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Chrysler Bets Big on New Jeep Wrangler

Jeep’s Wrangler SUV is known for scaling mountains and crossing rivers. Its next challenge is to bankroll next-generation investments at Fiat Chrysler as Chief Executive Sergio Marchionne prepares to leave the company.
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Chester Dawson

DETROIT—Jeep’s rugged Wrangler is known for scaling mountains and crossing rivers. The sport utility’s next challenge is to forge a path for Fiat Chrysler Automobiles NV as Chief Executive  Sergio Marchionne prepares to leave the company.

A revamped version of the SUV debuts this month, the first engineering overhaul since Daimler AG owned the brand in 2006. Designed to be more efficient and tech savvy, the new Wrangler is central to a plan to triple Jeep’s overall annual sales to as many as seven million vehicles globally, though it hasn’t said by when. That would top all of Ford Motor Co.’s world-wide sales last year.

Jeep’s sales were far smaller when Mr. Marchionne combined Fiat SpA with the bankrupt Chrysler LLC a decade ago. Mr. Marchionne has in the past said Fiat Chrysler needs to find a partner to help shoulder regulatory costs and technology investments, and the Jeep brand’s potential has been seen as a compelling opportunity for suitors.

But with Fiat Chrysler stock price at postmerger highs amid record profits, Mr. Marchionne’s merger talk has cooled. Intending to step down in 2019, he is now working on a five-year plan to be unveiled early next year for a still-unnamed successor.

The Wrangler is critical to Mr. Marchionne’s effort to get Fiat Chrysler in a healthier spot by paying down debt and investing in new areas, such as electric cars. In addition to being a cash cow, the SUV is a central cog in a $3.5 billion overhaul of the company’s North American factories that is designed to lessen reliance on low-margin passenger cars and double down on profitable pickups and SUVs.

Shortly after the new Wrangler starts rolling out of a factory in Toledo, Ohio, a redesigned Ram 1500 pickup will be produced at a Sterling Heights, Mich., plant that previously made a Chrysler sedan discontinued last year.

Goldman Sachs estimates the Ram and Jeep lines are worth a combined $40 billion when stripped out of the broader company, which also includes other U.S. brands as well as Italy’s Fiat and Maserati. The current stock market value of Fiat Chrysler is $26.5 billion, reflecting losses at brands like Lancia and far lower profit from Dodge vehicles than Jeeps and Rams.

The Wrangler and Ram pickups together deliver more than a third of the company’s North American revenue, according to a WSJ analysis of sales volumes and average transaction prices. And they generate the vast majority of the profit.

To free up space to build more Wranglers, Fiat Chrysler moved assembly of the popular midsize Cherokee SUV to Illinois from Toledo. It also plans to update the Cherokee early next year. Mr. Marchionne told analysts in October that successfully carrying out the three model launches over the next 90 days is the “biggest risk” to a near-term profit target and efforts to eliminate net debt.

Critics question one pillar of Mr. Marchionne’s plan, which involves investing in factories focused on a single model or product type. Other auto makers assemble multiple body types on the same assembly line to increase flexibility.

Fiat Chrysler could be hurt if demand for trucks and SUVs falters, as often happens when gasoline prices climb, said Ron Harbour, a manufacturing consultant at Oliver Wyman. “If there’s a swing back to cars, they’ll have to spend billions to retool again,” he said.

Jeep’s Wrangler is descended from a vehicle used by the U.S. Army in World War II.Photo: FCA US

Jeep’s newest Wrangler, the brand’s most linear descendant of the World War II military jeeps, is set to debut at the Los Angeles Auto Show this month. Fiat Chrysler has said little publicly, but the revamped version uses more aluminum, a more efficient multi-gear transmission and a more modern dashboard with upgraded infotainment options.

In Toledo, where the Wrangler has been built since 1992, the company will for the time produce both older versions and new ones on separate assembly lines to address supply concerns. The version on sale since 2007 is leaving dealer lots with virtually no discounts: The average transaction price of $37,202 represents a 55% premium over the $24,000 base price, according to TrueCar.

Building two versions of the Wrangler at the same time will help keep up with demand and boost assembly capacity by nearly a third, but also adds complexity. The multiple plant changes have resulted in assembly line snafus and strained relationships with component suppliers struggling to meet deadlines, according to people familiar with the matter.

These people said Fiat Chrysler’s purchasing chief, Scott Thiele, told suppliers at a meeting in September the company was late in sourcing certain parts for the new Wrangler, and has experienced problems hitting planned volumes due to glitches with the Cherokee in Illinois. A Fiat Chrysler spokeswoman declined to comment on “internal business meetings.”

Fiat Chrysler’s track record for product launches is mixed. The company has had success with trucks, but recently canceled two cars that had been unveiled with considerable fanfare, including the Dodge Dart sedan, due to low demand. The rollout of a hybrid gas-electric version of its Chrysler Pacifica minivan also encountered problems early on.

Citigroup in a report last week said the company faces risks “’related to multiple and simultaneous production startups.” But the brokerage dropped its longtime “sell” recommendation on the stock, noting investors are focused on the upside from launching “the most expensive models in the lineup and presumably the most profitable.”

Fiat Chrysler aims to build 300,000 Wranglers annually, and could tack on up to 100,000 more depending on market reception for a Wrangler-based pickup due in 2019. 

The company’s most ambitious targets would have Jeep owning 20% of a global SUV market that could eventually reach 33 million, Mr. Marchionne said. Goldman Sachs estimates Jeep currently has 5.5% of global SUV sales.

Write to Chester Dawson at chester.dawson@wsj.com

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