Chrysler Slips Out Of Cruise Control

Rebates are up. Sales are slowing. Can new models keep the turnaround going?

Is Chrysler group's two-year-old turnaround in need of a jump-start? With all the focus on serially troubled General Motors Corp. (GM ) and Ford Motor Co. (F ), it's easy to overlook the fact that Chrysler is experiencing some of the same mechanical difficulties as its Motown rivals.

Sure, the auto maker remains far healthier than Ford and GM. After all, it took an ax to its costs four years ago and has had some big successes, including the Chrysler 300 sedan and a line of minivans with cool foldaway seats.

But starting last summer, amid a growing price war between Ford and GM, Chrysler itself was forced to discount more heavily, says researcher The auto maker denies it, but cars have been piling up on dealer lots. As a result, Chrysler will have to build fewer vehicles this year and forfeit profits. "A lot of people haven't looked closely enough" at Chrysler, says AutoPacific analyst James N. Hall. "They have a lot of challenges."

Chief among them will be coming up with another hit like the 300 sedan, which generated plenty of buzz and brought home an estimated one-fifth of the company's $1.7 billion in operating profit last year. To keep Chrysler from slipping into one of its patented swoons, which typically have followed a Phoenix-like rise, newly minted CEO Thomas LaSorda wants to duplicate the 300 strategy.

The 300 is a rare example of how Detroit has successfully mimicked the Japanese scheme of building several distinct vehicles on one platform at the same factory. The beauty of the concept, especially for a carmaker staging a comeback, is that if one of the vehicles is a hit, the success can provide cover for less popular siblings, while the factory operates profitably.

That's what happened with the 300. The sedan makes gobs of money. So its stablemates, the slow-selling Magnum station wagon and new Charger muscle car, need not be triumphs. The 300, says LaSorda, "has had a huge impact" on the profitability of the whole platform lineup.

Chrysler's first attempt to stage an encore comes this spring, when the carmaker will begin to replace its Neon compact, a pokey seller, with three models aimed at narrow segments of the marketplace. First to arrive will be the Dodge Caliber, a hatchback whose athletic stance and sharp styling have earned critical plaudits. It will be followed in the fall by the Compass crossover, the first Jeep to be built on a car chassis, and later by the Patriot, a compact SUV that fits the traditional Jeep mold.

It's a bold play. Replacing one model with three is more expensive going in. And while predicting hits in the car biz is dicey, neither the Caliber nor the Compass is quite as eye-catching as the 300. Besides, both could have trouble luring buyers for other reasons. Americans have never really fallen for hatchbacks, and a car-based Jeep may not mesh with the brand's rugged image.


Chrysler is also taking another crack at the brutally competitive family sedan market. At the end of the year the carmaker will replace its Sebring and Dodge Stratus also-rans with a pair of cars developed with Mitsubishi. Even if they are knockouts -- a tall order -- the hard truth is that most buyers simply don't think of Chrysler when they consider trading in that Camry or Accord. According to a survey conducted last year by research firm Strategic Visions Inc., fewer than 20% of respondents associate Chrysler and Dodge brands with trust, compared with 43% for Toyota Motor Corp. (TM ) and 35% for Honda Motor Co. (HMC ).

Meanwhile inventory is growing. Chrysler takes an average of 82 days to sell its cars, about 20 days longer than the industry average, according to J.D. Power. "My dealerships have more cars than they've ever had," says Sidney B. DeBoer, chairman and CEO of Lithia Motors Inc. (LAD ), which owns 35 Chrysler dealerships. He and LaSorda are both pinning their hopes on the same thing: another 300-style hit to give this faltering rebound a jolt of octane.

By David Welch and David Kiley, with Gail Edmondson in Frankfurt

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