3 reasons Chrysler will be scrapped

The Fiat-run company's recent sales growth a year after its bankruptcy is nice, but isn't as rosy as you may think

By InvestorPlace Jun 8, 2010 11:13AM

chrysler bankrupt auto makerThe May auto sales numbers that recently hit Wall Street were cheered by many in Detroit. Between recall woes at Toyota (TM) and a rebound in consumer spending, Domestic Automakers Ford (F), GM and Chrysler posted nice year-over-year gains.


Unfortunately, those figures may not mean much. After all, we're comparing numbers with the month that consumers learned GM and Chrysler were entering bankruptcy protection -- so it would be hard not so show improvements.


A closer look at the numbers show that all is not well, particularly at Chrysler. In fact, here are three reasons the company could fold completely if things don't change in a hurry:

 

Rising Tide Won’t Last Forever: While major automakers all reported large gains in May sales as overall U.S. vehicle sales increased 19%, investors shouldn’t sound the all clear. Industry experts note that the majority of vehicle purchases on the month were not made by individual consumers but rather by businesses. GM reported a 17% gain in sales compared to a year ago, but fleet sales accounted for 38% of that tally – a whopping 45% increase over last year. Ford reported a 23% rise in sales its remaining three brands but saw 37% of those sales go to fleets. As for Chrysler? Well, it’s overall sales were up 33% -- but the company doesn’t release its fleet figures. Hmm.

Jeep Sales Continue to Be an Anchor: Once a cash cow during the SUV craze, Jeep actually held back Chrysler’s impressive sales leap in May. Jeep sold almost 23,000 vehicles to tally a modest 6% increase from the previous year. That’s not a good sign, considering gas prices are still fairly affordable. The problem is that Jeeps are a lot like convertibles – fun cars that are painfully impractical. A $30,000 toy is hard to justify in this era of new austerity. Sure, there are still people who can afford soft-top Jeeps – but most of them can also afford a BMW, Lexus or other plus brands. That leaves the outdoorsy Jeep in a no-man’s land between impractical for regular folks and not luxurious enough for the big spenders.

 

Where is Fiat? Back in March, Louis Navellier gave five reasons Chrysler was destined for the scrap heap -- and one was the lack of new models. After all the fuss American auto writers made about the sticky Fingers of Fiat, there has still been a heck of a lot of nothing so far. The handwringing over how U.S. consumers will feel about the brand, about whether Chrysler branding or Fiat branding will be used – it has all been a very long and drawn out academic exercise. As of right now, the only small to mid-sized “car” under the Chrysler brand is the PT Cruiser. In the Dodge family, the Caliber offers a smaller automobile for families – but starting at over $17,000, this is hardly in the same league as compacts like the Chevy Aveo, Nissan Versa, Ford Focus, Hyundai Elantra and Toyota Yaris that can all be picked up for at least $5,000 less (albeit with fewer options). Without a low priced Fiat to get Chrysler in on the ground floor of auto sales, this company will continue to suffer.


For more thoughts on why Chrysler is fading fast, read the full article 5 Reasons that Chrysler is (Still) Doomed.


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