29 September 2009

Chrysler Faces Chilly Autumn

Story from the Wall Street Journal

Already mired in a tough year, Chrysler Group LLC appears headed for more bad news.

The auto maker's dealers are bracing for a steep drop in September sales due to the unusually lean inventories the company was left with after its bankruptcy reorganization and a long summer shutdown of its plants.

Most car makers expect a sales lull after an August surge sparked by the U.S. government's "cash for clunkers" incentive program. But analysts say Chrysler is on track for a significantly weaker showing than rivals.

IHS Global Insight projects Chrysler's September sales will fall 30% from September 2008, compared with a 19% slide industrywide. Meanwhile, Toyota Motor Corp., which also has low inventories, is expected to see U.S. sales drop 15%, Global Insight says.

A deep sales decline would add to the headaches facing Sergio Marchionne, chief executive of both Chrysler and its new alliance partner, Fiat SpA. Since taking the post in June, Mr. Marchionne has reorganized and thinned out Chrysler's management and has been trying to fashion a long-term model strategy that adds Fiat-developed cars to Chrysler's lineup.

The work has proved more difficult than Chrysler's new Italian owners expected, according to people familiar with the matter. Thousands of engineers left Chrysler in the last few years as it offered job buyouts. That weakened its development capability and slowed progress on its product plan, these people said.

Chrysler's ownership history also has distorted its product-creation system. Under the ownership of Daimler AG, which ended in 2007, the company relied heavily on the German parent to engineer certain vehicles such as the Chrysler 300 and key components. Now it lacks those resources.

As a result, Chrysler and Mr. Marchionne have had little progress to report publicly in the last two months. In contrast, General Motors Co., which also went through a government-sponsored bankruptcy, has been showing off new models it is working on, including the Volt plug-in hybrid, and talking about coming cars, including compact models for Cadillac and Buick. GM also kicked off a marketing and ad campaign featuring its new chairman, Edward E. Whitacre Jr.

Mr. Marchionne is expected to speak to reporters this week at an auto show in Frankfurt, Germany, but he may give only a timetable for when Chrysler expects to unveil its new model strategy rather than reveal the strategy itself.

As part of the plan, Chrysler is expected to announce it will make the Fiat 500 subcompact in Mexico for sale by Chrysler dealers, build another Fiat-developed small car at a U.S. plant, and work with Fiat to devise a new midsize sedan -- a high-volume segment where Chrysler barely competes now, people familiar with the company's strategy said.

The strategy will be discussed at a company board meeting later this month, these people said. Chrysler declined to comment on its product plans.

Meantime, Chrysler dealers said sales are falling because they have few vehicles on their lots.

"September is starting off extremely slow," said Dave Kelleher, owner of two Chrysler dealerships in the Philadelphia area. Mr. Kelleher's stores together usually sell about 150 vehicles a month, but right now he has only 72 in stock. "If I sell all the cars on my lots I will have one of my worst months this year," he said.

At the end of August, Chrysler's inventory fell to about 100,238 vehicles, enough to last just 28 days at the current selling rate, according to the company. A year ago it had a 93-day supply.

People familiar Chrysler's thinking said the company is betting the drop in inventory will boost the prices customers pay so the auto maker can pull back on costly rebates.

The strategy appears to have had an effect. According to Edmunds.com, the average price consumers paid for Chrysler vehicles in August was $29,032, the highest in 12 months.

Still, the company is aiming for a 60-day supply by the end of the year, said a person familiar with the company's thinking.

But boosting inventory is proving difficult. Chrysler said Monday it had to delay adding a second shift to an Illinois plant by more than a month due to issues with suppliers.

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