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Auto Focus

By Melissa Anderson
Vice President, IRN Inc.
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In 2009, Chrysler’s U.S. vehicle sales fell 36 percent year over year, the worst of any major automaker and worse than the overall market drop of 21 percent. One reason was that Chrysler didn’t catch a break with Cash for Clunkers — its bankruptcy filing and plant shutdowns meant that it had relatively little inventory of appropriate models during the stimulus program. Once it got down to December days-on-hand of 35 for cars and 68 for light trucks, it has kept that tight rein on inventory management, staying slim and trim. Sales for the company are starting to pick up, and the new leadership of Sergio Marchionne of Fiat seems to be serving the company well. Can it hang on long enough to secure its footing?

Evidence from data on U.S. sales year-to-date shows that the company is making a comeback but at a somewhat slower rate than its competitors. In January, sales were down 8 percent compared to January 2009 when more incentives were in play. That same month, GM’s sales were up 14 percent and Ford’s up 24 percent. February 2010 was essentially flat for Chrysler, while Ford was up 43 percent and GM up 12 percent. March sales were down 8 percent again for Chrysler compared to a year earlier, but Ford (up 40 percent) and GM (21 percent) were enjoying solid improvement. Finally in April, Chrysler had a 25 percent boost year-over-year, on par with Ford and better than GM’s 7.2 percent gain. Edmunds.com says that Chrysler’s incentive spending is the lowest in five years and its transaction prices are the highest in five years.

That was instrumental to Chrysler in making an operating profit of $143 million in the first quarter. The company attributed this result to “continued price discipline on all products” and mix improvement with increased sales of the new heavy-duty Ram pickup, as well as strict attention to the cost side of the equation. It still suffered a net loss of $197 million, but the directional trends are good.

Inventory and incentives are two areas that make us inclined to root for CEO Sergio Marchionne and what appears to be his level-headed, prudent approach to the re-making of Chrysler. You have to appreciate a CEO who tells it straight — sales won’t look better until June because we used heavy incentives in early 2009 and we aren’t going to do that anymore. Marchionne’s phrases like “the cheap practices of volume acquisition” are a neat way of denouncing both Chrysler’s past strategy and some of its current competitors.

The company will have to make do with only a small number of new programs this year — the 2011 Jeep Grand Cherokee that just went into production should put a spring in the step of buyers in that segment, but after that it’s going to be a long wait. Significantly upgraded versions of the mid-sized sedans, Chrysler Sebring and Dodge Avenger, are due out in the fourth quarter, and somewhat more modest revisions to the Jeep Wrangler and Patriot will arrive in the third quarter. For truly new product, watch for Fiat-based compact vehicles at the end of 2011. We will start seeing what Chrysler and Fiat have been working on in this area at next year’s auto shows.

Although much of the line-up will get cosmetic improvement this year, that doesn’t typically draw a crowd. Not a problem, says Marchionne. An Associated Press story pointed out that Chrysler has $5-6 billion in cash reserves and is being frugal, and quotes Marchionne as saying, “You know the concept of hibernation Canadian bears use?” when asked how it would survive this dry spell.

Chrysler has provided guidance indicating that it expects to sell between 1.6 and 1.7 million vehicles globally in 2010, generating $40-45 billion in revenues and at least a breakeven year or up to $200 million operating profit. The company seems to be on track to do at least that.

Making money on what it’s got, stretching a dollar, not overproducing, being creative… makes good management sense. Like Ignacio Lopez’ lieutenants switching their watches to their opposite wrists as a signal of change at GM in the ‘90s, we’re betting on seeing more of Marchionne’s favorite attire, black sweaters, at Chrysler.

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