Posted by Will (in IL) on Thursday, October 18, 2007 at 09:02:13 :
In Reply to: Auto industry analysts: the Dodge Dakota, and Jeep Commander posted by Will (in IL) on Wednesday, October 17, 2007 at 08:30:58 :
Chrysler Will Dump Some Models, Dealers
Company Also Plans to Add
Diesel and Hybrid Vehicles;
Following Toyota's Lead
By NEAL E. BOUDETTE and JOSÉE VALCOURT
October 18, 2007; Page B1
DETROIT -- A few weeks ago, Chrysler LLC Vice Chairman Jim Press climbed into a Chrysler Sebring and quickly understood one reason the sedan has been a dud in the market.
The car's dashboard, interior door panels and console are made of the kind of hard plastic that many consumers think feels cheap, especially in comparison with the much-improved interiors in rival vehicles from General Motors Corp. and Ford Motor Co.
The Sebring assessment was part of a hard-nosed evaluation of Chrysler's entire product line that Mr. Press and Chief Executive Bob Nardelli are doing as they formulate a strategy to make the company smaller but much more profitable, people familiar with the matter said. The plans represent the first major strategic moves since Chrysler was acquired by private-equity firm Cerberus Capital Management LP this summer.
Within the next several days Chrysler plans to announce that it is dropping a few slow-selling models from its product line, and over time other me-too models like the Sebring may get axed or undergo major make-overs, these people said. Among them, according to people familiar with the company's plans, are the Chrysler Pacifica wagon, the Dodge Magnum wagon and the PT Cruiser convertible.
Mr. Press signaled the plan at a closed gathering of dealers in Las Vegas last week. He also told dealers that Chrysler plans to add versions of its cars and trucks with diesel and hybrid engines, dealers who attended the session said. That should help the company reach customers who usually gravitate toward imported brands like Toyota. Alternative power trains, he said, "are not a fad," these dealers said.
Messrs. Press and Nardelli are also looking for ways to rev up efforts to reduce the number of Chrysler dealers. After years of market-share declines, Chrysler, like GM and Ford, has been left with more dealers than it needs. Many of them -- 3,700 in all -- end up competing with each other on price as they vie for sales, and struggle to make money. The bloated dealer count also increases the inventory Chrysler has in the market and encourages deep discounting, which undermines the resale values of Chrysler vehicles.
By trimming both the product line and dealer network, Messrs. Nardelli and Press are aiming to make Chrysler look more like Mr. Press's former employer, Toyota Motor Corp., which has a lean product line and a relatively small network of very profitable dealers, each selling a high volume of cars and trucks.
"We have two to three vehicles that serve the same market segment or same customer and compete with each other," Mr. Press told reporters outside the dealer meeting in Las Vegas. "That's not efficient." He added the company is working on a "long-term vision of what the product line should look like ...and where the current products fit in."
The plan is unfolding at a difficult time for American auto makers. After a long run of years in which U.S. industry sales approached or exceeded 17 million vehicles, the market has softened this year, partly as a result of the housing slump. Auto makers now expect total sales of 16.3 million cars and trucks for 2007. Some analysts and auto makers worry sales in 2008 could slip below 16 million for the first time since 1998.
A weak year could spell trouble for Chrysler, GM and Ford since all three need to keep revenue up to fund their turnaround efforts.
"We're probably going to see a situation whereby there will be some plant idlings and shutdowns in the first quarter of next year, and possibly the second quarter, to make sure inventories are kept in check," said Erich Merkle an analyst at IRN Inc., an automotive forecaster in Grand Rapids, Mich. IRN is predicting 2008 sales of 15.6 million light vehicles.
As part of Chrysler's last turnaround bid under its former chief executive, Dieter Zetsche, the company launched a barrage of new models, many of them distinguished only by exterior creases and curves. The Sebring is essentially the same as the Dodge Avenger, for example. The Jeep Grand Cherokee, Dodge Durango and Jeep Commander are all SUVs of the same size.
Most of the models that Chrysler intends to drop in the near term, including the Pacifica and the Magnum, have suffered severe sales declines. Other models will be kept, but will get major overhauls. The Sebring falls into that latter category.
Chrysler is also killing some models before they even reach the market, as part of the effort to focus scarce capital and human resources. A midsize sports-utility vehicle, code-named JZ, has been canceled, people familiar with the company's plans said.
Chrysler is still weighing the fate of certain vehicles, including a small Jeep called the Compass. The Compass hasn't sold well in the U.S. but has done better in Europe and other overseas markets.
Trimming the product line could help Chrysler accelerate its efforts to cull underperforming dealers. With fewer models to sell, owners of some single-brand stores may be more willing to merge with other dealers or close altogether.
In recent months, Chrysler has upped the pressure on poorly performing dealers to sell their franchises or close their doors.
In Las Vegas, Mr. Press told dealers that Chrysler is determined to consolidate its retail network, but he acknowledged that the company isn't yet sure how it will accomplish that, dealers who attended the meeting said.
Write to Neal E. Boudette at neal.boudette@wsj.com and Josée Valcourt at josee.valcourt@dowjones.com
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