Chrysler's new owner aims to revive 90s style

[skylight]

DETROIT — During Chrysler's big-money years of the past decade, blockbuster hits such as the 300, the new Ram pickup and the funky PT Cruiser drew people into showrooms by the thousands.

The cars were brash; the trucks were tough. They were stylish. And they were worlds different from anything that anyone else was selling.

New owner Cerberus Capital Management hopes to revive that style to make its $7.4'billion purchase of Chrysler pay off.

Chrysler is far leaner than it was when Daimler-Benz bought it nine years ago, and some analysts wonder whether it has the allure, the cost structure and the size to compete on its own in a hyperactive global market against the likes of General Motors and Toyota.

Under Daimler's thumb, Chrysler shrank from 126,800 employees in 1998 to 80,000 today, and it will get even smaller by 2009. Yet the company sold 373,000 fewer vehicles globally last year than it did the year of the merger. And unlike in 1999, the first year after the merger, when it made $5 billion, Chrysler is losing a lot of money, reporting a $1.98 billion loss in the past quarter alone.

"It's less survivable as an independent company than it was nine years ago," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.

When Daimler bought Chrysler in what was billed as a merger of equals, profits were rolling through the doors of the domestic automakers. Gas was cheap, the economy was booming and people were tooling around in minivans, Jeeps and big Dodge pickups and sport utility vehicles.

Fast-forward nine years to $3-a-gallon gasoline and a much stronger presence from Honda Motor Co. and Toyota Motor Corp., and you get an environment that's far tougher on Chrysler and its U.S.-based counterparts, Ford Motor Co. and General Motors Corp.

"The real secret of the '90s was the dominance of the Big Three in light trucks, minivans, pickup trucks, SUVs. They just absolutely thrived," Cole said. "That's not going to happen again. A few companies can't dominate anymore. It's a different world."

Chrysler says it rolled out 10 new models in 2006 and four so far this year, with four more coming later in the year. It has six vehicles, including some small SUVs, that get more than 30 miles a gallon; a year ago it had only one.

The company points to Jeep as the model of things to come. At a news conference Tuesday to explain the Cerberus sale, Chrysler Chief Executive Tom LaSorda said Jeep sales were up 10 percent from last year.

"The Jeep Patriot and Compass (small SUVs) are helping us to grow the Jeep brand," LaSorda said. The four-door Jeep Wrangler also is selling well, and LaSorda also pointed to the Chrysler Sebring and Dodge Avenger mid-size models as strengths for the company.

"The Jeep brand has a lot of potential," said Tom Libby, J.D. Power and Associates' senior director of industry analysis. "It's a real sort of jewel for them."

But to gain sales volume and market share, Chrysler has to have better entries in the mid-size car segment, which is 13 percent of the market, Libby said. The Sebring and Avenger, while competitive, aren't good enough in a segment where there are so many strong players, he said.

Chrysler needs "something over and above competitive," Libby said. "If you don't have a really competitive product there, you're not going to be able to compete share-wise."

When Chrysler was making big dollars in the late '90s, its five top-selling models were either minivans, trucks or SUVs, most of which come with higher profit margins than cars. Now the company is trying to shift its product line to smaller, more fuel-efficient models on which it makes less money.

That means costs must be cut to make the company profitable, and analysts say Cerberus will be a force in accomplishing that during upcoming contract talks with the United Auto Workers. During the bargaining, Chrysler will try to reduce its unfunded long-term staff health-care liability, which runs into the billions of dollars.

But that may not be enough, Cole said, given the global economies of scale that Toyota and GM are experiencing and Chrysler's relatively small global presence.

Although niche brands such as Porsche and BMW can succeed with smaller volumes, Chrysler won't be able to, Cole said.

"When you're in the mainstream part of the product line, it's very difficult for a smaller company, particularly a regional company, to be successful," he said.

To survive, Chrysler will have to take on a global partner at some point, Cole said.

But LaSorda, who will stay in his current job after the sale, said he's confident the company can rebound and compete in a global market.

He noted the automaker's restructuring plan and the strength of Cerberus' operating executives, whom he can tap if needed. He also said Chrysler would continue to share technology and purchasing ties with Daimler, which will retain 19.9 percent ownership in the renamed Chrysler Holdings LLC after the deal goes through.

Cerberus will own 80.1 percent, turning the company from public to private. Because of that, Chrysler won't have to make short-term decisions to please Wall Street, company officials have said.


Source: The Associated Press

[bobs turbo pt]

i hope it all works out !!

[skylight]

Yeah retro is the way !

[quicksilverdon]

Glad to hear they're forming furture plans. There was concern they might look to just dump assets and turn an easy profit.

[strangelove]

Why does Chrysler think that big trucks, Mini Vans and big cars bring bigger profits. Why can't they build mid to small cars better and make the same profit. It would seem to me that if you made a mid size car better sold it at a higher price, one you would be putting lest material into making that car. I hope they don't go back to 80's bigger is better mantra. 90's was a little better, but where's the Hybrid's DAMNIT!!!

[fritz_t_coyote]

Originally Posted by strangelove

Why does Chrysler think that big trucks, Mini Vans and big cars bring bigger profits. Why can't they build mid to small cars better and make the same profit. It would seem to me that if you made a mid size car better sold it at a higher price, one you would be putting lest material into making that car. I hope they don't go back to 80's bigger is better mantra. 90's was a little better, but where's the Hybrid's DAMNIT!!!

1- Because bigger cars allow more markups and moneymaking options per vehicle, thus bigger profit per car.
Making a big car vs a Small Car: yes, you use more raw materials, but about the same amount of labor, same or even less investment in engineering: it is easier to achieve passenger protection goals when you have a couple of extra feet of crush zone on each end of the car; it is easier to tuck away all of the components a modern car needs when you have all of that lovely extra space under the hood, etc.
So for a small increase in materials cost you can get a much higher selling price. And have more space for high-profit options.
(How come automakers are still getting away with charging 4 digit prices for GPS systems when you can buy a Garmin for about 300$ at Staples?)

2- Small cars are the future... unless oil prices drop to 30$ a barrel. But DC cut funding for Mitsubishi, who was the one partner who knows how to build high quality, economical, stylish Small Cars. (also FAST, as in Evo).
Cerberus will probably have a Chinese partner (Cheri) building small cars to sell under Dodge (and possibly Chrysler) nameplates, because they are clever capitalists and know that you don't get rich by making things that people don't want to buy.

[ShelbyGT]

I'm afraid I can't see success in these developments. Cerberus strikes me as an analytical soul-less management money looking to make a quick profit on their investment. For an American automobile company to thrive in the future, it must either strike a chord with a buying public (as Apple does under Steve Job's direction) or must develop automobiles with such clinical perfection that they outdo Honda and Toyota in sheer reliability. I don't see any leadership that can give the company a soul to capture the public's imagination, and I can't believe that the already established opinions within Chrysler about what is good enough coupled with bean counters within Cerberus will allow Honda/Toyata levels of quality.

Without one or both of those issues being addressed, Chrysler will continue to fade from the car buying public's conscience - my last Chrysler product was in 1995. I don't even think of them anymore.

[And now reading that Chrysler will be importing Cheri cars, I see that my worst fears are in fact coming true - Chrysler is becoming the equivalent of cheap plastic doodads in the checkout line rather than a premier automobile company]