Fiat Has a Lot Riding on a New Jeep Cherokee

Jeep has frustrated a string of corporate owners since its 1941 debut as an all-purpose vehicle for the U.S. Army. From Willys-Overland Motors, developer of the civilian model, through Kaiser Jeep, American Motors, Renault, Chrysler, DaimlerChrysler, and Cerberus Capital Management, each new steward of the brand tried, with varying degrees of success, to win over mainstream drivers without alienating off-road enthusiasts. In the U.S., Jeep's sales peaked at 554,466 in 1999; last year, they sank to 231,710 as Chrysler went through a $12.5 billion government-backed bankruptcy.

Now it's Fiat's turn. The Italian automaker, which took control of Chrysler when it emerged from bankruptcy, is counting on the 2011 Jeep Grand Cherokee to reverse the slump. The new model, which began arriving in showrooms in late June, features plenty of luxury touches—leather seats, interior wood trim, a heated steering wheel. Options include satellite television and technology that turns the vehicle into a Wi-Fi hotspot.

The breakthrough feature is an adjustable suspension system that enables the SUV to achieve 10.7 inches of ground clearance, allowing the kind of off-roading experience many buyers expect from a Jeep. Prices start at $30,995—about $500 cheaper than its predecessor. The priciest version costs $42,995.

The redesigned Jeep is the first major new model Chrysler has introduced since Fiat assumed control and is crucial to the company's turnaround plans. "Jeep is arguably one of the most important brands for the company because of its global appeal, and Grand Cherokee is the Jeep that makes them the most money," says Rebecca Lindland, an analyst at IHS Automotive. "This is a company that is coming out of major surgery, and every setback is a threat to survival."

The Italian automaker has set a target of selling 800,000 Jeeps a year worldwide by 2014, up 61 percent from 2008. "The Grand Cherokee is a sign we're moving toward a broader appeal," says Michael Manley, head of the Jeep brand and Chrysler's international operations.

Jeep's previous owners failed to anticipate the late-1990s shift to carlike SUVs such as Honda Motor's (HMC) Pilot and Ford Motor's (F) Escape, says Dennis Pietrowski, managing director of market researcher RDA Group. On top of that, quality concerns have dented Jeep's image. It placed 27th out of 33 brands in J.D. Power and Associates' ranking of initial quality released on June 17. Jeep defectors also frequently cite poor fuel economy and a rough ride among their justifications for ditching the brand.

That's one reason the new Grand Cherokee has been engineered with improved suspension and handling. A new V-6 engine will boost mileage by 11 percent. Chrysler wants to make Jeep the "No. 1 SUV brand again," says Manley, and is determined not to let the Grand Cherokee become a "niche" vehicle.

One thing riding in Fiat's favor is the Italian automaker's global reach—Chrysler currently sells 90% of its cars in North America. Starting next year, Jeep will be the only Chrysler brand sold around the world, as Fiat plans to rebadge other Chrysler models as Lancias in Europe. Says Manley of Jeep: "With our partnership with Fiat, we can now focus on Jeep as an international brand."

The bottom line: The redesign of Chrysler's flagship Jeep model will be an important test of Fiat's ability to turn around the ailing American carmaker.

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