Trouble Lurking For Chrysler?
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A year after getting billions of dollars in federal aid to stay in business, Chrysler now brags each month about growing sales, insisting it is rolling down the road to recovery.
But beneath the surface of those sales figures are troubling signs for Chrysler. The company has a long way to go before it is truly healthy again.
Most of Chrysler’s gains this year came from sales to rental car companies, governments and other businesses, according to confidential data obtained by The Associated Press. Everyday drivers have shunned its dated lineup of cars and trucks.
A successful Chrysler is essential for the government because it is trying to get back the $15 billion in emergency loans it made to the company.
Chrysler lost $197 million in the first quarter, and it’s expected to post a net loss when it releases second-quarter results on Monday.
Overall, Chrysler’s U.S. sales rose 12 percent from January through June compared with 2009. But sales to individuals, known as retail, tumbled 21 percent, according to the industry data.
Retail sales are important because they generate bigger profits than sales to rental companies and other bulk buyers, known in the industry as fleet sales.
Chrysler CEO Sergio Marchionne said the company isn’t overly reliant on fleet sales, but he knows that sales to individuals must rise.
He predicted retail sales would go up as new models hit showrooms.
“The fleet side will become less and less relevant. But it’s an important piece of the business,” he said when questioned by reporters last month.
Chrysler does not publicly break down sales for different groups of buyers. It says that its retail sales are slowly growing from month to month.
Lack of enthusiasm for Chrysler cars and trucks is putting stress on its dealers, who are trying to hold on while the automaker overhauls its lineup. Its only new offering this year is the redesigned Jeep Grand Cherokee, although 16 new or updated models are coming soon.
While many dealers are happy with the Jeep, they say they need new products faster. Until those arrive, the automaker has little choice but to rack up sales to bulk buyers, said Erich Merkle, president of consulting company Autoconomy.com.
“I think in Chrysler’s position, you’ve got to take what you can get,” he said.
The carmaker will need to turn around its results if it wants to repay the government’s investment by selling shares to the public. A stock sale isn’t expected until at least next year.
Once Chrysler shares go public, the company would be owned by thousands of shareholders, although Fiat Group SpA, which the U.S. government put in charge, could become the largest shareholder.
Chrysler has yet to post a net profit since leaving bankruptcy protection in June of 2009. But it made $143 million before interest and taxes in the first three months of this year. Marchionne said the only reason the company is not profitable is because it must pay interest on government loans.
But so far this year, Chrysler is the only major automaker to report a drop in retail sales, according to the confidential data. Retail sales for the industry are up 11 percent, and they rose only 1 percent at General Motors Co., the other Detroit automaker to get big government loans.
“I would expect at this point, if they’re successful, they’d be up some number like 15 or 20 percent,” said Gerald Meyers, a former chairman of American Motors Corp. who now teaches at the University of Michigan.
Both Chrysler and GM also lost sales to crosstown rival Ford Motor Co. Ford has posted strong retail sales by stealing customers from the other two.
All three Detroit automakers are struggling to lower their dependence on fleet sales. Roughly two in five Chrysler cars sold in the first half of this year went to fleet buyers. Fleet sales made up 36 percent of Ford and 32 percent of GM buyers.
Chrysler and GM dominate sales to rental car companies. GM’s aging sedan, the Chevrolet Impala, led all models in rental sales during the first five months of this year, followed closely by the Chevrolet Cobalt, a compact that will be replaced in September.
Chrysler’s Town and Country minivan ranked third in rental sales, while its Dodge Charger sedan was fifth.
GM has also struggled to keep customers from defecting after selling or ending its Pontiac, Hummer, Saturn and Saab brands. Only about one in four customers of those drivers is staying with GM’s remaining brands, Chevrolet, Buick, GMC and Cadillac.
That’s less than the 41 percent of buyers that GM kept when it scrapped Oldsmobile in 2004, but more than the 18 percent of Plymouth buyers that Chrysler retained after shedding the brand in 2001, according to J.D. Power and Associates.
GM argues that it is essentially a new company since its trip through bankruptcy protection last year and should be judged on its four current brands. Retail sales of those four rose 19 percent in the first half, GM’s Henderson said. GM made money in the first quarter and is expected to post a second-quarter profit.
Most automakers report their fleet and retail sales figures to Bobit Business Media of Torrance, Calif. R.L. Polk & Co., also gathers fleet numbers from state registration data.
The Associated Press obtained its numbers from two people who have access to the Bobit and Polk data. The people asked not to be identified because the numbers aren’t normally made public.
(Copyright 2010 by The Associated Press. All Rights Reserved.)