fiat has another difficulty to overcome. Its small, light-weight, high gas mileage cars compete against an army of autos made by the three U.S. car makers and the four largest Japanese manufacturers. Among the best examples of these is Ford Motor Co.’s (NYSE: F) Fiesta, among the best-selling cars in the United States. The car is sold in a large dealer network and under the wings of the well-regarded Ford brand, the top-selling car brand in America

The expense to improve the quality of the Fiat could stretch well into the tens of millions of dollars in manufacturing costs, and millions of dollars in marketing to reverse a bad and deteriorating image. Fiat Chrysler could get a better return in almost any other part of its businesses.