Chrysler revival slips into reverse

Too slow to replace once hot-selling cars

By Rick Popely and Jim Mateja | Tribune staff reporters - - A year ago, Chrysler Group was riding high, the most profitable and trendiest U.S.-based automaker.

Now it is swimming in the same red ink as its domestic rivals, and its models have gotten long in the tooth, exposing the fragility of a revival based on sex appeal in the competitive auto industry.

While hot stuff draws consumers to the showroom, once the cooling begins, so does buyers' ardor.

"Chrysler tends to keep things too long before they do something new so that, down the road, the buyer is simply asked to buy the same car again," said Lake Forest Chrysler dealer Bill Knauz.

"The public wants something new and different and for their neighbors to see they have a new car and not just another one of the same car," said Knauz.

Sales are down 8.6 percent this year, to 1.79 million vehicles through October at Chrysler Group, the U.S. unit of DaimlerChrysler AG which includes the Dodge and Jeep brands.

Those sagging sales contributed to Chrysler Group's $1.5 billion third-quarter operating loss, in contrast with a $393 million profit the previous year. For the full year, Chrysler expects to swing to a $1.2 billion loss from a $1.8 billion profit in 2005.

"Chrysler sells well when its vehicles are new, but it does a bad job of keeping people interested in its product," said Art Spinella, president of CNW Marketing Research, which surveys monthly about 3,000 consumers shopping for cars.

Consumers who clamor for the latest styling make up 8 percent of buyers, Spinella says, but those who prize reliability and durability represent 45 percent. The latter are more likely to choose Toyotas and Hondas, giving models such as the Toyota Corolla and Honda Accord more staying power in the market.

"It's easy to sell an all-new, edgy design like the [Dodge] Magnum or [Chrysler] 300 for the first six months to those who have to be the first to have something different," Spinella said. "But that's not the mass market. After the initial introduction, the cars tend to fall off the sales charts."

Head-turning styling has helped sell models such as the Chrysler PT Cruiser and Dodge Ram pickup. More recently, the Chrysler 300 was a home run, but after nearly three years, sales are down 2 percent this year after rising 27 percent last year.

Sales typically wilt as vehicles age, and that's when automakers roll out incentives, so Chrysler isn't alone.

Nissan North America, which based its recent revival on catchy design, also hit a pothole this year as its products grew stale. Nissan's U.S. sales are off 6 percent.

Spinella says incentive dollars go further at brands like Toyota or Honda, where looks matter less than the reputation for quality.

Case in point: Toyota last redesigned the Corolla in 2002, but sales are up 13 percent this year. Toyota is offering a modest $500 rebate on the Corolla.

Chrysler has the industry's highest incentives, obliterating its slim profit margins, said Burnham Securities analyst David Healy.

"When margins are thin, it doesn't take much change in sales to go into the red," Healy said.

Chrysler's swing into the red comes about a year after Dieter Zetsche left Chrysler's headquarters in Auburn Hills, Mich., where he had engineered a successful turnaround effort that started in 2001, to become chief executive of parent DaimlerChrysler in Germany.

Chrysler's current CEO, Tom LaSorda, has to present a new turnaround plan to DaimlerChrysler's board in December, raising questions about his future with the company.

"Both LaSorda and Joe Eberhardt (Chrysler's sales chief) are being looked at differently today than they were two months ago," said George Peterson, president of industry forecaster Auto Pacific. "It might be that Eberhardt is at more risk than LaSorda because he's the sales guy."

When blame gets passed around, Peterson thinks Zetsche deserves some of it. Lead times on new products are usually three to four years.

"I don't think the problems were invisible to Dieter. He saw them coming before he left but hoped they wouldn't happen on his shift," he said.

Chrysler also made a misstep when it introduced the Jeep Commander, a large SUV, last year just as gas prices started to rise. Healy says the "unfortunate timing" made Commander "dead on arrival."

Chrysler also waited too long to refresh models such as the Dodge Ram. The full-size pickup is the group's best-seller, Healy said, but was last updated in 2002 and isn't slated to be freshened up until the 2009 model year.

Ram sales fell to 400,000 last year from 449,000 in 2003 and are down 12 percent this year, despite recent $5,000 rebates.

Ram sales could tumble more next year. That's because GM rolled out new full-size pickups this month, and Toyota will do the same in February.

But the Ram isn't the only problem at Dodge, the largest of the three Chrysler Group brands. Dodge sold 1.18 million vehicles last year, nearly 277,000 less than in 2000, the last time Chrysler slipped into a crisis. Sales are down 10 percent this year.

Six years ago, Dodge trailed only Chevrolet and Ford in sales but now is fifth, behind Toyota and Honda as well.

Gas prices and changing consumer tastes have dinged sales of the midsize Dakota pickup, down 27 percent this year, and the Durango sport-utility, down 38 percent.

"That's fair to say, because the segments that have been hit hardest by gas prices, big SUVs and trucks, are what Dodge sells," Jason Vines, Chrysler's vice president of communications, said.

Vines says Dodge will rely more on cars.

The recently introduced Caliber, a compact hatchback, and Charger large sedan are selling well, Vines said, and in the spring Dodge will add the Avenger midsize sedan. Dodge also is expected to get a subcompact car, possibly built in China, though probably not until 2010.

If the Chrysler Group depends on the freshness of its lineup, Vines added, then business should pick up in 2007.

"We should do well because we have the launch of several new 2006 models under our belt and add another seven new products next year," he said, including new versions of the Dodge Caravan and Chrysler Town & Country mini-vans.