New Models Help Chrysler Cruise to Higher Sales
Chrysler Group, long the crisis-prone junior member of the U.S. Big Three auto industry, has figured out how to rev its engines.
Three new cars -- the Chrysler 300, Dodge Charger and Dodge Magnum sport wagon -- are big hits with their bold, muscular designs, long hoods, low rooflines and bulging fenders. Many buyers are also ordering these models with a pricey new engine, the powerful Hemi V8.
So while General Motors Corp. and Ford Motor Co. lost money in the second quarter in their North American auto operations and are struggling to find ways to connect with the car-buying public, Chrysler has suddenly become a model for success as it posts profit and market share growth.
Chrysler’s U.S. market share through June was 13.8% -- its best six-month showing this decade as it pulled within 3.6 percentage points of Ford. The market share gap between the two rivals is now the narrowest since the end of World War II. Ford, the second-largest domestic automaker, has lost market share for eight consecutive years.
“Chrysler is proof that it all comes down to product,” said Jeff Brodoski, an automotive market analyst with J.D. Power & Associates.
It’s a big change for a company that twice has teetered on the brink of insolvency in the last quarter-century. Chrysler, the American arm of Germany’s DaimlerChrysler since 1998, reported a $1.9-billion profit last year and a $325-million first-quarter profit and is expected to announce strong second-quarter earnings today.
Chrysler has recaptured the days when American cars sold well because they were truly distinctive, not heavily discounted, analysts said. Its recent sales gain is predominately “a triumph of product over incentive,” said analyst Maryanne Keller, who runs her own research firm in Stamford, Conn.
The new cars “are bringing in a lot of new customers, and even if they don’t end up buying a 300, a lot of them end up with one of our minivans or something else,” said Richard J. Romero, owner of Jeep-Chrysler of Ontario. Floor traffic at his dealership has increased by about 40% since the Chrysler 300 model was launched last year.
The trio of new vehicles use a sizable number of components developed by stablemate Mercedes-Benz for its C-series cars, which helped cut new-product costs. Chrysler’s biggest design coup, though, was developing passenger cars that appeal to buyers of both genders and all age groups.
Additionally, the optional Hemi engine is available in all three new cars -- as well as in the Dodge Ram pickup and several sport utility vehicles -- and analysts say it generates $4,000 in profit with each sale.
The Hemi takes its name from the iconic Hemi V8 of the 1960s and ‘70s, an engine that powered muscle cars like the Road Runner, Barracuda, Super Bee and the original Chrysler 300s and Dodge Chargers. To date, Chrysler has sold more than 600,000 cars and trucks with new Hemi engines, which it introduced in late 2002.
“If you are going to make headway in the passenger car market, especially in Southern California ... you’ve got to have cars that turn people’s heads,” said Bob Davis, owner of Glen E. Thomas Dodge in Signal Hill.
To meet demand for its cars, Chrysler is working at 90% of its plant capacity, while Ford is using only about 86% of its capacity, according to the 2004 Harbour Report on auto industry manufacturing efficiency.
Chrysler, with just 13 North American manufacturing plants to Ford’s 23, can’t make enough cars and trucks to become the No. 2 automaker. Most signs do point, however, to a continued narrowing of the gap with Ford.
Ford has seen profit slip substantially this year and has said that this trend is likely to continue. The company plans to close or reduce capacity at several facilities as part of its turnaround strategy.
Both companies say profit, rather than market share, is their goal. But analysts say market share is the only way to keep score. If market share is slipping, “that’s a pretty good indication that the public doesn’t like your cars, and selling cars is what it’s all about,” Keller said.
For its part, Ford says its shrinking market share is the intentional result of a plan to reduce low-profit vehicle sales to auto rental fleets.
Given the increasing competition by import brands, “the fact of the decline isn’t a concern, but the magnitude is,” said George Pipas, Ford’s market and sales analyst. “We are being punished for taking our eye off the ball in the ‘90s” and forgetting the importance of good product design.
Still, Pipas expects Ford’s slide to stop as several recent models, including the full-size Ford 500 sedan, start to pick up steam and new models, including a redesigned Explorer SUV and the Ford Fusion and Lincoln Zephyr mid-size sedans, are introduced in coming months.
Over the long haul, Pipas expects all three of the domestic carmakers to lose a bit more share as competition from imports increases.
“First it was the Japanese, then the Koreans came, and now we’re looking at the Chinese and even Indian automakers” to enter the U.S. market, he said.
Indeed, what Chrysler’s growth may have done is help it to stave off the seeming inevitability of Toyota Motor Corp. booting it out of the Big Three in the U.S. Through June, Toyota’s U.S. market share was 13%.
By matching GM’s hit “employee discount” campaign this month, both Ford and Chrysler are expected to post big sales volume increases for July. In June, when it was the only company offering employee discounts to the public, GM spent an average of $3,865 per vehicle in various incentives, while Chrysler’s incentives averaged $3,696 and Ford $3,188, according to Edmunds.com, a Santa Monica-based automotive information provider.
But while Ford and GM spread their incentives over many vehicles, including almost all of their passenger cars, Chrysler and Dodge dealers were able to sell their hot new cars with little discounting. Instead, Chrysler concentrated most of its incentives on pickups and SUVs, the slowest movers in these days of rising gasoline prices.
On Wednesday, DaimlerChrysler’s shares closed at $43.97, up 99 cents.
