AUBURN HILLS, Mich. — Chrysler plans to overhaul its vehicles with technology from its new Italian partner, Fiat SpA, and says it has the cash to pay for it, helped by the U.S. government and lower costs.
CEO Sergio Marchionne, who also runs Fiat, began unveiling Chrysler’s new five-year business plan on Wednesday. The plan calls for 75 percent of its vehicle lineup to be new or changed by this time next year, and 100 percent by 2012. Marchionne said the company plans to spend $23 billion on the product turnaround through 2014.
It expects to break even in 2010 and report an operating profit of $5 billion in 2014.
But future growth hinges on better cars and sales. The company’s mid-sized sedans, the Dodge Avenger and Chrysler Sebring, along with many other models, have flopped. Chrysler said it will update these cars to make them more comfortable and quieter, then replace them in 2012 with Fiat designs. That could make Chrysler competitive in the largest part of the U.S. car market.
Besides the mid-size car, Chrysler will introduce four new Dodges by 2013. They include a seven-passenger crossover vehicle, a mini-car and a compact. By the end of next year, most current Dodge models will receive new exteriors, interiors and engines.
Ralph Gilles, the company’s chief designer, said the Dodge brand will have crisp handling, be quieter, more fuel-efficient and have more luxurious interiors, reflecting consumer complaints about all those issues.
The Chrysler brand also will get six new vehicles, including a Fiat small car and a new mid-size crossover in 2013. The automaker is also considering adding a mid-size pickup to its Ram truck lineup.
“We have been waiting for a long time to hear something from Chrysler about their plans,” said Jessica Caldwell, senior analyst at Edmunds.com. “They have desperately needed a new car lineup for a long time. Now, we know it’s building on Fiat’s small cars. It may not be the right road, but I know it’s better than them continuing on the path they were on. They are now going to have to compete with other world manufacturers.”
The compact and midsize car market make up roughly half of the U.S. car sales, but without having an already successful small car, and Fiats having being ranked near the bottom of quality in a recent J.D. Power and Associates satisfaction survey for cars in the U.K. France and Germany, the question still remains, is Americans ready to purchase a new small car from this group?
They may not have a choice.
One part of the Obama Auto Taskforce stipulations for Chrysler receiving billions in taxpayers’ bailout money this summer was using Fiat’s gas-and-diesel engines in Chrysler and Dodge vehicles.
Fiat’s technology has been valued at more than $3 billion.
Infusing Fiat’s technology into Chrysler’s vehicles is designed to meet the government’s standard of 35.5 miles per gallon by 2016. Meeting this standard would not only suffice the government’s requirement, but also increase Fiat’s stake in the company from 20 percent.
Still, Americans have to be sold on buying a small car.
They may not have another option, said an automotive analyst.
“When gas prices are low, people are not thinking about small cars,” said Caldwell. “But with the [government] mandates for all vehicles to become more fuel efficient, there may not be any other choice for consumers but small cars.
“They are trying to make them with more comfort features and be more creative with the styling. Maybe that will help them catch on. But like it or not, they may not have another choice.”
Chrysler is depending on a recovery in U.S. sales and a jump in market share. It expects auto industry sales of 10.5 million vehicles in 2010 to rise to 14.5 million in 2014, and that its share can jump from 9 percent this year to 13 percent in 2014. It also expects its global sales to more than double to 2.8 million in 2014 from 1.3 million this year.
Marchionne said that is a realistic goal, especially now that consumers can be more confident that Chrysler has a plan for its future.
“We’ve been incredibly quiet for the last five months,” he said. “The lack of information outside of Chrysler has not helped.”
However, like the fuel-efficency requirement, the government — which owns an 8 percent stake in Chrysler — also added another requirement for the world’s sixth largest automaker: 40 percent of its sales must be in the U.S. or its U.S. production has to be above 90 percent of its 2008 total.
According to the Government Accounting Office, to recoup the $19.6 billion, Chrysler’s market value would have to be more than $54 billion.
“Since we gave them all this money, at least they could build and sell their cars here. That would be nice,” said Dr. Robert E. Scott, an economist for the Washington, D.C.-based Economy Policy Institute. “The restructuring plans for GM and Chrysler shows them shrinking [production] in the U.S. and expanding it elsewhere in the world.
“They [Chrysler] want to build small cars, but I bet they will import the parts and components for it from Europe. That is not a good thing at all.”
Chrysler plans to lower sticker prices to boost sales and generate more cash as it fixes its struggling lineup.
Doug Betts, senior vice president of quality, said that work is under way to tackle quality problems, too.
“We get it,” he said. “We’re not in denial related to the public record for quality for Chrysler.”
But it will be tough to win back car buyers, who are skeptical of Chrysler’s quality. The automaker’s sales are down sharply this year as buyers flee to other brands and a weak U.S. economy curbs demand for autos. Chrysler lost upward of $8 billion last year and would have run out of cash without government help.
Marchionne’s Fiat, which now owns 20 percent of Chrysler with an opportunity for more, was put in charge of rescuing the 84-year-old automaker by the U.S. government, which so far has provided roughly $15 billion in aid. Chrysler still has around $9 billion of that loan.
Chief Financial Officer Richard Palmer said the company aims to pay back government loans by the end of 2014. But the Government Accountability Office said earlier this week that Chrysler and General Motors Co. are unlikely to be able to pay back their loans in full.
Chrysler’s had $5.7 billion in cash at the end of September, up $1.7 billion since it exited bankruptcy protection in June. As recently as December, though, the automaker was practically out of cash.
Its operations broke even in September because of savings from job cuts and factory closings by the prior owner and through combining Chrysler and Fiat’s operations.
Joe Veltri, Chrysler’s product development chief, said he has a lot more funding to revamp products and create new ones. Chrysler can go to a cupboard of Fiat technology to develop new products, a vast difference from Chrysler’s prior owner, Cerberus Capital Management LP, which was not a manufacturer but a private equity firm.
“We have far more tools to work with,” he said.
• Kokomo Tribune business writer K.O. Jackson also contributed to this story.
