Tuesday, November 27, 2007

Chrysler Needs A Smart Plan

Here is the story:

More From Jerry Flint

New owners had taken over a Detroit automaker with 12% of the U.S. market. The company was struggling, the product lineup was confused and some of the vehicles were uncompetitive.

This sounds a lot like Chrysler LLC, the newly independent U.S. automaker--but I am talking about 1921 and General Motors (nyse: GM - news - people ). To deal with its crisis in the 1920s, GM set up a special committee to study product polices, headed by Alfred P. Sloan Jr.

The outcome? GM killed some nameplates, such as Sheridan and Scripps-Booth. More important, Sloan set up a product direction and an organizational system that led GM to the top of the automotive world before the decade was over.

The most crucial issue facing Chrysler today is that many of its leading sellers are in troubled markets. Minivans helped save the company in the 1980s and 1990s, but this market is now shrinking. In the last 10 months, as it wound down production of the old model and ramped up production of a brand-new vehicle, the company sold 253,000 Chrysler and Dodge minivans.

With $4-per-gallon gasoline a possibility, minivans offer more practical, sensible and fuel-efficient transportation than sport utility vehicles. GM and Ford Motor (nyse: F - news - people ) are abandoning the minivan market, so Chrysler may be able to sustain its recent sales volume or even post some gains. Instead, this business could sink--unless Chrysler figures out a way to break the stereotype image of minivans as soccer-mom vehicles.

Rising gasoline prices and the housing slump may have the opposite effect on Chrysler's other high-volume vehicle, the Dodge Ram pickup. It sold 302,000 of these big pickups through the first 10 months of this year, but this market is getting fiercely competitive with Toyota's (nyse: TM - news - people ) new Tundra and the sales war between GM and Ford. As if this wasn't bad enough, spy photos of the future Ram pickup indicate the stylists want to feminize Ram, destroying the tough look that made the pickup so popular.

Chrysler's other big challenge is making sense out of an irrational dealer plan. A few years ago, the company decided to push its dealers together so that single dealers sell Chrysler, Dodge and Jeep vehicles. This three-brands-under-one-roof is an idea that has never worked. The best system--proved over 100 years of car selling--is one showroom selling one brand.

While the Jeep Liberty and Dodge Nitro sport utility vehicles each have their own unique styling, they are sisters under the skin. The Chrysler Sebring and Dodge Avenger also share a platform. When such vehicles are all in the same showroom, they compete with each other and confuse customers.

Chrysler has already announced it would discontinue the Chrysler Crossfire two-seater, the Pacifica, PT Cruiser convertible and Dodge Magnum. This shows the problem of trimming the lineup. The Pacifica is a crossover sport utility vehicle, and that is a growing market. Pacifica sales are slumping (probably 55,000 this year vs. 86,000 in calendar 2005), but the vehicle is overdue for a redesign. It also suffers from inept marketing, like all of Chrysler's vehicles.

The Dodge Magnum is a low-slung station wagon, and is never a huge seller--52,000 sales two years ago to less than 30,000 this year. Again, I would blame some of the failure of the stylish Magnum on terrible marketing.

As for that PT Cruiser convertible, it seems part of a plan, conceived before the new owners took over Chrysler, to kill the entire PT lineup. The company has sold more than 1 million PTs (mostly the five-door wagon/hatchback model). Alas, the creators of the PT, a great-looking vehicle, left Chrysler and took key positions in General Motors, and the PT became "nobody's baby."

Having a low-price car like the PT wearing the Chrysler badge cripples any effort to make Chrysler an upscale division. Of course, the PT was to be a Plymouth until Chrysler killed that nameplate. Chrysler's new owners are supposed to be sharp businessmen, so I find it hard to understand how they have agreed to phase out its most successful small vehicle, just when everyone is worrying about energy prices.

The risk in phasing out vehicles and closing factories is that it just continues a downward spiral. The latest reports are that the new leaders are considering turning Dodge into a pure truck division, getting rid of all its cars. It would make sense in avoiding duplication, but would wipe out some of Chrysler's best cars. It would destroy the effort to make Dodge a global brand, and frankly, be as dumb as the decision to eliminate the PT Cruiser. I can also tell you this: re-badging the upcoming Dodge Challenger sports coupe as a Chrysler will just not work.

On top of this is the imbalance in the Chrysler lineup--heavy on Jeeps and other SUVs, pickup trucks and minivans. Only a third of Chrysler sales are in what we call passenger cars, and that is with counting the PT Cruiser in that category. Let's not forget the complaints about quality, design and interiors.

What would I do if I were running Chrysler? My first goal would be to stop the process of combining dealers. I would do my best to make Jeep an independent franchise. I would create a new Chrysler-Plymouth sub-franchise that imitates the BMW-Mini and Toyota-Scion strategies. Under Plymouth, I would sell an expanded PT Cruiser line and a less-expensive version of the minivan.

I would turn soccer moms into heroines. After all, soccer is a growing sport.

None of this sounds like much, I know. I am not Alfred P. Sloan Jr.

Somewhere at Chrysler, there must be man with a plan.

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