Problems of old Chrysler linger at 'new' Chrysler

[June 11, 2009]  DETROIT (AP) -- Chrysler may have been granted a fresh start, but it still faces old problems: how to sell enough cars and realign its fleet away from the trucks and SUVs consumers seem to no longer want or be able to afford.

A 42-day stay in bankruptcy court cleansed the company of much of its debt and labor costs, but many analysts say Chrysler's immediate future is bleak. It lost $8 billion in 2008, and sales are down by almost half for the first five months of this year.

Chrysler has few new vehicles headed to its drastically reduced network of dealers. Its aging model lineup is still heavy with bigger vehicles, and its offerings in the growing small and midsize markets haven't caught on.

Meanwhile, small cars designed by new Italian parent Fiat Group SpA won't make it to U.S. shores until late next year and there are no guarantees they will entice great numbers of American drivers.

"The showroom is not going to look terribly different over the next 18 months," said Aaron Bragman, an analyst for the consulting firm IHS Global Insight. "They're going to try and maintain market share in a down market with products, many of which haven't been redesigned in several years."

Bragman said Chrysler faces tremendous competition, especially from new cars in the works at General Motors Corp. and Ford Motor Co.

Even if the new Chrysler Group LLC can survive, the super-small Fiat cars that were popular in Europe, like the 500 and Grand Punto, could be out of step with Americans who like bigger cars and are used to lower gas prices.

During Fiat's last run at the U.S. market, in the 1970s and '80s, reliability problems led people to suggest the name stood for "fix it again, Tony."

"Fiat is really not a known commodity in the U.S. market," said David Koehler, a clinical marketing professor at the University of Illinois at Chicago. "It doesn't resonate with the target market."

The new Chrysler began operations Wednesday morning after the U.S. Supreme Court refused to hear an appeal of lower court decisions that allowed the transfer of most of the old Chrysler's assets to Fiat.

Fiat CEO Sergio Marchionne was named chief executive of the new company, and Chrysler CEO Bob Nardelli said farewell to employees and ended his tumultuous 20-month reign.

Marchionne quickly shook up the management, replacing Chrysler's chiefs of marketing, finance and product development and cutting layers to make the company more focused on individual brands, such as Jeep, Chrysler and Dodge.

Jim Press, who was Toyota Motor Corp.'s top U.S. executive until he joined Chrysler in 2007, was named deputy CEO and will probably run the company when Marchionne is in Italy.

In an e-mail to Chrysler's 54,000 workers, Marchionne acknowledged the company's problems and said he was determined to repair them. Five years ago, he wrote, he stepped into a similar situation at Fiat, perceived at the time as a failing bureaucracy that made poor cars.

"Through hard work and tough choices, we have remade Fiat into a profitable company that produces some of the most popular, reliable and environmentally friendly cars in the world," he wrote. "We can and will accomplish the same results here."

Marchionne's more immediate problem is weak offerings in the market for small and midsize cars. Its smallest vehicles, the Dodge Caliber and Jeep Compass and Patriot, sell far less than the Toyota Corolla, the nation's top-selling small car.

Work is already under way to convert Chrysler factories to produce small Italian-designed cars. Neither Chrysler nor Fiat would say which models would come first or how many would be imported to the U.S.

"The need is now, but unfortunately, it'll be at least a two- to three-year process," said Michael Robinet, vice president of CSM Worldwide, a Detroit-area auto industry consulting firm.

Chrysler plans to roll out new versions of its popular Jeep Grand Cherokee SUV and Chrysler 300 large sedan by the end of next year, along with a rechargeable electric vehicle. But Bragman said those were probably delayed in the bankruptcy process, making the next 18 months look iffy.

The good news for Chrysler is that it has cut its expenses enough that it can break even with lower sales, said Gary Dilts, senior vice president of global automotive operations for J.D. Power and Associates.

He said much of the drop in sales this year for Chrysler came from cuts in its sales to rental car companies. Chrysler actually made small gains in market share in sales to individuals in the first five months of 2009.

The struggling company has offered the heftiest rebates and other incentives to buyers recently. But it remains to be seen whether Chrysler can produce amazing cars, not just amazing deals.

The U.S. government has committed roughly $8 billion more to help Chrysler as it leaves Chapter 11 bankruptcy protection, and the Obama administration acknowledges Chrysler will probably lose money until Fiat rides to the rescue. But the government believes the company will be viable in the long term because of Fiat's management expertise.

Aside from the electric vehicle, Chrysler's upcoming new models are not particularly fuel-efficient, and they could suffer if gas prices keep climbing. Those same gas prices could help Chrysler benefit from Fiat's small-car technology.

Marchionne has said Fiat could start selling a successful, North America-made remake of the 500 minicar as soon as next year. Fiat also plans to relaunch the sporty Alfa Romeo brand in North America.

The new Alfa 149 midsize five-door hatchback, to be unveiled next year, would be built in North America as a successor to the larger Alfa 159, Marchionne has said.

But Toyota and Honda remain the champs of midsize cars, and Fiat still has to prove itself to American drivers.

"A lot of us have residual memories of Fiat that are less than stellar," Dilts said. "But I think the product looks good. They've got some great small engine capabilities. With a little bit of pressure on gasoline, I think they're going to give Fiat a look."

[Associated Press; By TOM KRISHER]

AP Business Writer Colleen Barry in Milan, Italy, contributed to this report.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.