Why Shift Away From Cars Makes Sense For Fiat Chrysler Automobiles NV (NYSE:FCAU)

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Fiat Chrysler Automobiles NV (NYSE:FCAU) has plans to abandon or at least cut exposure to passenger car segment. That means ending the production of its Dodge Dart and Chrysler 200 sedans. The company is targeting the end of 2017 for that shift. Why would Fiat withdraw from sedans market when its current line of sedans is doing better than the previous generation? Times are changing and Fiat needs to change accordingly to secure a brighter future.

Fiat Chrysler Automobiles NV (NYSE:FCAU) is betting that increasing focus and participation in the trucks and SUVs/crossover market offers better hope to the future than continuing in the sedan market. Transportation industry is rapidly evolving and Fiat needs to act smartly to remain relevant in an industry being shaken from all directions.

Dropping out of cars

Fiat’s modern Chrysler 200 and Dart cars are selling more than their predecessors. However, competition is not only fierce in the sedan market, but profit margins are shrinking there, making it a less attractive segment for Fiat.

Management has figured out that exiting sedan production would allow Fiat Chrysler Automobiles NV (NYSE:FCAU) to convert the plants that currently manufacture sedans to production of pickup trucks and SUVs. The strategy is expected to both pave way for some financial savings and also firmly put Fiat on the road to the future.

Fiat could seek out a partner to produce the sedans on its behalf if that makes economic sense.

Future transportation

Because of traffic congestion and air quality issues in major cities, driving in cities is expected to change as authorities try to tackle the problems. The future looks like one where people will rely on autonomous cars to take them to their offices in the city after they have parked their cars at designated locations at the peripheries of the city. If that turns out to be the case, it means that the smaller cars will grow less popular in cities and their demand would consequently nosedive.

To escape the potential pain, Fiat Chrysler Automobiles NV (NYSE:FCAU) is looking to increase presence in truck and SUV business, whose demand will likely remain strong outside the cities for commercial and family uses.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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