10/18/07

Chrysler to Cut Models and Dealers

Cerberus Capital Management, which acquired Chrysler in the summer of 2007, has not revealed much of its turnaround strategy.

But hints came at a recent Las Vegas dealer's meeting that the first big strategic decision is about to be announced.

Chief Executive Bob Nardelli and Vice Chairman Jim Press suggested a trimming of Chrysler's product line is imminent.

The new executives must formulate a strategy to downsize the company and build up the balance sheet for the quick profits Cerbrus expects from their investment.

Messrs Nardelli and Press are starting by dropping slow-selling models, probably Chrysler Pacifica wagon, Dodge Magnum wagon, and PT Cruiser convertible, from Chrysler's product line.

Jeep Compass is another candidate for the cut.

Next they will look for ways to reduce the number of Chrysler dealers.

After decades of market-share declines, Chrysler has 3,700 dealers. I think this is at least twice as many as the company needs.

Culling under-performing dealers will also begin to make Chrysler more Toyota-like, building cars customers are actually buying.

The biggest problem with the US big three has been the insistence on building cars they think can hold fat margins, rather than the cars consumers actually need. Once a trend, like the SUV fad, has been initiated with big tool-up and advertising sunk costs, US executives tend to marry it, ignoring flaws in the strategy.

Press and Nardelli must replace the models they chop with cars people want on a global basis. If they succeed, Cerbrus deal will smell rosy.