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Why Did GM and Fiat Chrysler Post Strong Margins in 3Q16?

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Margins expand in 3Q16

Fiat Chrysler (FCAU) has a reputation for having low profit margins. Among its peer group (IYK), which includes General Motors (GM), Ford Motor (F), and Volkswagen (VLKAY), FCAU’s margins are the lowest.

However, in 3Q16, FCAU’s net profit margin expanded to 2.3%, quite close to Ford’s 2.7%. GM’s margin also expanded in 3Q16. Let’s look at some of the key drivers of this margin expansion.

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GM is focused on retail sales

In the last few years, GM has been cutting its fleet sales to rental car companies in order to boost its margins. It’s utilizing its plant capacity to manufacture more profitable vehicles for retail customers. Notably, fleet sales profitability tends to be lower than retail vehicle sales profitability.

Earlier this year, the company made it clear that it would continue its strategy of cutting fleet sales in 2016. The strategy is yielding expanded margins in 3Q16.

Also, higher sales of pickup trucks and utility vehicles compared to small cars in the United States helped General Motors to expand its margins.

Big achievements for Fiat Chrysler

Currently, the US auto market is witnessing higher demand for heavyweight vehicles compared to smaller cars. This has helped mainstream automakers, including GM and Fiat Chrysler, to boost their margins. Margins from medium- and full-sized vehicles tend to be higher than margins from small cars.

On a similar note, FCAU’s favorable product mix was another key factor that contributed to its margin expansion in 3Q16. The company’s Jeep and Ram brands showed solid performances in the key markets of North America, Europe, and the Asia-Pacific region.

In the next article, we’ll find out why Ford couldn’t protect its margins like its peers did in 3Q16.

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