Chrysler to cut models and dealerships

Business Materials 9 February 2008 09:00 (UTC +04:00)

( Reuters ) - U.S. automaker Chrysler LLC plans to shrink its dealer network and cut some vehicles that compete with its each other for customers to become a smaller, profitable company, an executive said on Friday.

The dealer consolidation is part of a plan to sell all three of its brands under one roof.

Chrysler President Jim Press would not say just how deep the cuts might be for the automaker, which previously said it would cut a few slow-selling models.

Chrysler's dealer and vehicle model lineup is big enough to support production of 4 million vehicles per year, but it has retail sales of about 1.5 million and needs to be sized to sell about 2.5 million, Press said.

"The product portfolio has to consolidate," Press said at a J.D. Power and Associates meeting in San Francisco. "We don't know how many models we're going to have. Nobody knows that."

Chrysler has some 3,600 dealers and builds more than 30 models of cars, minivans and trucks, some of which compete more with each other than other automakers, Press said. Eliminating duplicate vehicles would give Chrysler money to spend in creating vehicles to compete in more categories, he said.

Chrysler has moved quickly since its acquisition by Cerberus Capital Management last summer to address an unfocused vehicle lineup and to answer customer complaints ranging from materials, interiors, noise and vibration.

About 55 percent of its dealers now carry all three of its Chrysler, Jeep and Dodge brands. The plan is aimed mainly at city and suburban dealers that do not carry all three brands to consolidate into larger sustainable dealerships.

Currently, a dealership might carry one or two of the brands, but not necessarily all three at the same location. To be effective at current sales volumes, all three brands need to be under the same roof, Press said.

Chrysler expects to keep all of its brands, but the plan to eliminate duplicate vehicles among the brands, producing one minivan instead of both the Chrysler Town & Country and the Dodge Caravan for example, would spur dealer consolidation, Press said.

"We do know that if all three brands are not under one roof, the dealer will not have the opportunity to sell the full array of products and profit from it," Press said.

Press said the process could take three to five years and would be much harder for dealers if the consolidation doesn't occur before the products begin to go away. The new product portfolio could roll out over four to six years.

Chrysler will discuss details on real estate and other issues with dealers in each market, he said. Chrysler will not offer huge financial incentives to dealers, he added.

Press noted that U.S.-based automakers had 75 percent of the dealers, with only a 48 percent share of the market.

Analysts welcomed the idea of a dealer consolidation, saying a smaller, more focused Chrysler would have a better chance to thrive and the head of the largest U.S. dealer group said it would support his business as well.

"It's an absolute imperative to have a viable business in North America," said John Casesa, a former Wall Street analyst who now heads an advisory firm in New York specializing in the auto industry.

Casesa said the strategy is decades overdue for Chrysler, which needs to eliminate waste from duplicate models in each brand and smaller stores with low profitability.

Jerry York, an advisor to billionaire investor Kirk Kerkorian who has tried to buy Chrysler in the past, said on Friday that Chrysler needed to cut several vehicles and a lack of international business made it not viable over the long term.

York, a former Chrysler chief financial officer, said at the Reuters Autos Summit last November he ultimately expected Chrysler to be combined with an overseas automaker once Cerberus fixed it up.

Shrinking the number of dealers will be hard because of state laws that protect franchises and Chrysler likely would have to offer financial incentives to move quickly, analysts said.

Over the years, the automaker and its U.S. rivals, General Motors Corp and Ford Motor Co, have tried to shrink their dealer numbers, often facing great resistance. However, analysts said some dealers may be more receptive now, given the weak U.S. economy, if the offers are generous.

Mike Jackson, chief executive of AutoNation Inc, the largest U.S. dealer, told CNBC Television on Friday the plan was "brilliant" and also would be extremely controversial.

"You can't survive unless you get the entire product offering. You'll either be out of business or in a high throughput model," he said. "This is where they had to go."

Press just completed an eight-day tour of Chrysler dealers to unveil the new corporate initiative called "Project Genesis" ahead of the annual National Automobile Dealers Association meeting in San Francisco.

Since Cerberus acquired an 80 percent stake in Chrysler from Daimler AG, the company has been expected to shake up established practices in Detroit.