GM-Chrysler: The Plot Thickens
February 16, 2007

General Motors and Chrysler Group apparently have been in discussions for months about GM supplying a large SUV to Chrysler and developing small cars together.

The news came to light only this week from anonymous sources cited by the Wall Street Journal and The New York Times, after Chrysler announced a restructuring plan that would eliminate 13,000 jobs, close a plant and reduce production capacity after its $1.4 billion operating loss in 2006.

Any deal on either front appears far from complete but would be simple, project-by-project collaborations, patterned after Chrysler’s arrangement to supply Volkswagen with a minivan to sell in North American with a VW badge. A wholesale purchase of Chrysler by GM is unlikely as is any equity swap.

On the SUV front, GM would supply a large SUV, along the lines of its newly redesigned Chevrolet Suburban and Tahoe, to Chrysler. It undoubtedly would sport a Dodge badge as Chrysler for decades has considered an SUV for Dodge that is longer than the Durango.

Ironically, Chrysler’s major problem is its too-heavy reliance on SUVs. Its dependence on truck-type vehicles has been the highest in the industry, with 70% of its sales coming from those vehicles. Sales of those vehicles have slowed due to rollercoaster gas prices in the past year. The one and only assembly plant that Chrysler announced would be permanently closed is in Newark, Del. It builds the Dodge Durango, as well as the nearly identical Chrysler Aspen.

Currently, Chrysler is overloaded with Durango inventory. Edmunds.com figures show it is taking 179 day to sell one, compared with 86 days for other large SUVS and 67 days industry wide for all vehicles. The Aspen isn’t taking as long at 46 days, but its days-to-turn rate has been climbing by the month since it was launched in September.

The future of the Aspen is extremely shaky. It could be the first of Chrysler’s nameplates to bite the dust in Chrysler’s nameplate-reduction plan. Only introduced in September, the Aspen already is being heavily discounted, as much as $3,375 a vehicle, according to Edmunds.com figures. Plus, it costs a tremendous amount of money – money Chrysler doesn’t have – to establish a new nameplate. Ford executives, in announcing the comeback of the Taurus name to replace the Five Hundred, suggest that number is in $100 million range.

On Wednesday, Chrysler not only announced it is reduction of nameplates, but also said it is reducing the number of vehicles platforms, from the current 12 to seven by 2012. Front-wheel-drive unibody platforms, used for small and midsize cars, will be reduced from five to three. Three rear-wheel-drive unibody platforms, like those used for the Chrysler 300, drop to two. For truck-type, body-on-frame vehicles, Chrysler will go from four to two – of its own, at least.

Another interesting point about the Durango is the fact that it was to be the first Chrysler to go hybrid. GM and Chrysler, through DaimlerChrysler, along with BMW have a three-way coop to develop future hybrid vehicles. GM rolls out the first hybrids from that project this year on its large SUV and truck platform. Chrysler, way behind GM and Ford in hybrids, was to be next up with a hybrid-powered Durango.

The revelation of talks between GM and Chrysler suggest maybe Chrysler’s hybrid vehicle could be on its re-badged GM model.

At the opposite end of the spectrum, where Chrysler’s need is the greatest, small car development top the list of talks between GM and Chrysler apparently. Chrysler is in dire need of a small car. The smallest and cheapest line currently in its line is the Dodge Caliber crossover, which essentially took the place of the Dodge Neon. However, the Caliber starts at $13,575; significantly higher than GM’s Chevrolet Aveo at $9,995.

In December, Chrysler announced it had reached in principal an agreement with China’s Chery, formerly in cahoots with entrepreneur Malcolm Bricklin. But apparently that’s not a done deal. At Wednesday’s press briefing, Chrysler CEO Tom LaSorda said the Chrysler-Chery deal had yet to go before the DaimlerChrysler supervisory board but was on the agenda for later this month.

Such a small car, like the Chevrolet Aveo, would come out of GM Daewoo Auto & Technology Co. Formed from the pieces of the failed Korean automaker, Daewoo, GM controls this venture in South Korea, which also has as minority auto company partners Japan’s Suzuki Motor and China’s Shanghai Automotive Industries Corp. (SAIC). SAIC is GM’s partner in China.

The venture has proven an extremely valuable and critical element in GM’s turnaround plan. It has provided cars to feed GM’s growing China sales, and, branded as Chevrolets, its European ventures, especially in Eastern Europe.

In terms of overseas business, Chrysler’s LaSorda said growing its non-North American business is critical to its turnaround.

To that end, Chrysler will introduce its first Dodge branded car in China, according to reports from Bloomberg News. The Chrysler brand will add a model in China, where it now sells the 300 and will add the Sebring later this year. Jeep will add three. What those vehicles are and where they will be built – imported or at Chrysler’s joint venture plant in Beijing that makes the 300 -- is yet unknown,

Posted by Michelle Krebs at 6:01 AM under Analysis , Chrysler , Companies , GM | Comments (0) | digg this | Seed Newsvine