Chrysler: Trying to Avoid Last Year’s Inventory Debacle

Chrysler: Trying to Avoid Last Year’s Inventory Debacle

Not wanting a repeat of last fall’s situation, Chrysler is temporarily closing several plants beginning next week and eliminating overtime at others in an effort to head off bloated inventories of several models.

Last year at this time, Chrysler’s inventories of unsold vehicles built to extremely high levels, contributing to the automaker’s $1.5 billion third-quarter loss, which, in turn, prompted parent company DaimlerChrysler (now Daimler AG) to put the U.S. automaker up for sale.

The temporary shutdowns and elimination of overtime at affected Chrysler plants, which combined employ more than 23,000 workers, came immediately after Chrysler reported a 5-percent decline in September sales. They also come on the eve of negotiations between Chrysler and the United Auto Workers on a new four-year contract and within only a couple months of new Chrysler owners, Cerberus Capital Management, taking over.

The sales drop and production cutbacks suggest Cerberus has a lot of work to do to turn Chrysler around.

Chrysler Plants Temporarily Closing

Chrysler will close the following plants next week. All but one will be closed for a week; the Belvidere, Ill., plant will close for two weeks:

· the Toledo (Ohio) North Assembly plant that just began building the new Jeep Liberty in July with the plant celebrating the new model only last month. Employs 3,408;

· the Jefferson North Assembly Plant in Detroit that makes the Jeep Grand Cherokee and Jeep Commander. Employs 2,400;

· the Warren, Mich., truck plant that builds the Dodge Ram, Dodge Dakota and Mitsubishi Raider. Employs 2,400;

· the Belvidere, Ill., Assembly Plant that builds the Jeep Compass and Jeep Patriot as well as the Dodge Caliber. Employs 3,815;

· the Dundee, Mich., Engine Plant that jointly builds with Hyundai and Mitsubishi a variety of displacements of the global four-cylinder engines used in the Caliber, Compass, Patriot, Dodge Avenger and Chrysler Sebring.

Chrysler also eliminated overtime at six other plants:

· the Conner Avenue (Detroit) Assembly plant that builds the Viper. Employs 115;

· the Sterling Heights (Michigan) Assembly plant that builds the Chrysler Sebring sedan and convertible and the Dodge Avenger. Employs 2,718.

· the Toluca (Mexico) Assembly plant that builds the Chrysler PT Cruiser and the PT Cruiser Convertible. Employs 2,280.

·  the Newark, Del., assembly plant that builds the Dodge Durango and  Chrysler Aspen. Employs 1,125. The plant is eventually scheduled for permanent closure under Chrysler’s recovery plan.

· the Saltillo, Mexico, plant that builds some versions of the Dodge Ram. Employs 2,145.

· the St. Louis South Assembly plant that builds the Dodge Grand Caravan, the Dodge cargo van and the export version of the Chrysler Grand Voyager. Employs 2,800.

Inventories: Not Out of Control -- Yet

Overall, Chrysler inventories are not out of control yet. Edmunds.com’s analysis puts Chrysler’s total inventories at 71 days of supply, only slightly above the ideal 60 to 65 days and 15 percent below year-ago levels.

Still, Chrysler’s September sales fell 5 percent from a year ago; sales for the calendar year to date are off 3 percent. Chrysler execs said this week some of the drop was due to an intentional 20-percent reduction in fleet sales for the second half of the year.

Nevertheless, in many categories, Chrysler’s sales performance was dismal. In fact, Chrysler showed sales increases in only five models in its entire portfolio, those being the brand-new Chrysler Sebring and Aspen sport-utility, which has been a sales disappointment from the start so it had no place to go but up; the Dodge Ram, despite stiff competition in the full-size truck market; Dodge Nitro; and Jeep Wrangler models.

Ominous Signs

Chrysler’s September sales scorecard was splattered with bad news:

· Chrysler brand sales down 18 percent in September, 10 percent for the year, pulled down by lower truck sales;

· Jeep brand sales were down 11 percent in September, though higher for the year thanks to strong Wrangler sales;

· Dodge brand sales rose in September but are off for the year to date.

Extremely disconcerting is the fact that the new Jeep Liberty just went into production in July, the plant held its celebration for the new model only in September and already the plant is being idled to adjust inventories.

What’s also concerning is the fact that the entire crossover segment is flourishing – just note the doubling of crossover sales for Ford and the immense success General Motors is enjoying with its trio of crossovers. But Chrysler’s offerings in the segment – specifically, the Dodge Caliber and Jeep Compass – are failing to thrive, suggesting Chrysler has missed the mark on crossovers.

Keeping an Eye on Minivans

To be watched in the coming months are Chrysler’s critically important, bread-and-butter minivans, the   Chrysler Town & Country and Dodge Grand Caravan.

While Chrysler is just now launching its minivans and airing commercials for them, it is also trimming back production by closing the St. Louis plant that makes the Dodge Grand Caravan for a week.

The entire minivan segment was soft in September. Part of the reasons is that General Motors and Ford are withdrawing from the market. But that’s only part of the story. Most manufacturers reported minivan sales down: Nissan Quest, down 5 percent; Toyota Sienna, down 29 percent; Chrysler Town & Country, still in ramp-up mode, down 38 percent; Dodge Grand Caravan, also in launch phase, down more than 40 percent. Only the Honda Odyssey up (by 24 percent).

But the trend of minivans is not good. It may well be that Chrysler bet wrong on minivans versus crossovers.

Source: Edmunds.com

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.