Chrysler: 9 Lives?

Houston, Texas, August 2007

Nine years after the takeover of Chrysler by Daimler-Benz, Chrysler Group became a thorn in the paw for the German top management. New announcements of layoffs and closings preceded a deal to sell the Mopar brand.

Despite billions spent on restructuring, the company's 2006 performance was abysmal. The decision to build a "sales bank" of unsellable vehicles ("Jurassic parking") may rank as the dumbest move ever by a carmaker.

Near-death experiences are nothing new for the company, like back in 1979 when Lee Iacocca's TV pitchman talents turned the company around, and again in the 1992 recession.

Mercedes made a big mistake grabbing Chrysler. The combined stock market capitalization ended up lower than the value of Mercedes before the takeover.

Chrysler and Me

My story says alot about the company and where things are headed.

I grew up a "mopar guy".

When I was young, my Dad bought Plymouth sedans.

I remember a 1951 Plymouth, which the family drove to the beach at Galveston, Texas, on weekends.

In those days "west beach", where you could drive and camp anywhere, included most of the island's frontage.

Bunkers and gun emplacements left over from the "big war" were the principal architecture.

That car had an intermittent stalling problem that the mechanics of the day struggled to solve. After much frustration it was discovered that shop personnel had forgotten to tighten bolts which secured the carb, allowing it to tip, letting air leak in on turning or braking.

When I was 13, I used a file to copy the key and "borrowed" my dad's 1956 Plymouth frequently.

I just hadta ride.

Happy Days

"It happened on the strip where the road is wide
Two cool shorts standin side by side"
Shutdown, The Beach Boys, 1964

In September of 1966, Dad took delivery of a brand new Plymouth.

I was 16 and loved that car. It had a 318 V-8 and a geared down positraction axle, ostensibly for towing my dad's camper. From a stoplight that Belvedere sedan would jump almost every rod in town, including lots of big blocks. They would catch up in an eighth mile, but by then their reputation was trashed.

The reduced rear axle ratio and boxy aerodynamics limited top speed to 114 mph, which is a big reason I am alive today.

But one thing was certain: I was a Mopar man.

The Apprentice

I spent the summer of 1967 inside Chrysler Assembly at Belvedere, Illinois. United Auto Workers Union card and all, I bolted transmissions to engines. It was hard and tedious work.

Back then, Chrysler was already in the habit of filling empty lots with unsold cars to avoid a plant shutdown.

Plant management would speed up the line to inhuman speeds after lunch, gunning for paper quotas and ignoring obvious quality implications.

When they did this, it was common to let mistakes go up the line to keep from falling behind. Some unhappy employees even did it on purpose.

I owned a '57 Plymouth flathead 6, '69 Chrysler Imperial with black leather and power everything, and a sharp '69 Dodge Charger.

A custom '78 Dodge Van with 4 captain's chairs and a double bed in back pulled my bass boat from Texas to Wisconsin lakes every summer while my sons were young. Chrysler Corporation was my ideal for its engineering innovations; torsion bar front suspension, unibody construction, alternators, bullet proof automatic transmissions, and "Mopar" racing.

Lee Iacocca was a hero to me, even after I bought a trashy 1978 Chrysler LeBaron. The dealership pulled several bait-and-switch option games and lied like a polar bear rug.

My last purchase was a 1993 Dodge Dakota, it ran 175k miles and still runs. But the paint peeled off after just a couple years.

After that I switched to Fords.

Exit Strategy

Chrysler sales fell 6.7% for the year 2006. With Ford and GM pulling out of the car rental sales trap, low margin fleet sales may be the only way out of the inventory mess.

In October 2006, AutoNation dealer group chairman/CEO Mike Jackson reported a 120-day supply of unsold 2006 Chryslers.

As Chrysler Group management kept the factories running, they tried to stuff dealer lots with unmarketable "sales bank" cars. Dealers were incensed, with many looking to exit the brand.

Chrysler has the highest average incentive in the business. Fuel wasting pick-ups and SUVs make up about 70 percent of Chrysler's sales, significantly worse than Ford and GM. Dodge is especially vulnerable. Jeep, riding the success of the 4-door Wrangler Unlimited, is a bright spot for now.

The North American market accounts for around 90 percent of sales, with few global buyers for the big Chryslers.

Chrysler's biggest liability has been its lack of a broad product line for building a global beachead.

The New Chrysler, Again?

On May 14, 2007 a deal was announced. A private equity group, Cerberus Capital Management, agreed to buy 80% of the turnaround company. Diamler will retain 19.9%. Apparently the union is happy with what they were promised. News stories circulated about celebrations at dealerships selling Chryslers.

Cerebrus wasted little time. The ink was barely dry when a new Chrysler Chairman/CEO, Robert Nardelli, was announced. Mr. Nardelli came from Home Depot, and brought a reputation for imperiousness. To me Mr. Nardelli looks like a perfect axe-man: a cost cutter rather than a product developer. He faces an uphill battle to save Chrysler.

Chrysler also signed a deal to bring China's Chery cars to the US. These little imports, when brought up to US safety and quality standards, will fill in the low end of the market where few Chryslers now exist. The deal also gives US homebody Chrysler a toehold in the Chinese and global markets.

Chrysler has survived for many years by producing sharp looking vehicles which sell initially, but because of poor quality, declining dealer support, and bad design, fail to retain owners.

And who can blame Chrysler dealers for slighting a brand that treats them as a dumping ground?

At texas-cars-and-dealerships.com, the site theme is: "Shop the dealership, not the deal."

Your contract of sale is with an independent local business, not with the manufacturer.

The rule "Find a good dealer, with honest policies and a good shop, and stay there," applies in spades to any Chrysler purchase.

Quality and Resale: Riding a Loss

There is an old adage in securities trading: "never ride a loss."

Chrysler has legacy cost burdens for thousands of retirees who depend on the corporation for medical benefits and pensions.These add about $1,400 per vehicle to the car's market price.

A long history of quality issues, safety defects, quick depreciation, high warranty claim levels, and poor service, dogs the company. Management has been under pressure to reduce warranty claim levels, the easiest way to do this is not honoring valid claims.

In the J.D. Power and Associates 2006 Customer Retention Study, Chrysler ranked 23 out of 37 makes. Only 38.2% of those surveyed returned to purchase another vehicle.

Leases account for over a quarter of retail transactions, 5% is typical elsewhere. Lease return vehicles add to rental fleet sales to hurt residual and resale values.

Extension of 0% financing to less credit-worthy buyers also undercuts existing titleholders.

The Emperor's New Warranty

Chryslers sold since August 2007 are covered by a lifetime powertrain warranty that covers engine, transmission, and driveline problems as long as the original owner retains title. While many consumers will see this as a real inducement to purchase, I consider it a marketing ploy.

Hyundai had a big hit with their 10 year/100K warranty, US builders began to follow suit.

In September 2006, General Motors introduced a five-year, 100,000-mile powertrain warranty on 2007 models. This followed Ford's increase of its new car powertrain warranty to five years or 60,000 miles.

Dealers, alienated by the 2006 sales bank fiasco, needed to be mollified. The New Chrysler, with three-year/36,000-mile coverage, had to do something.

But the fact is this is a short warranty. Cars are lasting longer, and warranty claims are dropping industry-wide.

Most first owners keep a vehicle 3 - 5 yrs, averaging around 75,000 miles before trading or selling. According to the CARFAX database, the average car rolls just 15K miles annually. The new warranty excludes diesel-powered vehicles and performance-driven SRT options.

DaimlerChrysler paid an industry-topping $6.1 billion in warranty claims in 2006. General Motors and Ford both came in around $4B. Toyota came in the middle two's. The quality leader (in my humble layman's opinion), Honda, had a relatively paltry $960 million in warranty costs.

While these numbers are not directly comparable, the trend is obvious.

Over the past 5 years the Chrysler group has slashed warranty claim outlays by 40%.

While Chrysler's quality has improved, claim cost reduction has been accomplished largely through aggressive refusal to honor many valid warranty claims, and shifting costs to parts suppliers. The company is notorious for blaming the consumer whenever possible.

Buyers interface with dealers, not manufacturers, on warranty issues. That's why this car site thinks the dealership is as important as the deal.

Chrysler was the worst performing manufacturer in the 1997-2002 oil sludge scandal, refusing to honor many thousands of legitimate warranty claims.

To be fair, readers should know that I am equally skeptical about the Hyundai, Kia, Mitsubishi, and Suzuki 100K warranties.

Product Pipeline: New Chryslers

Chrysler's last real hit was the 300. Chrysler's big roll out for 2006 was another barge, the Jeep Commander. Chrysler must accelerate product development to succeed in a world that has capacity to build 25 million cars than can be sold.

Future vehicles will be less German influenced. Now the newly American company must strive to develop a coherent brand and product queue.

Chrysler needs more crossovers, small cars, and improved fuel economy to regain market share. The coming Dodge Journey is a mid-sized crossover which shares a platform with Chrysler Sebring and Dodge Avenger.

Hybrid versions of Aspen and Durango have been promised for 2008.

Chrysler, often credited with inventing the minivan, is restyling its Town and Country and Caravan family vans for 2008. The main feature is second row seating that swivels to face the rear. Third row airbags are now standard on the boxy Chryslers.

Until the Chinese imports are groomed for prime-time, Chrysler lacks competitive models in the growing market for small fuel-efficient vehicles. No hybrids or sub-compacts grace the aging stable.

Lower than average research and development spending, excessive badge engineering, and reliance on new sheetmetal to cover old running gear, spell trouble for the brand.

Recent products (Chrysler Sebring-Aspen, Jeep Compass-Patriot, Dodge Nitro, Dodge Caliber crossover) have echoed these themes.

Don't Cha Wish That Your Car Was Big Like Me?

It was 1990's Dodge pickups, restyled to invoke 18-wheeler "road bully" images that began America's slide into what I call the SUV-roadrage epidemic. Chryslers enjoyed a resurgence as a result of keen anticipation of the trend. Now Chrysler's entire product line again appears dated, still resembling the trucks, while lighter vehicles stage a comeback.

These macho-styled Chryslers have little marketability outside the US.

These hard times are tragic for a great company whose products I loved. And many still look terrific.

The bottom line for Texans on Chrysler: expect deep discounts and exhibit zero tolerance for dealer shenanigans. Pay close attention to resale value, many of these "deals" are expected to go underwater. Pay even closer attention to the Chrysler dealership itself, those combined with a stronger marque might be the best bet.

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