Chrysler's bold new move
It sounds crazy: Just a week after the White House scolded Chrysler LLC for relying too much on gas guzzlers, the company is heading to a marquee auto show Wednesday to unveil a new SUV.
Chrysler insists the Jeep Grand Cherokee, which clocks in at 20 mpg in its two-wheel-drive version and 19 in four-wheel-drive, is a crowd favourite and a crucial part of its lineup.
“This is a very important vehicle for us. It's one of the primary legs of the Chrysler stool,” Chrysler spokesman Rick Deneau said. “Customers have told us they want this vehicle and that it's the right size.”
The 2011 model is 11 percent more fuel efficient than its predecessor, powered by a cleaner and more powerful engine. Still, Chrysler's decision to debut an SUV as its only new car at the New York International Auto Show seems like odd timing to say the least.
On March 30, the Obama administration issued a scathing rejection of the company's survival plan and gave it 30 days to secure a merger with another automaker, most likely Italy's Fiat SpA.
The White House slammed Chrysler for having a product lineup so heavily weighted with trucks and SUVs. It added that the automaker does not have enough products in the pipeline to meet an expected increase in demand for small cars.
But Chrysler is standing by the Grand Cherokee. It's profitable, recognizable and the No. 2-selling vehicle in the Jeep lineup. Grand Cherokee sales fell by almost half during the first three months of the year, but its market share has remained steady, according to Autodata Corp.
“It is one of their most important vehicles,” said John Wolkonowicz, senior automotive analyst for the consulting firm IHS-Global Insight. “The market for SUVs has not completely gone away, particularly for smaller ones like the Grand Cherokee.”
And Chrysler, which is clinging to a $4 billion taxpayer lifeline, has little choice but to focus on the present.
The automaker expects its tentative partnership with Fiat to plug the holes in its small-car offerings. It hopes fuel-efficient Fiat cars, like the two-seater 500, will sell on this side of the Atlantic.
But even if an alliance with Fiat goes through, the Italian automaker's vehicles wouldn't make it to the U.S. until 2011. That means that until then, Chrysler has little choice but to survive on revenue from its current vehicle lineup.
“I think it's going to be written up as being out of touch, but from a business standpoint, I think it's the right thing to be doing,” Wolkonowicz said of the Jeep's unveiling.
In fact, the new Grand Cherokee's new engine does manage to eke out higher fuel economy on top of additional power. Assuming a customer opts for the 20 mpg Cherokee, that means a driver who logs 10,000 miles in a year will spend about $1,020 on gas at today's prices.
The Grand Cherokee also features an air suspension system that lowers the vehicle at higher speeds to improve aerodynamics and fuel efficiency, while also delivering 33 percent better horsepower than its predecessor.
Still, it's no gas sipper. A 2009 Toyota Camry, by contrast, gets 26 mpg and would cost the same driver $785 per year in gas.
The Cherokee is the first of two dozen vehicles that Chrysler, widely believed to be the weakest of the Big Three automakers, says it plans to unveil over the next four years. If the automaker secures a merger along with concessions from its union and other stakeholders, the $6 billion in additional loans promised by the federal government will certainly help it reach that goal.
Karl Brauer, editor in chief of the automotive Web site Edmunds.com, said it may be hard for Chrysler to please both the government, which is demanding greater fuel efficiency from the Big Three, and its customers, many of whom still demand big cars.
“It would be far more foolish for Chrysler to abandon its core competencies in the Jeep brand lineup than it is to come out with a new” Grand Cherokee, Brauer said.
As Wolkonowicz put it: “To some extent, it's refreshing to me to see them not kowtowing to the government.”
DAIMLER
German automaker Daimler AG will see more cost-cutting and a reduced dividend this year after it warned Wednesday it won't get through the worst of the recession until the second half of this year.
"In 2009, the global economy will shrink for the first time since World War II," Chief Executive Dieter Zetsche told Daimler's shareholders at the company's annual meeting in Berlin.
"The automotive industry didn't cause this crisis, but is feeling the full brunt of its impact and suppliers and dealers are suffering just as much as manufacturers," he told some 7,000 shareholders gathered in the cavernous Berlin ITB Messe. "Ultimately, nobody will go unscathed by an economic crisis."
Zetsche said the Stuttgart-based company, whose brands include Mercedes-Benz, Smart, Maybach and AMG, was poised to take "all the required measures," to remain strong, including more cost saving and efficiency plans besides the ones it has already announced.
Daimler said it would stick with rigid cost management and reduced labor costs, including management pay cuts, but did not provide a figure on how much savings the plan would create.
Daimler also reiterated it expects a first quarter loss, because of the economic downturn's pinch on the automotive industry, but didn't provide any figures. In February, the company posted a fourth-quarter loss of euro1.53 billion - its first in two years.
Daimler's full-year 2008 revenue slid 12 percent to euro23.2 billion compared with euro26.5 billion in 2007.
As a result, the company plans to reduce its dividend by 70 percent to 60 euro cents a share compared with the euro2 a share it paid last year.
The company didn't provide a more detailed outlook, citing the uncertainty of the global economy. However, it said the company does expect a gradual improvement in earnings through the rest of this year.
That did not mollify some shareholders, many of whom interrupted Zetsche's speech with protests and condemnations of the performance of the company and its managers. Other shareholders yelled for people in the crowd to "shut up!"
"Write down your question so you won't forget," Zetsche responded.
Earlier this month, Daimler said it hoped to save euro2 billion ($2.7 billion) in personnel costs by cutting work time for 73,000 workers - largely administrative staff - in Germany by as much as five hours a week, but did not plan to eliminate jobs.
Those plans are unrelated to the previously announced decision to put some 50,000 automotive production workers on shorter hours. Daimler has said it also plans to put another 18,000 commercial vehicle workers on shorter hours after Easter. German companies often reduce hours worked to scale back output.
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