Tuesday, May 13, 2008

Chrysler Cuts SUV to Invest in Compact, Press Says (Update2)

By Mike Ramsey

May 12 (Bloomberg) -- Chrysler LLC, the automaker owned by private-equity firm Cerberus Capital Management LP, canceled plans for a new sport-utility vehicle and is instead investing in a compact car.

The company won't build a Chrysler brand version of the Dodge Journey SUV in 2009 and will use the savings to help pay for designing a compact car to be manufactured by Nissan Motor Co., Co-President James Press said in an interview today.

The move reflects a push toward more fuel-efficient vehicles and Chrysler's goal of eliminating overlap between its brands. Abandoning the SUV will also leave Auburn Hills, Michigan-based Chrysler with fewer new or revamped products to introduce in 2009, putting the automaker at risk for further declines in market share, analysts said.

``Resources have been deployed to basically support our entry'' into the small-car segment rather than building two versions of the Journey, Press said. ``It's a segment we are not competing in now.''

Press said in March the company needed to cut the number of SUVs it offers in half, from 11. Chrysler gets about 70 percent of its sales from light trucks, which include SUVs.

Waiting for 2010

The automaker has cut four models. Chrysler's plan will help pare costs, and may broaden the customer base once vehicles under development get to market, analysts said.

In the meantime, cutting the Chrysler brand version of the Journey will leave the company with almost no new or redesigned vehicles to promote at dealerships in 2009, said Erich Merkle, an auto analyst at IRN Inc. in Grand Rapids, Michigan.

``2010 can't get here fast enough for Chrysler,'' Merkle said in an interview.

Merkle expects Chrysler to introduce only a heavy-duty version of its Dodge Ram pickup in the 2009 calendar year. A redesigned version of the regular Ram pickup will go on sale later this year. The dearth of new products may allow other automakers to make further inroads on Chrysler's U.S. market share.

``We are going to see if Cerberus will have the fortitude to gut it out,'' he said.

Chrysler's market share through April was 12.5 percent, down from 14 percent a year earlier. U.S. sales have fallen 18 percent this year, in part because of the model cuts and reduced sales to rental car companies.

The company will discontinue the Jeep Commander SUV next year, according to people familiar with the company's plans.

Product Improvements

Chrysler is concentrating for next year on improving the vehicles it currently sells before it starts marketing the new compact and other vehicles in 2010, Press said. Chrysler has said it's invested $500 million on more than 400 minor improvements to existing vehicles since Cerberus bought 80.1 percent of the company in August.

``It's really a good time for us to absorb these quality improvements,'' Press said.

The automaker is planning to make upgrades to its Sebring sedan in 2009, the Detroit Free Press reported in April, citing an interview with Frank Klegon, product development chief. The car was fully redesigned in 2007 and automakers usually do only minor modifications for about five years.

This year, Chrysler will bring three Dodge vehicles to market, including the Journey, which went on sale in March. It begins selling a new version this month of its classic muscle car -- the Challenger -- and later this year will offer the redesigned Ram pickup.

2010 Introductions

Tracy Handler, a product forecaster for Global Insight Inc. in Troy, Michigan, shares the assessment of IRN's Merkle for Chrysler's product outlook for next year.

``We don't show anything in 2009,'' said Handler. ``What we may be seeing is a lot more of these minor refreshes and updating interiors.''

In addition to the Nissan-built compact, for 2010 Chrysler is expected to sell new versions of the Jeep Grand Cherokee and Dodge Durango sport-utility vehicles and redesigned Dodge Charger and Chrysler 300 sedans, Handler said.

Chrysler isn't expected to offer updated versions of the Chrysler PT Cruiser, a small sport-utility vehicle. The company said in November it was canceling the convertible version of the vehicle.

Tina Jantzi, head of vehicle forecasting for North American at J.D. Power & Associates in Troy, Michigan, said Chrysler may try to bring a Nissan-built small car to the U.S. ahead of its announced schedule.

``Is 2010, or 2011 too late to come to the game? I think it would be in their best interest if they were able to utilize the collaboration with Nissan to bring something here sooner.'' Jantzi said.

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