Why Chrysler's Thinking Big

At auto shows, Chrysler Group goes out of its way to make the biggest noise with new models and glitzy presentations. This year's Chicago Auto Show was no exception as the company showed an idea for a new pickup truck with all the suburban amenities of a minivan, as well as a new mid-size SUV it hopes will get people talking about its styling -- instead of the cost of gasoline to run it.

Chrysler (DCX) needs some of these vehicles to catch on. While its automotive operations are making more of a profit than those of General Motors (GM) and Ford (F) combined, its unsold inventories and incentives are rising above its rivals. And the carmaker is introducing 10 new models this year, most of which have names completely new to the public (see BW Online, 1/26/06, "Chrysler Slips Out of Cruise Control").


  The Dodge Rampage was arguably the most interesting vehicle unveiled at the show, though it found itself overshadowed by the introduction of Toyota's (TM) Tundra pickup, which will go on sale early next year. While Toyota designed the Tundra to signal it has finally learned what it takes to compete in the American full-size pickup market against trucks such as the Dodge Ram, the Rampage is a harbinger of where some auto makers see future sales growth in the truck category.

The Rampage concept represents an effort to accommodate the 21st-century truck consumer. It features sliding rear doors, rear seats that disappear into the floor like Chrysler's Stow 'n Go minivan seats, a mid-gate that separates the cab from the flatbed and can open and close, and ramps integrated into the tailgate to make loading snowblowers, generators, and ATVs easier. "It's a stretch to say we would ever do all these things in one truck, but we have to see which features resonate with consumers so we know which ones to make business cases for," says Frank Klegon, executive vice-president of product development.

About 2.5 million full-size pickups sold in the U.S. last year. While the demand for those trucks by Generation Y is expected to make up for baby boomers aging up and out of their prime pickup truck-buying years, auto makers believe they can keep a lot of boomers and attract more suburban truck buyers if they come up with packages that cater more to families and active retirees than do the trucks of today.

Indeed, the launch of the Toyota Tundra, which next year will likely siphon off an additional 100,000 pickup truck sales out of Detroit's most profitable category, is pressuring domestic carmakers to push innovation into pickup trucks to drive interest and sales, especially among people who heretofore bypassed pickups because of their limited use.


  Chrysler's other big introduction at this year's show: the Dodge Nitro, a macho-sounding and -looking mid-size SUV built on the same engineering platform as the Jeep Liberty. For reasons not clear to Chrysler, the Liberty has attracted a high degree of women buyers -- more than 50% -- and it views the Nitro as a way to bring back some of the male consumers. The Dodge brand skews toward men, and the only SUV at Dodge dealerships has been the Durango full-size (see BW Online, 2/5/06, "Dodge to Introduce Mid-size Nitro SUV").

"We think the Nitro is going to make some noise in a category where there just isn't much styling," says Chrysler's sales and marketing chief Joe Eberhard. The Nitro doesn't have any unexpected fancy details. Chrysler is hoping the bold Dodge styling -- with a chrome crosshair grille, pronounced fender flares, and an aluminum-filled interior -- makes it a compelling alternative to more-conventional SUV designs such as Ford Explorer and even its own Jeep Grand Cherokee.

Chrysler leans a lot on expressive design, but it is finding out -- just as it gets underway with a new-model onslaught -- that bold design can make for a risky proposition. The Dodge Magnum wagon, which looks like Ma Barker might have liked it as a getaway car (her sons would have fit with plenty of room in the way-back for the loot), is languishing on dealer lots despite positive reviews in the auto press. And the Dodge Charger is not the homerun that the Chrysler 300 sedan has been.

In the Magnum's case, Chrysler seems to have overestimated Americans' appetite for a station wagon no matter how edgy its design. And the Charger suffers from a lukewarm reception by the auto press, which hasn't shown much enthusiasm about the four-door sedan carrying the name of a classic 1960s and '70s coupe (see BW Online, 1/9/06, "Two Chrysler Concepts That Click ").


  Chrysler, however, has high hopes for a line of small cars that are replacing the Dodge Neon. The Dodge Caliber, which starts shipping to dealers in a few weeks -- followed by the mechanically similar Jeep Compass later this year -- may not prove as trail-blazing and polarizing as the Magnum and Charger, but it certainly adds a healthy dose of design aplomb to a small-car/hatchback category that needs it.

At this week's auto show, Chrysler unveiled a high-performance Caliber, the SRT4, which consists of a turbocharged version of the 2.4-liter, four-cylinder engine found in the Caliber R/T. The car generates 300 horsepower and 265 pound-feet of torque. Coupled to a six-speed manual gearbox, the SRT4 races to 60 miles per hour in less than 6 seconds, Dodge says (see BW Online, 1/10/06, "Suddenly Revved About Small Cars"). "We continue to believe that expressive design and performance is the best way to differentiate ourselves and generate higher prices for our products," says Eberhard.

He may be right. "Standing out through design is crucial for Chrysler, because its brands don't have nearly the trust factor of Toyota and Honda (HMC) or even domestic competitors like Ford and Chevy," says auto-industry analyst Dan Gorrell of Strategic Vision, which surveys tens of thousands of new-car buyers every year. There's much more pressure on Chrysler than other carmakers, he says, to get the fashion aspect of its new designs exactly right.


  Brand trust, the kind that carries Toyota's market share higher every year, even when some of its products don't look as good as Chrysler's, takes time to build up. For that reason, the auto maker needs to ring the bell a few times this year with car buyers. Chrysler used 93% of its factory capacity last year, a healthy level that had a lot to do with its strong profit result. When an auto maker's capacity utilization falls below 90%, profitability drops fast. Chrysler CEO Tom Lasorda says the carmaker will improve on last year's figure as all the new products roll out.

But here's the oil slick around the corner: Chrysler's unsold inventories and incentives already rank highest among its competitors'. The company books sales based on what it gets dealers to buy, not consumers. If the new designs don't catch on, dealers will have to cut back orders eventually, which will hurt Chrysler's apparent profit rebound.

Because so many of its new products are hitting the market in the second half of the year, and dealers have no choice but to order the new stuff, the auto maker should do OK this year. But 2007 could end up a different story if Chrysler's fashion sense is not what it needs it to be.

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