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Oracle of Delphi

Marchionne may cut Chrysler's weaker models

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July 4, 2009 - 12:01 am ET

MILAN (Reuters) -- CEO Sergio Marchionne's immediate product plans for Chrysler Group could be limited to weeding out weaker models and tweaking prices as he gears up to launch new designs within two years.

Marchionne, who also heads Fiat S.p.A., took the wheel at the struggling U.S. car maker in June after sealing a deal for the Italian company to take a 20 percent stake in return for getting Chrysler back to health with the help of Fiat technology.

He said on June 26 he hoped to have "at least a road map from a product standpoint" in 14 days, and on Wednesday said he wanted to decide what to do with Chrysler's Dodge and Fiat's Alfa Romeo brands by the end of this month.

"Marchionne might have to make some very tough decisions about which models to kill" in the short-term, said Adam Jonas, auto analyst at Morgan Stanley. "He should talk to his surviving dealers."

For Chrysler, North America is its most important market, with only 12 percent of sales this year expected to come from outside the United States, Mexico and Canada.

Its Chrysler, Dodge and Jeep brands are well-known but well-worn. The company acknowledged in its February restructuring plan that it had to improve quality and fuel efficiency as well as "establish a more customer-relevant portfolio."

'Bridge solution'

"Chrysler models are old and they have little appeal on the market," said Giuseppe Berta, professor of contemporary history at Milan's Bocconi University.

"Marchionne has to work out over the summer a bridge solution which will allow him to get to 2011," he said.

Analysts say new models for Chrysler will take about two years to be ready for the market.

Models which could be dropped in the short-term include the Chrysler Sebring, the Jeep Compass and Patriot, while the Dodge Caliber could be either scrapped or re-engineered.

Chrysler is likely to sell under 1 million vehicles in the United States this year, Berta said, compared with just over 2 million in 2007, before the global credit crunch choked demand.

Its efforts to rustle up buyers are also hampered by its own financial problems which triggered the elimination of about 25 percent of its U.S. dealerships and damaged confidence.

Chrysler is "completely at a standstill," said Berta. "It needs a push."

Cinquecento vs. Mini

Fiat, for its part, expects to produce its Cinquecento city car -- a rival to the Mini -- in the United States starting in 2011, and use Chrysler's dealer network to sell the car. It could also sell its Alfa Romeo MiTo model and a new Milano model to be unveiled next March.

It hopes to rival BMW's Mini sales in U.S. cities such as New York and on the east and west coasts. Mini sold about 54,000 vehicles in the U.S. last year, and analysts said with a much larger dealer network and a cheaper price, Fiat could be targeting up to 80,000.

Longer-term, Marchionne needs to introduce new models for Chrysler. A possible recovery in the U.S. car market and restructuring could deliver him the breathing space he needs.

"You've resized your business to be profitable at 10 million (total U.S. annual car sales) ... and all of a sudden your market is at 13 million, then you make money," said Philippe Houchois at UBS.

Jonas said going through bankruptcy with cuts to dealer networks and revised labor agreements meant "there's the potential for Chrysler and GM to come out of this very aggressively, luring the best engineers, best managers."

A Reuters poll of analysts found a median expectation for U.S. auto sales of 9.81 million vehicles on an annualized basis -- far below the 13.7 million rate in June 2008.

In addition, around 12-13 million cars are being scrapped in the United States a year -- effectively reducing cars on the road.

U.S. support

Houchois said Chrysler was also likely to find support from the U.S. administration and therefore "this business is nowhere near running out of cash."

On Wednesday, Marchionne said that Chrysler was "still burning cash, but it's slowed down by far," adding that his priority was to "stop the bleeding."

Two years hence, Marchionne is unlikely to have scrapped an entire brand, analysts say -- although he could push marketing of models instead of weaker brands like Chrysler, much as the Cinquecento has shed its Fiat tag.

The Jeep brand, for example, has great recognition and image but its products, apart from the flagship Wrangler and Cherokee models, are considered by analysts as lacking appeal.

"Jeep is one of these under-utilized assets where the brand has phenomenal recognition but the product is average ... it would be a shame not to try to do a better job with the brand," Houchois said.

Fiat could boost the Jeep brand's overseas sales through its dealership networks, especially in South America and other emerging markets.

Chrysler itself had planned a new Jeep Grand Cherokee and a new Chrysler 300 for 2010



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Nitro, Compass, Sebring should be on the list.

The Sebring should be replaced by the 200C using the shortened LX platform. Of all of the concepts Chrysler has shown in recent history, it has by far gotten the most positive buzz. Plus using and existing platform as a starting point would save development money.


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The 200C was the car that gave me hope for Chrysler.

All I can do is pray they bring the MiTo over here.



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I hope the MiTo looks a little less bug-eyed as a Chrysler.


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