Chryslers pile up on AutoNation lots

Unsold Chrysler group vehicles are filling lots such as this one near Detroit Metropolitan Airport. Photo credit: JOHN F. MARTIN

Big quarterly loss triggers talk of closings, layoffs

Bradford Wernle | David Barkholz | Automotive News / October 30, 2006 - 1:00 am The nation's largest auto retailer is holding a 120-day supply of unsold Chrysler vehicles. Of those, 80 percent are 2006 models, said Mike Jackson, CEO of AutoNation Inc. in Fort Lauderdale, Fla.

Jackson called for higher incentives to help AutoNation and other dealerships unload excess 2006 vehicles.

"We'll still have some going into calendar '07," Jackson said in an interview with Automotive News. AutoNation will not buy any 2007 models that carry over from 2006 until it unloads the 2006s, he said.

Dealers have struggled this year as Chrysler built a sales bank of unsold vehicles and pressured dealers to buy them. Previous incentive programs have fallen short of company expectations.

"The 2006 model year has not ended for Chrysler," Jackson said.

Week of woes

High dealership inventory levels were just one of myriad problems hitting Chrysler CEO Tom LaSorda and his beleaguered management team last week. Among them:

• DaimlerChrysler was forced to issue a statement saying the Chrysler group is not for sale. That came after CFO Bodo Uebber declined to answer reporters' questions on the subject during the third-quarter earnings conference call on Wednesday, Oct. 25.
  
  
• On that call, the Chrysler group reported a $1.48 billion third-quarter loss, caused in part by ballooning inventories. A German-led management team is studying possible structural changes.
  
  
• News reports disclosed that Chrysler was carrying 50,000 unsold "fence units," cars that were manufactured with no dealer orders.
  
  
• A prominent industry analyst predicted Chrysler may be forced to close two factories. Chrysler also is likely to offer thousands of workers early retirements and buyouts, the analyst said.

'Working with dealers'

Responding to AutoNation's statements, Chrysler spokesman Jason Vines said: "We're working with our dealers to get inventories in line and expect inventories to be in line by end of the year."

He added: "We're not forcing dealers" to buy cars.

Chrysler losses ended a hot streak during which Chrysler had begun to distance itself from Ford Motor Co. and General Motors.

"There's no way getting around the fact Chrysler is going to have to spend a lot of money to solve this (inventory) problem," said New York auto analyst John Casesa. "The longer it goes on, the more it's going to cost to solve it."

Mike Maroone, AutoNation's president, says Chrysler needs a combination of better incentives and deeper production cuts. He added that AutoNation is bullish on Chrysler's future products. Though it is not buying carryover vehicles, it is buying new vehicles such as the 2007 Dodge Caliber small car.

Chrysler has declined to comment on reports that it is studying closing at least one plant -- the Newark, Del., truck plant where it makes the Dodge Durango and Chrysler Aspen.

More plant closings?

The Chrysler group almost certainly will follow the lead of GM and Ford and offer its hourly workers early retirement and buyouts, said Sean McAlinden, chief economist with the Center for Automotive Research in Ann Arbor, Mich., at a conference last week.

"Everybody with legacy workers is offering a (special attrition program)," McAlinden said.

GM's program exceeded expectations by coaxing more than 35,000 workers to retire or leave. Ford is offering buyouts to all 75,000 of its UAW workers.

McAlinden said he expects Chrysler to get its UAW-represented U.S. work force down to about 46,000 by 2007. Chrysler has 50,500 UAW workers today. He says the plants most likely to close are Newark and St. Louis North.

Newark is down to one shift. It makes the Durango and Aspen. St. Louis North makes the Ram pickup.

Chrysler in 2004 invested heavily in its Warren, Mich., truck plant to add capacity for Rams and the smaller Dodge Dakota. The automaker also makes Rams in Saltillo, Mexico.

McAlinden said many workers at St. Louis North will transfer to the St. Louis South plant. Chrysler is spending more than $1 billion in St. Louis for production of the new Pacifica crossover, the extended minivan and other models, McAlinden said.

Also at risk, in McAlinden's view, could be three Chrysler operations in Detroit: Detroit Axle, Mount Elliott Tool & Die and Detroit Transportation. He said the UAW in 2003 authorized Chrysler in 2003 to explore the sale of the operations.