Friday, February 8, 2008

Chrysler planning to make deep cuts in models

SAN FRANCISCO -- Chrysler LLC, undergoing a rapid realignment, is making plans to cut the number of models it sells by perhaps half as it also moves aggressively to slim down its dealer network, according to people briefed on the plans.

The Auburn Hills automaker has been working under its so-called Project Alpha to get more of its dealers to sell all three of its brands -- Dodge, Chrysler and Jeep -- under one roof. But Chrysler, purchased last year by private-equity firm Cerberus Capital Management, has realized it must work to eliminate duplication in its product lineup to speed the process, the Free Press was told.

Alpha is only good if you don't have competing nameplates underneath the same franchises," a dealer told the Free Press. Chrysler has about 3,700 dealers.

Alpha is being replaced by Project Genesis to eliminate more models and be more aggressive about dealer consolidation.

Dealers familiar with the new plan say they've not yet been told which models will be eliminated, nor have they been given a definite number.

Chrysler President Jim Press is slated to speak to Chrysler dealers in San Francisco this weekend during the National Automobile Dealers Association's annual meeting.

A Chrysler spokeswoman would not comment on the reports to the Free Press late Thursday.

A year ago at the dealers meeting, Steve Girsky, a former Morgan Stanley analyst and adviser to General Motors Corp. Chief Executive Officer Rick Wagoner, said that two-thirds of domestic-brand dealerships needed to go before the remaining stores would be as profitable as import-brand dealerships.

Other experts say that eliminating as few as 20% of domestic-brand dealers would be sufficient, but that would still involve thousands of dealerships across the country.

The Free Press reported last summer that excess dealerships cost the Detroit automakers as much as $4 billion a year. Dealers who sell Ford, Chevrolet and Chrysler average fewer than 600 sales per store each year. Those selling Toyota, Honda or Nissan average more than 1,200.

Many dealers, however, are reluctant to sell their businesses, and state franchise laws protect dealers from being forced out of business, giving them leverage in negotiating a price.

Since Cerberus took control in August, Chrysler, as the first major U.S. automaker to be privately held in more than 50 years, has moved quickly. In November, Chrysler CEO Bob Nardelli announced the elimination of as many as 12,000 jobs on top of 13,000 already planned. At the time, he also cut four models, including the Chrysler Crossfire and Dodge Magnum.

He also has indicated the automaker could sell as many as 200,000 fewer vehicles in the less-desirable fleet market.

Dealers in Detroit heard about Genesis during a Feb. 1 meeting with top Chrysler executives, who pointed to Boston as an example of how their consolidation efforts need to work, according to people familiar with the meeting. The Boston market has about 27 dealers. Under the new Genesis plan, Boston might have nine dealers.

Late last year, Chrysler denied reports in the Wall Street Journal that the automaker was contemplating a plan to eliminate as many as 1,000 dealers. Under the Boston example, one dealer said the 1,000 seemed possible.

"If you're a single-point store, you may only have a couple vehicles to sell. Your future is with the big three" -- Chrysler, Dodge and Jeep, another dealer said Thursday.

To help speed up consolidation, Chrysler is working through its regional business centers to help put together deals to sell or buy franchises, according to people familiar with the actions.

One dealer, who attended the meeting, said Chrysler actively is soliciting ideas from dealers on what they want to do and suggested that Cerberus would be involved in ways, such as providing experts on finance, real estate and, possibly loans, to help accelerate the process.

When Cerberus first acquired Chrysler from DaimlerChrysler AG, some dealers speculated that the private-equity firm planned to spend big money to help consolidate quicker. Chrysler, which was on track to lose $1.6 billion last year, seems to be watching its cash flow very closely. That could damper dealers' hopes of a big payout.

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