Chrysler's Challenge: Finding Customers During Bankruptcy
May 05, 2009

By Michelle Krebs

DETROIT -- Chrysler has launched a major advertising campaign, to be coupled with a cash and dealer incentives, in its effort to convince new buyers to purchase Chrysler, Dodge and Jeep vehicles and keep current owners in the fold.

But even before it officially filed for Chapter 11 bankruptcy last Thursday, Chrysler was struggling to maintain its once-loyal buyers. In the months leading up to Chrysler's bankruptcy filing -- and despite some of the highest incentives ever in the U.S. auto industry doled out by Chrysler -- the automaker's customer loyalty has dropped on the news of its financial duress. Customer loyalty fell below 50 percent in April, according to Edmunds.com's data. That is, less than half of Chrysler owners who traded in their vehicle did so for another Chrysler, Dodge or Jeep vehicle.

"Chrysler's loyalty numbers prove that you can't buy customers," said Edmunds.com analyst Jessica Caldwell. "Despite leading the industry in incentives for the past few months, Chrysler owners are still turning elsewhere when making their new vehicle purchases."

In February, 54 percent of Chrysler owners traded for another Chrysler model; by April, the percentage dropped to 49 percent, according to Edmunds.com's data. Chrysler buyers are even less sure about Chrysler than also-struggling General Motors, which may be forced into bankruptcy as well. From February to April, GM's customer loyalty held steady.

And Chrysler's waning customer loyalty came home to roost in April, when the automaker reported sales down 48 percent from April 2008 - the most significant drop among the Big 7 automakers and far larger than the total industry's decline of 34 percent.

Where Have All the Chrysler Buyers Gone?

Not surprisingly, formerly loyal Chrysler customers are turning to mostly other domestic vehicles.

Ford, considered the healthiest of the domestic automakers by not accepting federal government loans as Chrysler and GM have, is capturing the most Chrysler expats. In March, of Chrysler owners who traded a Chrysler, Dodge or Jeep brand model for a new vehicle, 10.51 percent purchased a Ford product. GM took 9.74 percent.

However, Toyota is benefiting from Chrysler's weakness as well as it ranked 2nd behind Ford for Chrysler defectors. Of Chrysler owners who traded a vehicle for a new one in March, 9.95 percent of them picked a Toyota.

Based on March 2009 figures
Source: Edmunds.com

Jeep, Dodge Owners: Most Loyal to Chrysler

Of Chrysler vehicle owners, the most loyal to the company are Jeep and Dodge owners. Dodge owners are slightly more loyal to the Dodge brand than Jeep owners are to the Jeep brand.

Of Dodge owners who traded-in their old Dodge for a new vehicle, 53.5 percent bought a Chrysler product -- 43.3 percent bought another Dodge, 5.4 percent bought a Chrysler and 4.82 percent bought a Jeep. However, 11.1 percent of them went for a Ford instead of any Chrysler product. Toyota and Chevrolet also captured some defectors.

Based on March 2009 figures
Source: Edmunds.com

Of Jeep owners who traded in their old Jeep for a new vehicle, 52.7 percent got another Chrysler model -- 39.8 percent bought another Jeep, 9.6 percent of them traded their Jeep for a Dodge and 3.3 percent went to the Chrysler brand. Those who left Chrysler completely went to Toyota and Ford, mostly. The rest of Jeep defectors went to Honda, Nissa, Hyundai and Mazda in smaller amounts.

Based on March 2009 figures
Source: Edmunds.com

Chrysler: Lower Loyalty, Higher Vulnerability

The Chrysler brand is the most vulnerable to cuts by the automaker's new owner, and its loyalty numbers provide more evidence why it should be. 

Of Chrysler brand owners who traded their vehicles for a new vehicle in March, only 45.4 percent opted for a Chrysler, Dodge or Jeep vehicle. Only 29.5 percent opted for another Chrysler-branded model.

The Dodge brand, at 11.9 percent, ranked as the second most popular choice for former Chrysler-brand buyers. The Chrysler and Dodge brands share the underpinnings of their vehicles, suggesting the automaker could drop the Chrysler brand and fill in with Dodge products.

Of those who traded in a Chrysler-branded product, only 4 percent selected a Jeep.

Toyota ranked as the No. 1 non-Chrysler beneficiary of brand defectors, followed by Ford, Honda, Chevrolet and Nissan. Hyundai and Kia rounded out the list.

Based on March 2009 figures
Source: Edmunds.com

The New Company, New Campaign

The New Chrysler" was the slogan used a couple of years ago when private equity firm Cerberus Capital Management bought the American automaker from Germany's Daimler. Now Chrysler is using it again in its advertising campaign launched in newspapers Monday that uses the line "We're building a new car company."
 
On Tuesday, Chrysler is expected to announce the incentive portion of its initiative. It will include customer cash rebates, already the highest in the industry, and, what Chrysler executives last week called an "aggressive loyalty campaign."

The package also will include factory-to-dealer incentives particularly on models high in inventory -- but possibly only paid to dealer considered ihigh contributors to the automaker's sales.

In total, Chrysler has the highest inventories. As of the end of March, the days-to-turn on Chrysler vehicles -- that is the number of days from when a new vehicle is delivered to a showroom until it is driven away by a buyer -- stood at 123 days, well above the industry average, which is high, at 98 days.

Where the Deals Are

Chrysler has a number of models with an excessive amount of inventory -- enough to last the automaker six months at today's sales rate. Those models likely will see the most aggressive incentives.

Among Chrysler's models with the highest days-to-turn in April were its midsize Dodge Avenger and Chrysler Sebring, which eventually could be replaced with Fiat models as Chrysler has scheduled the permanent closure of the Sterling Heights, Michigan, assembly plant that makes them, according to its bankruptcy filings. Chrysler also plans to end production of the PT Cruiser, built in Mexico, this year and it has an overabundance of inventory.

The Chrysler Aspen, scheduled to be dropped, and the oversized Jeep Commander also makes the bloated inventory list.

The Dodge Caliber and Jeep Compass and Patriot are in hefty supply, which does not bode well for the Belvidere, Illinois, plant where they are assembled. 

Rounding out the hefty inventory list are the once-hot Dodge Charger muscle car and the redundant Jeep Liberty-based Dodge Nitro.

 Source: Edmunds.com

Slashing Production

In addition to incentives, Chrysler also has puts its assembly plants on hiatus for the duration of its Chapter 11 bankruptcy proceedings to slash bloated inventories. Chrysler execs and government officials are hopeful bankruptcy will take only 30 to 60 days; experts are doubtful.

Meantime, Chrysler's ad campaign features three new Chrysler models yet to hit showrooms -- and ones that may be delayed as a result of the automaker's plant shutdowns. The ad features the 2011 Jeep Grand Cherokee, unveiled last month at the New York auto show. A Chrysler exec Frank Ewasyshyn told the bankruptcy court Monday that the Grand Cherokee could be delayed 18 to 24 weeks even if Chrysler plants restart in 60 days. Current versions of Grand Cherokees must be finished before assembly of new ones can start. Further, Esawyshyn told the court suppliers are balking at sending Chrysler tooling and parts for the new Grand Cherokee during the bankruptcy proceedings.

The other two vehicles featured in the ad are the Chrysler 200c concept and the Dodge ENVI electric roadster, and they are not yet scheduled for production.

So while Chrysler may boast in its ad that it's building a better car company, few new products are coming down the pipeline any time soon. 

Chrysler's ads explain that Chrysler warranties are solid and backed by the U.S. government. President Obama, in announcing Chrysler's deal with Italy's Fiat and its bankruptcy filing last Thursday, reiterated that the government would back the automaker's warranties. He also encouraged Americans to Buy American.

Time will tell if Americans heed his call.

Posted by Michelle Krebs at 9:43 AM under Analysis , Business , Chrysler , Featured | Comments (0) | digg this | Seed Newsvine

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