Chrysler headed for the scrapheap

Fiat bought Chrysler for the distribution, but an inefficient network and still-falling sales could spell doom for this 85-year-old car brand.

By Louis Navellier Mar 30, 2010 9:29AM

A recent Edmunds.com auto sales report offers further proof for an already obvious trend: Chrysler is far from recovery, and there is a very real chance the brand could become all but a memory in 2011.

 

The numbers showed a continued erosion of the former auto giant’s market share last month. Edmunds.com estimates March sales for Chrysler were down more than 10% from last year, the only major automaker that saw a sales decline compared to 2009. By comparison, Ford (F) saw sales up almost 50%. Even worse is that Chrysler sales are sliding even as auto sales in general pick up. March's seasonally adjusted sales rate will be 12.4 million vehicles, up dramatically from 10.3 million in February 2010.

Getting a smaller piece of a bigger pie is a big problem for this ailing Detroit giant. But weak sales mark only the first of many problems for Chrysler right now.

 

Another major problem for Chrysler is that it continues to suffer from a cumbersome dealership network that keeps costs high and makes selling inefficient.

Thanks to the politicizing of the bankruptcy process, Chrysler’s previous plans to shutter 789 dealers ran into some roadblocks. Thanks to congressional mandate, any dealer that doesn’t want to get forced out can file for an arbitration hearing -- and more than half have decided to fight for a right to stay open. So far, none of the 418 pending arbitration cases has even been heard and that has really slowed down Chrysler’s efforts to streamline distribution and cut out dead weight from its network of dealerships to save costs.

 

Who can say how much this inefficient dealership network weighed on sales in March, but surely it had an impact.

My personal view is that Fiat just sees Chrysler as a cheap way to get distribution for its own cars. It’s pretty ironic then that the biggest problem that continues to plague Chrysler is its dealers and that redundancy and high costs are causing headaches for Fiat.

 

When push comes to shove, I expect the cost-cutting to continue. Fiat will surely focus on its core business -- namely the fuel-efficient Fiat 500 and other European-styled autos -- while allowing Dodge truck sales to complement its offerings in the U.S.

 

That leaves the Chrysler brand with no place to go. And as we saw with GM, this is not the time to be hanging on to vehicle lines just because of the nameplate. If Pontiac can bite the dust, so can Chrysler.

 

I am a car nut myself, and it’s sad to think that such an iconic auto brand could just disappear. I graduated college in California about 30 years ago, so the Chrysler LeBaron convertible will always have a soft spot in my heart. But Chrysler cars just don’t have the appeal they once did. As the eternal optimist, I will reserve judgment until the 2011 models hit the showrooms this fall and Fiat makes a real push into the U.S. marketplace.


But if those vehicles flop this fall, the Chrysler restructuring drags on and the profits never materialize, Fiat may jettison the Chrysler name as soon as next year for the good of the broader company.

 

For more on Chrysler’s troubles, read my five reasons I think Chrysler is doomed.

 

At the time of this writing, Louis Navellier owned shares of Ford in personal or client portfolios.

 

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