Fiat Chrysler Automobiles NV, scrambling to keep its lineup of small European city cars afloat in a U.S. market drawn to pickup trucks and sport-utility vehicles, is slashing prices on its lineup of Fiat 500 vehicles and offering dealers financial support.

Part of a wider shake-up of the Fiat brand, lowering sticker prices as much as $3,900 is central to jump starting a six-year effort to make the brand viable in the U.S. Bloated inventories have required deep incentives, a practice that erodes resale values.

Fiat’s move is part of a broader retreat in the market for small passenger cars. A viable segment when gasoline prices are high, small, fuel-efficient vehicles including the 500, Daimler AG’s Smart and Toyota Motor Corp.’s Yaris are struggling in the market.

Last month, more than 60% of U.S. auto sales were pickups, SUVs or crossover SUV wagons, an all-time high share for light trucks as a percentage of total light-vehicle sales. Fiat Chrysler Chief Executive Sergio Marchionne has responded to this trend, killing off the company’s Dodge Dart and Chrysler 200 passenger cars to focus on beefy Jeep SUVs and Ram pickup trucks.

Mr. Marchionne is retooling Fiat’s focus as well, moving it from elite to accessible. When the lineup launched the beginning of the decade, dealers were required present detailed agendas on how they would build separate “salons” before the business was awarded—now they are stuck with sleepy showrooms that cost $1 million to complete.

Fiat has about 200 stores in the U.S. The company in March agreed to support dealers who wanted to sell Fiats alongside Chrysler, Ram, Jeep and Dodge vehicles rather than continue operating the brand as a separate unit. Dealers who continue to operate a separate showroom receive $1,000 in “rent assistance” for every car sold.

Fiat had once hoped to rival BMW AG’s Mini Cooper brand, which commanded high price tags and amassed a cultlike following when it was revived in the U.S. market.

List price for the Fiat 500, a two-door city car, will be reduced 12% to $14,995 in 2017, down from $16,995. That price is much more comparable to General Motors Co.’s $13,000 Chevrolet Spark and Ford Motor Co’s Fiesta, priced at $14,090. The 2017 Fiat Pop, a subcompact car, starts at $14,995, also $2,000 less than the 2016 model.

The Fiat 500c Pop convertible will cost $16,490 in 2017, compared with $20,395 in 2016, a nearly $4,000 drop in price. The pricing changes were first reported by Automotive News.

Fiat’s cars are underperforming other Fiat Chrysler brands, including Jeep. Jeep’s compact Renegade SUV launched in 2015, for instance, has about three times as many buyers in the U.S. through October as the entire Fiat brand.

The average sales incentive on a Fiat sold in October exceeded $5,000, according to Autodata Corp., compared with a $3,500 industry average. Dealers have 128 days’ of unsold Fiat supply on their lots as of Oct. 31, according to, far exceeding industry norms.

The brand “added content, eliminated overlapping trim levels and established attractive price points in order to aggressively compete in the car segments,” said Bryan Zvibleman, a Fiat Chrysler spokesman.

The changes come as Fiat is attempting to expand and push the brand upmarket and widen appeal. It is currently launching the 2017 Fiat 124 Spider, a pricey convertible classic Italian styling that pays homage to the original 124 Spider introduced 50 years ago in Italy. It also recently started selling the 500X, a bigger version of the 500 aimed at pulling in buyers looking for more utility.