Chrysler Faces More Obstacles

The American flag was raised solemnly and a local high school marching band played patriotic songs before a beaming Chrysler Group President Dieter Zetsche cut the ribbon to open a new dealership Wednesday.

“We want to show that we are not scared” in the wake of the terrorist attacks, Zetsche said in inaugurating a dealership in this fast-growing community about 20 miles north of Detroit.

But the upbeat mood was in contrast to the dire prospects Chrysler faces in the immediate future. With sales down 28% last month in the midst of a wrenching restructuring, Chrysler has reluctantly agreed to match free auto loans offered by General Motors Corp. and Ford Motor Co.--a move that probably will delay its return to profitability and play havoc with Zetsche’s meticulous make-over of the American arm of DaimlerChrysler.

Zetsche was dispatched from the parent company in Stuttgart, Germany, in November to take over when DaimlerChrysler ousted James Holden as Chrysler’s president because of a sudden plummet in profit blamed on excessive rebates and discounts.

Today, Zetsche faces much the same situation, forced to discount slow-moving minivans and sport-utility vehicles, with the added burden of deep market uncertainty after the Sept. 11 attacks.

Zetsche said he could not gauge the effect of the attacks on his $4-billion restructuring plan, one of the key elements of which is to wean Chrysler from heavy use of incentives.

“Our intention is to focus on creating demand rather than focus on pushing sales. But we never said we’d stop being in a competitive environment,” said Zetsche, who wore a lapel pin of a U.S. flag with the tiny slogan “God Bless America.” “You have added challenges on the revenue side, and you try to come up with measures to compensate for that. We’re working on this question.”

Sales of the Chrysler, Jeep and Dodge brands fell 15.5%, 19.4% and 33.2%, respectively, last month compared with September 2000. That’s bad news, coming in the midst of a restructuring program that calls for cutting 26,000 jobs and demands that suppliers lower their prices by 5% this year and 10% more by 2003, with the goal of breaking even this year.

Chrysler’s 28% plunge overall in sales was far worse than GM’s 2.9% decline for the month and Ford’s 9.6% drop and makes breaking even by year’s end doubtful.

Last week, Chrysler said it will slash production this month by 26,000 vehicles by closing five plants for one to three weeks to clear out the inventory buildup caused by reduced customer traffic in September.

Chrysler was hit hard by the comparison with a year ago, when it was deeply discounting older models to make way for new ones.

“They had to sell everything at any cost to clear out old minivans and other 2000 models a year ago,” said David Healy, auto analyst with Burnham Securities. “They were having a fire sale, which makes tough comparisons with this year.”

“This year, their new minivans are not selling well, and the Jeep Grand Cherokee is getting long in the tooth and has lots of new competition from practically everybody,” Healy said.

Chrysler also has suffered a drought with its full-size pickup trucks, as it shifts from the previous Dodge Ram, which is running low on supply, to an all-new model that started to appear in showrooms only last month.

“We were almost out of the pickup business, which had another impact on our total volume,” Zetsche said.

Chrysler also was late in following its Big Three rivals in joining the zero-percent financing bandwagon, which GM announced three days after the terrorist attacks.

GM customers in effect get interest-free loans up to five years on 2001 models and up to three years on 2002 models, with loans of up to 4.9% interest for longer-term financing of 2002 models. Chrysler matched those terms for most of its models.

DaimlerChrysler issued a vague profit warning Sept. 28, noting it was too early to assess the effects of the terrorist attacks coupled with declining consumer confidence. The U.S. new-autos market is expected to finish this year at 15.5 million to 16 million in sales, off as much as 1 million from previous forecasts and well below last year’s record 17.4 million. Given that, industry analysts doubt Chrysler can achieve a modest operating profit in 2002, as the company envisioned.

DaimlerChrysler’s shares, like those of the other auto makers, hit a succession of 52-week lows in the days after the attacks, bottoming out at $28.20 on Sept. 21. On Wednesday, the stock gained $1.56 to close at $35.10 on the New York Stock Exchange, still off nearly 15% for the year.

Despite Chrysler’s woes, Robert Brent, owner of the newly opened Orchard Chrysler-Dodge-Jeep dealership here, insists he’s optimistic.

“Our minivan is one of the best in the market, the quietest, smoothest-running one,” he said. “And Jeeps sell themselves once people take a ride in them. I don’t think we’ll have any problem picking up the volume again.”