Chrysler to drop discounts and focus on brand
Tuesday, January 12, 2010
Sergio Marchionne, the head of Chrysler Group LLC, said his troubled automaker will move away from being a “wholesaler” of vehicles this year, opting instead to rebuild its brand and start trading on the quality of its cars and trucks.
Chrysler has been offering customers deep discounts to maintain some semblance of past sales volumes. Mr. Marchionne said if ditching this policy means losing market share and idling plants in the meantime, so be it.
“There’s no use in producing cars that people aren’t willing to pay [for],” he told reporters at the North American International Auto Show in Detroit Tuesday.
“I need to run this business to make money.”
Last year was one of the most difficult years on record for Chrysler, the smallest of the Detroit three automakers, as it struggled through a bankruptcy that scared customers away from the brand.
In 2009, Chrysler’s worldwide sales dipped to a little more than 931,000 units, marking the first times it sold fewer than a million vehicles around the globe in 47 years.
Mr. Marchionne warned Tuesday that Chrysler’s troubles are far from over. He said 2010 will mark a “difficult transition year” for the automaker as it struggles with profitability and to reconnect with consumers.
He has said he is optimistic that the company will break even this year, and return to profitability in 2011 — a time he said would also be reasonable to expect a public offering of the company’s shares.
But, in order to return to the black, Chrysler will have to sell more than 1.1 million units in the U.S., and 1.65 million units worldwide, a significant hurdle in today’s economy.
The largest challenge in meeting that goal, Mr. Marchionne said, is that many of Chrysler’s new platforms, including a redesigned 300, Grand Cherokee, and Charger, won’t be available until the second half of the year.
Accordingly, he said he expected sales in the first part of the year to be “mediocre” before they pick up again in the second half of the year.
In fact, there was a notable lack of new cars on display at the Chrysler/Fiat pavilion in Detroit this year.
“We know there are issues in connection to the cars,” Mr. Marchionne told reporters in Detroit. “When we went through bankruptcy, it’s not as if the bankruptcy judge gave us 13 different architectures and 16 models. He didn’t. He gave us what the old car company had.”
Part of the issue is that Chrysler’s former owner, Cerberus Capital Management, failed to direct the level of funding needed for new vehicles, and directed them to vehicles, like the 300, instead of the compact and sub-compact segments, which have undergone significant growth in recent years. That will change under his leadership, he promised.
Mr. Marchionne said he was unconcerned about the criticism that Chrysler unveiled no new concepts at the show in Detroit this week, especially when there’s a chance they won’t even be built.
“I gotta be able to get to next Christmas,” he said. “Our attempt now is to use this period of time to rebuild the connection back with the customer.”
To that end, Chrysler will stop discounting its cars in order to preserve market share, Mr. Marchionne said.
“[We need] to get rid of the wholesale mentality of the company,” he said. “I will not turn this into a distribution machine, because I know I can’t make money. That structure, that philosophy won’t work.”
He added that the funds typically allocated for discounting will be used to market the brand, and hopefully get it to start trading on the quality of the vehicles Chrysler builds rather than the discounts it offers.
“That is why Toyota sells cars. That is why Honda sells cars and why Ford sells them,” he said.
Meanwhile, Mr. Marchionne confirmed that if the automaker does decide to build its new Alfa Romeo 169 it will do so at its plant in Brampton, Ont.
But, he added that a business case will have to be made for the car before it is launched. Mr. Marchionne he would make a decision by the end of the year on whether to launch the new luxury sedan or not.
“If we build it, it is likely that it will be built [in Brampton],” he said. “Alfa, historically, has been a drag on the resources of the Fiat group. It has never delivered on its promises.”
He said, if the right business case could be build for it, Alfa could become a very good brand for the company.
Mr. Marchionne has been at the helm of Chrysler since last July when the automaker maker emerged from bankruptcy protection and partnered with Italy’s Fiat SpA, which now owns 20% of Chrysler.
General Motors Corp., which like Chrysler received a government bailout from the U.S., Canadian, and Ontario governments during its bankruptcy restructuring, has said it plans to pay back its loans by the end of this year.
Chrysler, by contrast, has said it would pay back its loans by the end of 2014.
LINK:
Chrysler to drop discounts and focus on brand
Linear Mode
