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Source: Chrysler Price Cuts On The Way

Discounts Part Of New CEO's Plan To Revive Automaker

POSTED: 12:56 pm HST October 30, 2009
UPDATED: 1:09 pm HST October 30, 2009

Coming to your local Chrysler, Dodge or Jeep dealer: Tractor-trailers full of cars and trucks with lower sticker prices.

The big discounts are part of new CEO Sergio Marchionne's attempt to revive the Detroit company the way he did Italian automaker Fiat.

His five-year plan for Chrysler Group LLC, to be unveiled Wednesday, calls for deep discounts across many models over the next 18 months. The goal is to lift sales, generate cash and keep the automaker going. That will give Marchionne, who is working 20-hour days, enough time to try to revamp the automaker's struggling model lineup, according to a person briefed on the plan.

Some of the cuts already are in effect, like $1,970 off the 2010 Dodge Ram 2500 heavy-duty pickup truck. The 7-percent discount off last year's $30,135 sticker price, is unusual for a new model year, especially for a vehicle that's revamped with an improved suspension, increased towing and hauling ability, and a far more comfortable interior.

The reductions, made possible by expense cuts and lower parts and manufacturing costs, will continue as Fiat combines Chrysler's purchasing and manufacturing into its own lower-cost operations, said the person, who didn't want to be identified because the plan has not been made public.

Chrysler lost upward of $8 billion last year and would have run out of cash had the U.S. government not stepped in with $15.5 billion in aid. The Auburn Hills, Mich., automaker was forced into bankruptcy protection but emerged with far less debt and fewer burdensome contracts.

But the new Chrysler, left with an aging and unpopular model lineup, has struggled ever since the government installed Marchionne as its CEO in June. Sales are off 40 percent for the first nine months of the year and its share of the U.S. market has dropped to just over 9 percent.

Industry analysts say lowering prices may be the only lever Marchionne can pull to keep Chrysler alive while he tries to restock a model lineup that was practically left for dead by the automaker's two previous owners, private equity firm Cerberus Capital Management LP and German automaker Daimler AG.

"You're hoping that you are able to maybe at best stabilize things, at worst mitigate some of the decline by using pricing as a weapon," said Erich Merkle, president of the industry consulting firm autoconomy.com in Grand Rapids, Mich.

It doesn't help that Consumer Reports recently panned most Chrysler products.

Chrysler had only one model, the Ram pickup, that the magazine recommended based on reliability and tests by its staff. Chrysler finished last out of 33 brands sold in the U.S.

Marchionne, who is running the two automakers, plans to replace Chrysler's small and midsize vehicles with Fiat-designed products built in North America, the person said. But he will not announce that he is scrapping models like the Dodge Caliber small car or the Chrysler Sebring midsize sedan for fear of hurting sales, the person said.

No new vehicles will be shown during the Wednesday presentation. But there will be sketches of new larger vehicles from Chrysler's design center and of smaller vehicles based on existing Fiats or Alfa Romeos.

The replacement for Chrysler's poor-selling Sebring and its Dodge twin, the Avenger, will be based on Fiat's new compact C-EVO frame and suspension. Because of Americans propensity for larger cars, the frame would have to be stretched to meet Americans' taste for larger cars.

Fiat, one of the few global automakers to post a third-quarter net profit ($31.44 million), has met many of the targets Marchionne outlined in 2006 even in a challenging environment, said Paul Newton, an auto industry analyst for IHS Global Insight in London.

"I think given the conditions, he (Marchionne) has done an excellent job," Newton said. "Despite the worst global economic crisis in a long time, they have been one of the winners."

Fiat's success includes model hits such as the 500 minicar, the Punto compact and the Panda small crossover vehicle, many of which will be incorporated into Chrysler's product lineup.

But its premium brands, Alfa Romeo and Lancia, haven't seen much success outside of Italy, Newton said. Alfa has more cache, but it still does not stack up against a German premium car, he said.

It's still questionable whether Americans will accept the new Fiats and will be willing to buy the smaller cars that are popular in Europe.

Newton described Fiat running Chrysler as an average car company taking over a worse one and trying to fix it.

"The real issue from here, is whether Fiat has the ability to take a company like Chrysler, which is an absolute millstone, and turn it around."

___

AP Business Writer Colleen Barry in Milan, Italy, contributed to this report.

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