Why Strong Dollar Means Fatter Margins for Jeep Renegade

Jeep Renegade
The Chrysler Group LLC Jeep Renegade is unveiled at the 2014 New York Auto Show in New York on April 16, 2014. Photographer: Jin Lee/Bloomberg

The new Jeep Renegade could hardly be arriving at a better time.

Fiat Chrysler’s subcompact crossover goes on sale in March just as cheap gasoline is making it OK for Americans to trade in their cars for SUVs. Plus, the Renegade is made in Italy, meaning the company will pay workers in euros and sell the car in the U.S. for comparatively stronger dollars.

If the Renegade catches on, it will help Fiat Chrysler meet a 2018 target of almost doubling Jeep sales and boosting earnings fivefold. With a quirky yet rugged silhouette, the Renegade has the makings of a formidable competitor for the Kia Soul and Nissan Juke, which are selling briskly and attracting a younger crowd.

“It’s really kind of perfectly positioned in the market,” said Karl Brauer, an analyst for KBB.com. “You’ve got low gas prices, it’s an SUV and it’s the Jeep brand, which is well regarded, locally and globally.”

Jeep can take Fiat Chrysler Automobiles NV only so far, of course. Though the company reported yesterday that revenue jumped 15 percent last year in North America, recall costs crimped margins. Weak demand in Latin America also hurt 2014 profits, which missed analysts’ estimates. The shares fell 2.2 percent in New York, where the company has its primary listing.

Still, the euro’s weakness is a definite boon in the short term. Not only can Fiat Chrysler extract fatter margins because it’s paying Italian workers in the European currency, the London-based company also benefits when it converts dollars from U.S.-made vehicles into euros for reporting purposes.

SUV Tailwind

The euro fell to $1.1098 on Jan. 26, the weakest level in more than a decade, after the European Central Bank said it will inject 1.1 trillion euros to help stimulate the economy. U.S. gas prices have fallen 33 percent in the past three months to a national average of $2.04 a gallon, providing a tailwind for SUV sales.

With the Renegade, Chief Executive Officer Sergio Marchionne is looking to duplicate the successful 2013 reboot of the Jeep Cherokee. Jeep risked squandering its off-road heritage by appealing to suburbanites who prefer high seating and plenty of space for kids and groceries. To detractors, the vehicle was the design equivalent of a turducken, a dish that involves stuffing a deboned chicken into a deboned duck and then into a deboned turkey.

The Cherokee proved the doubters wrong, more than tripling sales of its predecessor, the boxy Liberty. Last year Jeep’s global sales surged 39 percent to 1 million units and accounted for most of the parent’s surge in shipments.

Adaptive Cruise

The Renegade is the first addition to Jeep’s lineup since 2007’s Compass, an uninspiring vehicle sold to “people who really wanted a cheaper car,” said David Kelleher, a Dodge-Jeep-Chrysler dealer in suburban Philadelphia. The new SUV marks Jeep’s debut in the fast-growing subcompact crossover segment that includes the Kia Soul, Nissan Juke, Honda HR-V and the Fiat 500X, which is built from the same platform as the Renegade at the same plant in southern Italy.

With its seven-slot grille, vertical windshield and rugged stance, the Renegade sits closer to Wrangler than Grand Cherokee yet features modern must-haves such as adaptive cruise control that keeps the car moving at the prevailing speed of the traffic. The new model also features a warning system that alerts drivers when they slip into the next lane inadvertently. The Cherokee has helped lower the average age of a Jeep buyer to about 53 from 55 and Jeep says the Renegade should draw even younger buyers.

In an on-road test drive through the Santa Cruz mountains in California last week, the Renegade felt as sturdy as a larger SUV, smoothly handling a winding, hilly highway. The nine-speed transmission -- a first for the so-called cute ute segment -- moves smoothly, a sign that Fiat Chrysler is working out the kinks that delayed the Cherokee’s debut in 2013.

Paintball Splash

The interior, a strong suit for many of the newer Fiat Chrysler vehicles, feels solid where it should and soft and smooth elsewhere, with fun touches including a paintball splash to mark the red zone on the tachometer.

You can switch into various driving modes, including snow, sand and mud, depending on terrain and conditions. The Trailhawk version, a trail-rated nod to Jeep’s off-road enthusiasts, adds a mode for rocks. Two roof panels can be popped out and stashed in the trunk to let the sky in.

The Sport version starts at $17,995 and base prices run as high as $24,795 for the Trailhawk. Fuel efficiency isn’t final, but Jeep says highway mileage will top 30 miles (48 kilometers) per gallon.

‘Blazing Segment’

“This is the hottest brand and a great car in a blazing segment and it’s going to go crazy,” Kelleher the dealer said. “The Chrysler guys are smart. They attack segments. They don’t go where there’s no corn to be harvested.”

Fiat will also open a factory in Pernambuco, Brazil, by the end of March, and one in China should be turning out Renegades by year’s end. For the time being, the Brazil and China factories will make cars for Latin America and Asia.

Jeep brand chief Mike Manley says Renegade sales should be roughly evenly split among the U.S., Europe and Asia. Early demand for the SUV and its Italian cousin is strong enough that the company plans to hire more than 1,000 workers at the existing plant.

“Renegade is a completely clean sheet of paper,” Manley said in an interview. “But I hope we also come in with consumer credibility in terms of the brand and what we’re able to do. Ultimately, the market is the judge.”

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