Analysis: Why Chrysler's not as bad off as Ford or GM
Friday, November 03, 2006

By Don Hammonds, Pittsburgh Post-Gazette



At first glance, Chrysler Group looks like another Ford Motor Co. or General Motors Corp.: losses totaling $1.5 billion in the third quarter, inventories of light trucks and sport utilities languishing on Detroit airport lots, production cuts totaling 150,000 vehicles, and rumors German-based parent DaimlerChrysler wants to sell it.

But analysts who follow the company dismiss the suggestion that Chrysler's as sick as the other two domestic automakers that make up the Big Three. Auburn Hills, Mich.-based Chrysler Group's passenger car lineup is strong -- eight of 10 new products that have hit the market only in the last six months, four of which get 30 miles per gallon or better; its products in the pipeline are even better; and DaimlerChrysler is still in the midst of making production and related adjustments to the 1998 merger that brought together Daimler-Benz and Chrysler Corp.

"Look at it this way: All three -- Ford, GM and Chrysler -- have heart problems," said Rebecca Lindland, associate director of the automotive group at Lexington, Mass.-based research firm Global Insight. "Chrysler's already got its pacemaker installed. Ford is still feeling chest pains and trying to figure out what the heck they ate. General Motors is very much in the process of getting its pacemaker installed and is on the road to recovery."

To be sure, Chrysler has its problems. Its production costs are still high -- it's seeking to trim them by about $1,000 per vehicle -- and its lineup is still laden with trucks, sport utility vehicles and minivans, all of which suffered as high gas prices drove customers away from those products in the July-September quarter.

To make matters worse, the company apparently has returned to the practice of "sales banking" -- building cars and trucks not ordered by dealers in anticipation of demand picking up. Ford and GM no longer do that, and former chief Lee Iacocca ordered the practice stopped when he headed the company in the 1980s.

Sales banking has meant that the company's pickups and SUVs have been gathering dust at airport storage lots in the Detroit area and elsewhere. The average number of days that vehicles sit on the storage lots in the industry is around 60 to 65 days, but Chrysler's average length is well over 100 days, said Tom Libby, senior director of industry analysis with the Power Information Network of J.D. Power and Associates. "They're just way overstocked on things like the Jeep Commander and Grand Cherokee."

On the plus side, Chrysler's already been through some of the painful cost cutting and efficiency moves that Ford and GM have made of late. "After the merger, ... we eliminated about 40,000 employes and closed or sold 15 plants," said Mike Aberlich, director of corporate communications at Chrysler Group.

More cuts are on the way. Seven teams formed to look at every aspect of the firm's operations are poring over product management, manufacturing, capital management and other areas and are expected to submit their recommendations in late January or early February, Mr. Aberlich said.

Down the road, Chrysler has a number of new products set to debut, including the long-awaited return of the Dodge Challenger muscle car, a new Chrysler Sebring convertible, all-new minivans for Dodge and Chrysler, and a completely redesigned PT Cruiser. Chrysler also is set to reintroduce the Imperial in the 2009 model year, returning to the traditional luxury car market.

Still, like other automakers, Chrysler has some products that are worrisome, led by the Dodge Ram pickup truck. It has been on the market for a number of years without a complete replacement, and will have to face an all-new Chevy Silverado, GM Sierra, Toyota Tundra, and in the next year or two, an