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Don't give DaimlerChrysler a pass

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Don't give DaimlerChrysler a Pass

The financial press has mostly given a pass to DaimlerChrysler, thanks to booming sales in the U.S. of its Mercedes line. But that can't cover the woeful state of its overall business.

By Robert Walberg

Investors shouldn't be so generous.

Thanks to 10 consecutive months of record-breaking sales of Mercedes in the U.S., with year-to-date figures up 13.9%, DaimlerChrysler has avoided the focus on restructuring at General Motors and Ford. Unfortunately, not even this growth rate is sufficient to offset the growing woes at Chrysler.

Looking for answers

Declining sales and bloated inventory have management and investors looking for answers, including the predictable decision to slash production and cut jobs. Taking a page from the playbook of GM and Ford, DaimlerChrysler recently announced that it could lay off as many as 4,000 employees in its North American truck unit next year.

DaimlerChrysler’s top management team is also leaning on another industry crutch -- executive turnover -- to prop up its sagging U.S. division. In the last year alone the company has turned over virtually all of its top sales and marketing folks, with Joe Eberhardt, Chrysler’s sales and marketing chief, the most recent victim. Tom Lasorda, Chrysler’s CEO, is rumored to be the next to go.

Given Chrysler’s current state, few would argue the need for a few changes at the top and for some cuts in hourly jobs. However, these moves are designed to improve operational performance and please Wall Street -- they won't fix Chrysler any more than slashing and burning has turned around Ford and GM. Ultimately Chrysler must make cars and trucks that appeal to a wider audience.

This isn’t rocket science, folks. Chrysler currently builds way too many Jeep Grand Cherokees, Dodge Ram trucks and Chrysler Sebrings than American consumers want to buy. As a result, dealer lots are stuffed with inventory that won’t move unless the company increases its incentives, which it has started to do. JD Power and Associates recently reported that it would take 118 days to clear Chrysler’s dealer inventory -- a number exceeded only by Isuzu (say it ain’t so, Joe).

Discounting merchandise in order to reduce excess inventory is a necessary step, even if it means suffering compressed margins and short-term losses. The problem facing Chrysler, however, is that it will be replacing unwanted old cars with unwanted newer ones, which means continued red ink.

Lack of cars people want

Chrysler unveiled a slew of new or revised SUV and truck models in 2007, just as consumers were demanding more fuel efficient vehicles to cope with soaring gas prices. Oops. Its updated Sebring line and the new Dodge Nitro, models that face serious foreign and domestic competition, also debuted to mixed reviews, suggesting nothing more than lukewarm sales going forward. In other words, there is no product like the Chrysler 300C waiting to save the day.

Domestic car makers are quick to cry foul given their high operating costs, but history shows that if U.S. automakers deliver a fresh, well-built and exciting product -- such as the Chrysler 300c -- consumers are more than happy to buy American. How sad that Chrysler’s German partner better understands the needs and wants of the U.S. consumer than it does.

The upside is that, with guidance from Germany, the folks at Chrysler might be able to get back on track sooner rather than later. This doesn't change the fact that next year will be tough for the automaker (projected loss of $1.3 billion), but it might keep Chrysler from suffering the same death spiral facing GM and Ford. Regardless, investors are advised to take a pass on DaimlerChrysler until there are more signs of stability and success at the U.S. division.

At the time of publication, Robert Walberg did not own or control shares of any companies mentioned in this article.

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What a no brainer.

Chrysler just needs to put as much into its other products as it did into the LX cars. Is that so hard for them (or for Daimler to allow) to figure out?

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I just don't know what Chrysler's thinking. Seems like they're putting all their eggs in one basket with SUVs (small and large), trucks, and LX.

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Exactly! Almost as if they don't care about anything else anymore.

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Domestic car makers are quick to cry foul given their high operating costs, but history shows that if U.S. automakers deliver a fresh, well-built and exciting product -- such as the Chrysler 300c -- consumers are more than happy to buy American. How sad that Chrysler’s German partner better understands the needs and wants of the U.S. consumer than it does.

How come nobody can explain why Domestic vehicles have to be big homerun hits that are fresh innovative just to sell....when the Asians make boring appliances that just fly off the shelves. There is a double standard there. The media says that the Domestics have to "build cars that people want".....well according to the Camcords of the world, that vehicle would be a boring appliance......yet when the Domestics come out with a boring appliance, it is deemed a "car that people don't want to buy".

The real problem is the unfair trade differences have resulted in the Asian vehicles (aka boring appliances) being built with better quality materials, and more R&D money to be spent on developing more advanced transmissions and engines. To get around the Big 3 complaining about the Japanese not charging as much for their vehicles, they now charge the same amount, but load the vehicles with more "standard options". It's still exploiting unfair trade no matter how you slice it.

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I just don't know what Chrysler's thinking. Seems like they're putting all their eggs in one basket with SUVs (small and large), trucks, and LX.

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They have new minivans coming out. They will probably build a small car like the Dodge Hornet partnered with another automaker (maybe VW). They have the new Sebring and Avenger just coming out, and probably a crossover based on this platform also. With the LY platform they will have the Challenger coupe, along with a new 300(nassau ?) and Charger.

It's just new SUV's right now. The Patriot and Compass are 4cyl, so that doesn't really count if you are claiming that they will have nothing fuel efficient.

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Personally, I like most of the new products coming out of Chrysler. Their recent styling trends, with vehicles like the 300 and Caliber, are very athletic and aggressive; however, I think they may be alienating a lot of the their core customers.

They sold a lot of Dynasties and K- cars to someone. Just last week I had a 65 year old guy trade in his Neon for a Cobalt. He has owned nothing but Dodge for decades. His father-in-law has an Acclaim. They were a die-hard Chrysler family, but they are older and they don't like the looks of any of the current crop of DCX vehicles.

There are still a lot of those old K-car-in-disguise vehicles out there that are coming up for trade in (these guys keep their vehicles 10+ years anyway) and they don't have anything from Chrysler that appeals to them.

That can't be good for Chrysler's short term prospects.

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