Ready To Set Record-Low Sales, Chrysler Heads for 2010 in Reverse
December 30, 2009

A little more than a month after Chrysler Group LLC outlined a new five-year plan to restructure and reinvigorate the company as it combines operations with Italy's Fiat S.p.A., the market isn't helping Chrysler's plan look any less overreaching: sales plunged again last month; the company is cutting production and layering on incentives; and the new-product pipeline is scanty as ever.

Chrysler's limping finish to 2009 and dim prospects to start the new year are underscored by this simple fact: when full-year results are tallied, the company will sell less than 1 million units in the U.S. for the first time since 1962.

In a speech in Washington, D.C. in early December, CEO Sergio Marchionne insinuated Chrysler is struggling with how to manage potential production increases. The Detroit News reported Marchionne as saying, "Chrysler is now in the enviable position of having to choose how and where and when to increase capacity. Not because I am suicidal, but because of the fact that I need a production base to try and deal with these products that are coming to market."

At the end of the year, however, Chrysler was quietly preparing to curb production at several key assembly plants.

Sales Off; Manufacturing Shutdowns Return

Chrysler scheduled extra, holiday-extending downtime at seven North American assembly plants -- surely a preemptive strike to avoid forming the destructively outsized inventories that have dogged Chrysler in recent years. With total sales off 25.5 percent in November from a year earlier, data analysts at Edmunds.com said the month was the third-worst they had recorded for Chrysler. For the year through November, Chrysler sales have declined 38 percent.

Worse, Chrysler's November sales were buoyed by a huge percentage of fleet sales. As much as 48 percent of Chrysler's November sales were to fleets, possibly an industry record percentage in the none-too-profitable business. December sales estimates peg Chrysler's fleet percentage to be as high, if not higher than November's.

In total, Edmunds.com estimates Chrysler will sell 82,000 vehicles in December, closing out the year at 922,909 vehicles sold.

At the same time, Chrysler scheduled extended holiday shutdowns at its Canadian plants -- Windsor, Ontario (Chrysler Town & Country, Dodge Grand Caravan) and contract-assembled Volkswagen Routan minivans) and Brampton, Ontario (Chrysler 300, Dodge Charger, Dodge Challenger).

And in the U.S., the company was stretching planned holiday shutdowns at the Warren, Michigan, assembly plant (Ram 1500, Ram Dakota, Mitsubishi Raider); the Belvidere, Illinois, manufacturing site (Dodge Caliber, Jeep Compass, Jeep Patriot); the Toledo, Ohio, plant that produces the Jeep Liberty and Dodge Nitro and a second plant in Toledo that makes the two-door and four-door Jeep Wrangler models.

In Mexico, the Toluca assembly plant (Chrysler PT Cruiser, Dodge Journey) was scheduled for extra downtime.
 
With the exception of the Journey crossover, none of the models at the plants with extended shutdowns is selling well.

Five-Year Targets: Sales Heading in Wrong Direction

Sales for the Chrysler Town & Country minivan were down 31 percent through November; its counterpart Dodge Caravan was off 30 percent.

The Brampton-made Chrysler 300 has slid 42 percent so far this year, while sales for the Belvidere-assembled Caliber, Patriot and Compass are down a respective 62 percent, 46 percent and 55 percent through November.

For the Toledo-made Jeeps, year-to-date sales are off 38 percent for the Liberty and 3 percent for the Wrangler. Total Jeep sales are off a precipitous 32 percent this year and the brand is tracking to sell about 230,000 units this year -- yet Chrysler also has large-scale sales-volume increases projected for Jeep, targeting 800,000 global sales at the finish of its five-year plan.

Sales for the Ram pickup line (which includes Ram Heavy Duty, assembled in Saltillo, Mexico) are down 28 percent for the year; Dakota sales are off 59 percent.

The Ram's dropoff should be most worrying, perhaps, as the company is breaking off the Ram as its own brand and the five-year plan proposes to increase the new brand's sales by 50 percent.

The Ram Heavy Duty is Chrysler's only wholly new model for 2010, but the light-duty Ram, on which the majority of the lineup's volume lies, is struggling in the market: data from Edmunds.com indicate the Ram 1500's days-to-turn (the number of days a vehicle remains on a dealer's lot before being sold) had been rising from the mid-90s this spring to as high as 150 days in October -- and the Ram's days-to-turn has not been under 100 since April, according to Edmunds.com's analysis.

Further, Ram's sales as a percent of the category hit their lowest level in November, at 7.96 percent, Edmunds data show. That figure compares with highs of 13 percent and 14 percent this spring.

The Toluca, Mexico plant's Dodge Journey is one of just two Chrysler products (the other being the Dodge Challenger) with year-to-date sales on the positive side of the ledger through November. Journey sales were up 10 percent compared with 2008, the crossover's launch year, and sales were up 93 percent in November.

Incentives Remain High

Edmunds.com's proprietary True Cost of Incentives (TCI) figure for Chrysler in November was $3,298, trailing only General Motors Co. as it spends mightily to clear out the remnants of its winding-down Hummer, Saab, Pontiac and Saturn brands.

Chrysler's November TCI was down considerably from October, however, and is reduced from November, 2008's $3,514.

But the company's continuing high incentive levels, combined with its high level of fleet sales, seem fundamentally at odds with plans for profitability, particularly if sales volumes remain at historic lows. In addition, Chrysler recently reinstated employee-pricing discounts and announced it is getting back into the lease game.

Marchionne said Chrysler had positive revenue in the third quarter and added more than $1 billion to its total cash on hand. Yet those figures likely were delivered by the Cash for Clunkers program.

Longer-term, Chrysler's five-year business plan projects a doubling worldwide sales to 2.8 million by 2014. And an operating-profit breakeven next year.

As 2009 draws to a close and the company starts 2010 with extended production curtailments, current metrics do not seem to be taking Chrysler anywhere near those compass points. -- Bill Visnic, Senior Contributing Editor

Posted by Michelle Krebs at 6:16 AM under Analysis , Chrysler , Featured | Comments (4) | digg this | Seed Newsvine

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