Chrysler CEO Sergio Marchionne isn’t bothered by his firm’s sliding market share, which have declined to the point where Honda will certainly surpass them to become the number four automaker in America. At least that’s what he keeps saying, and Automotive News [sub] went ahead and made it a headline. If dealers are “expecting us to call them up and give them a $6,000 check for every new vehicle, they won’t get the call,” Marchionne joked recently in the Detroit Free Press.
It’s officially unanimous: literally everyone thinks the new Jeep, Dodge and Chrysler ads from Sergio Marchionne’s brain trust are crap. Sure, you knew that TTAC doesn’t think much of the spots, but were you aware that Chrysler’s dealer council has requested that Chrysler stop showing the ads? Sadly, Bloomberg only quotes one dealer on the plea, who explains that
it is a little difficult for us to understand because it is far different from what we were used to seeing. The message to us is that it is branding, branding, branding, and maybe that will work.
As soon as GM and Chrysler agreed to review their dealer cull decisions, the culled dealers in question began complaining that the review would not improve their situations. According to the aggrieved dealers, the new review would be based on the same allegedly flawed data as the initial cull, meaning nothing would be changed. By GM’s own admission, only 39-51 of the over 1,000 dealers cut would even stand a chance at reinstatement. Now, Automotive News [sub] reports that a new measure has passed the House of Representatives which would allow dealers to “present any kind of relevant information during the arbitration.” The measure comes in the form of an amendment to the House Financial Services bill, which is headed to a conference committee in which House and Senate leaders must arrive at a compromise in order to send the bill to President Obama.
In a lengthy, wide-ranging interview with Automotive News [sub], Fiat/Chrysler CEO Sergio Marchionne got an awkward question from AN’s Luca Ciferri.
Your five-year plan forecasts that Chrysler’s operating margin will peak at 7 to 7.7 percent of revenues in 2014. In November 2006, you predicted that Fiat Group Automobiles’ operating margin would peak at 4.5 to 5.3 percent in 2010. How could Chrysler’s post-global recession peak profitability be 50 percent higher than Fiat Group’s pre-global recession assumptions?
Well, Sergio?
Having planned to idle production plants for a mere ten days over the winter break, Chrysler is responding to weak sales by extending the holiday shutdown of several plants to three weeks or more. The WSJ reports that Chrysler’s Windsor and Brampton plants (minivans, 300/Charger/Challenger) will shut down starting December 21 and will idle through January 18. The Toledo plant (Jeep Wrangler) will also idle beginning on December 21, and will resume production on January 11. Chrysler is also said to be considering extended production shutdowns at its Detroit Viper factory (which is entering final production anyway) and an unspecified Ram plant. Unless December sales numbers turn out to be humdingers, this winter vacation could possibly go on even longer, as Chrysler struggles under falling sales and a 64-day supply inventory.
Bowing to legislative pressure, GM and Chrysler have announced today that they will initiate reviews of the dealer cull undertaken during bankruptcy. GM is announcing a “Comprehensive Plan To Address Dealer Concerns,” while Chrysler characterizes its agreement as a “Binding Independent Review Process for Discontinued Dealers.” Both firms take pains to thank Senator Dick Durban and Rep Steny Hoyer for their leadership in preparing the non-legislative conclusion of months of bitter acrimony. Culled GM and Chrysler dealers, you know who to make your campaign donations to… unless you’re a member of the dissident group the Committee To Restore Dealer Rights. According to Automotive News [sub], the group says the new plans will only allow “between 39 and 51” culled GM dealers to be reinstated. “The GM proposal guarantees that they would win every arbitration,” says one member of the committee, who alleges that the new process is based on the same allegedly flawed data the initial cull was based on. Hit the jump for the plan outlines.
See this ad for Lancia and/or world peace? Now check out the first post-bankruptcy Chrysler brand advertisement here. Noticing any similarities? It seems that there’s trouble brewing in the Fiat family, and “Don” Marchionne has strongly suggested that the new boy to the family, Chrysler, could take over some of Lancia’s profile. Automotive News [sub] reports that the Chrysler brand will appear on Lancias (A.K.A rebadging) in many international markets, and that Lancias could become a niche marque.
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Initial indications of November’s sales numbers show an industry exhibiting some signs of leveling off after a solid year of steep declines. And when the rest of the industry is merely flat, Chrysler has to satisfy itself with slightly-less-dramatic-than-usual declines. Though Chrysler’s sales [full PDF release here] were “only” down 25 percent compared to November 2008, things were hardly going well a year ago. As a result, Chrysler sold an embarrassing 63,560 units total, ending the month with a 64-day supply of vehicles despite offering some of the industry’s most generous incentives. Forget the percentages, Chrysler’s niche-like volume is the killer here… and it’s relentlessly slipping away as the Pentastarred zombie crashes into oblivion.
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Automotive News Europe [sub] reports that Fiat CEO Sergio Marchionne has ordered a strategic review of the Alfa Romeo brand, citing declining sales and mounting losses. Alfa’s sales have fallen from 203,000 units in 2000 to 103,000 last year, and the brand has lost between €200m and €400m in each of the last ten years. According to Marchionne, Fiat’s sporty brand has undergone too many reinventions. “You cannot be a newborn Christian every four years,” he explains. “It’s the same religion, eventually you need to own a religion and carry it to conclusion.” The recent delay of the 147 replacement due to name-related issues was merely the latest trouble for the Alfa brand, which has struggled with aging products and underinvestment. According to Marchionne, Alfa faces two possible futures: retirement or rebirth… on Chrysler platforms?
Compared to the tens of billions of dollars in lost taxpayer investments in GM and Chrysler, the lawyer bills for the twin bankruptcies are relatively inexpensive. The Freep reports that legal and consulting fees have already exceeded $120m, with another $3m pending for September and October, and more to come. According to court records, Chrysler’s chief financial advisors during its bankruptcy, Capstone Advisory Group, has received $17m in taxpayer money, with some $10m going directly to the firm’s Executive Director Robert Manzo. Chrysler’s lead counsel, Day Jones, received $40m through last August, and estimates place the firm’s eventual tab to total somewhere around $115m. GM’s bankruptcy advisors AlixPartners and Evercore Partners received $26m and $13m respectively, while its head lawyers, Weil, Gotshal & Manges received nearly $72m. And with the liquidations of Old GM and Chrysler far from over, the legal bills will continue to mount, likely past 2010.
We noted earlier that Chrysler’s turnaround is dependent on Ram and other truck-based models to maintain the steady profit increases projected in its five-year plans. CEO Sergio Marchionne confirmed the importance of body-on-frame vehicles to Chrysler’s US lineup in a recent interview with Automotive News [sub]. “I think it will be very stupid for us to assume the same type of European style and sizing which has driven the automobile portfolio of Fiat Group will prevail in the U.S.” Marchionne tells AN’s Luca Ciferri. Marchionne says Chrysler’s US lineup of full-sized pickups, SUVs, large cars and minivans will see their fuel efficiency improve to keep up with pressures on the market, but that the US linup will not suddenly downsize or work away from its traditional strengths. Marchionne even aknowledged that the Ram brand would continue to be a crucial profit center, just as Fiat Professional-branded commercial vehicles drive much of Fiat’s profit in Europe. But as another report in Automotive News [sub] explains, the truck market is continuing to erode underfoot. Chevrolet truck marketing executive John Schwegman explains that
in 2005, buyers who chose pickups “primarily for image” accounted for 200,000 to 250,000 annual sales. That fell to about 100,000 in 2008. This year, he says, only about 50,000 personal-use buyers will drive home full-sized pickups.
TTAC did not file a full Chrysler Zombie Watch from the launch of Chrysler’s five year business and product plan, but two major points dominated our coverage. The first was this graph that shows 2009 as a trough year for Chrysler sales, with 2010 heralding a major and sustained turnaround in Chrysler’s fortunes beginning next year. Underlying this rosy projection is the second main point of Chrysler’s turnaround, a product/branding strategy that we summarized as “refresh and market like hell.” But refreshes take time, which is something that Chrysler simply doesn’t have. While the automotive world waits for the crucial Fiat-fettled refreshed Chryslers (due to begin arriving at the end of 2010), the “market like hell” portion of the plan is hitting America’s airwaves first, in the form of new ads aimed at reviving “consideration” of Chrysler’s damaged brands. But now that we’ve seen the opening salvos in this $1.4b war on consumer apathy, it’s becoming clear that Chrysler’s journey (no pun intended) of a thousand miles is beginning with a stumble.
It’s heartbreaking. To see a major company that literally carried a healthy portion of America’s heartland go up in Euro-flames. I remember the beauty of it. The 1990’s minivans that completely obliterated their competition. LH sedans that were state of the art for their time. Cloud cars that had more power and road feel than their American brethren. Neons that were so good that even Toyota was jealous. Believe it or not, I still think the talent base of Chrysler is there. But to get it out…
On October 13th of last year, when TTAC’s Bailout Watch clocked in at a mere 115 entries, GM’s then-CEO Rick Wagoner and board members Erskine Bowles and John Bryan approached the Treasury for a “temporary” bailout. Not that we knew it at the time. “In this period of continued uncertainty in the markets, you really can’t rule out anything,” said GM spokesfolks at the time. “Stand by for another big public investment in a failing firm,” warned TTAC. As subsequent events proved, the rush to bailout had already begun. Funny then, that we’re only now learning some of the most crucial details of the chaotic maneuvering of late 2008, thanks to a Detroit News investigation. Though the industry’s disastrous hearings before congress nearly derailed the deal, the initial strategy of approaching the White House would prove to be the key to the eventual bailout. In fact, President Bush was ready to provide $25b to GM, Chrysler, GMAC and Chry-Fi on December 19, only to have talks with the two finance firms break down. Instead, GM and Chrysler were given $9.4b and $4b respectively, with GMAC getting $7b 10 days later and Chrysler receiving $1.5b in January.
As congress nears the end of the 2009 legislative session, culled GM and Chrysler dealers are pushing hard for the rapid passage of the Automobile Dealer Economic Rights Restoration Act. Meanwhile, nearly two dozen members of the Senate Commerce Committee from both parties are calling on GM and Chrysler to resolve outstanding disputes with culled dealers in hopes of defusing the situation by non-legislative means.
Given the federal government’s ownership stake in Chrysler and GM, it is our shared obligation to ensure all impacted dealers are treated as fairly as possible. We continue to urge you to take all actions necessary to uphold the assurances you provided earlier, as well as to achieve a mutually agreeable and timely outcome to the negotiations between Chrysler, GM and the dealers. Chrysler and GM’s unprecedented bankruptcy has greatly impacted dealers, consumers, employees, small businesses, and communities across the country. It is crucial that outstanding issues be resolved as expeditiously and efficiently as possible to provide the least amount of hardship to Chrysler, GM and the dealers.
GM’s response to the senatorial call out? “Those discussions are still underway,” according to spokespeople, who refused to characterize the discussions for Reuters. Meanwhile, two examples of possible mitigating action by GM and Chrysler are not off to good starts.
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