A new Chrysler is born; road ahead could be rocky, analysts say

6/11/2009

DETROIT Chrysler was reborn yesterday under a new Italian parent, but it can t shake the shadows of its past: It s not selling enough cars, its fleet is tilted to trucks and sport utility vehicles, and help is more than a year away.

A 42-day stay in bankruptcy court cleansed the company of much of its debt and labor costs, but many analysts say Chrysler s immediate future is bleak. It lost $8 billion in 2008, and sales are down by almost half in the first five months of this year.

Cars designed by its new owner, Italy s Fiat Group SpA, won t arrive in the United States until late 2010, and even then there is no guarantee American drivers will want the tiny cars that are Fiat s specialty. In the meantime, Chrysler is left with few new vehicles headed to its drastically reduced dealer network.

Its aging model lineup is heavy with big vehicles, and its small and midsize offerings haven t caught on.

The showroom is not going to look terribly different over the next 18 months, said Aaron Bragman, an analyst for IHS Global Insight. They re going to try and maintain market share in a down market with products, many of which haven t been redesigned in several years.

Even if the new Chrysler Group LLC survives, the super-small Fiat cars that were popular in Europe, such as the 500 and Grand Punto, could be out of step with Americans. During Fiat s last run at the U.S. market, in the 1970s and 80s, reliability problems led people to suggest the name stood for fix it again, Tony.

The new Chrysler began operations yesterday morning after the U.S. Supreme Court refused to hear an appeal of lower-court decisions that allowed the transfer of most of the old Chrysler s assets to Fiat.

Fiat CEO Sergio Marchionne was named chief executive of the new company, and Chrysler CEO Bob Nardelli said farewell and ended his tumultuous 20-month tenure.

In his first day, Mr. Marchionne announced sweeping changes, including his senior management team and a reorganization that will force every brand to be profitable on its own.

About 4,000 Chrysler Group LLC employees gathered in Auburn Hills to hear from Mr. Marchionne.

Over an hour, they also heard from Robert Kidder, who will head the board of directors.

The new management team was frank: The American icon has been given a second chance, but it cannot be squandered, because there won t be a third, people who were at the event said.

Mr. Marchionne encouraged those still with the company to ensure the sacrifices of their colleagues were not for naught.

He announced a team of 23 who will report to him, including at least three colleagues from Fiat.

Some top Chrysler officials including the heads of product development, sales, and the chief financial officer are not part of the new company.

Chrysler Group is being reorganized around four brands: Chrysler, Jeep, Dodge, and Mopar, the parts division.

The heads of each report directly to Mr. Marchionne and each division is accountable for its own profits and losses, with back-office functions being put in place to support this new way of doing business, mimicking how Fiat is organized.

The new CEO said the Chrysler plants, idled since Chrysler filed for bankruptcy April 30, will soon be back up and running, and work is already under way on developing new environmentally friendly, fuel-efficient, high-quality vehicles that we intend to become Chrysler s hallmark going forward.

Most Chrysler plants are likely to resume operations later this month, if demand warrants, given slow sales. Among them are about 3,200 Toledo-area Chrysler workers about 1,700 at Toledo Jeep Assembly, 1,300 at Toledo Machining, and 190 at the Global Engine Manufacturing Alliance plant in Dundee.

In an e-mail to Chrysler s 54,000 workers, Mr. Marchionne acknowledged the company s problems and said he was determined to repair them.

Five years ago, he stepped into a similar situation at Fiat, perceived then as a failing bureaucracy that made poor cars.

Through hard work and tough choices, we have remade Fiat into a profitable company that produces some of the most popular, reliable and environmentally friendly cars in the world, he wrote. We can and will accomplish the same results here.

Mr. Nardelli thinks the new Chrysler will be a success. What I have learned along the way is that Chrysler people also have the resolute heart of a scrappy underdog. This is a company that has been knocked down many times, but never knocked out, he told employees in an e-mail.

The U.S. government has committed roughly $8 billion more to help Chrysler as it leaves Chapter 11 bankruptcy protection, and the Obama Administration acknowledges Chrysler probably will lose money until Fiat rides to the rescue.

The White House praised the deal, calling it a proud moment in Chrysler s storied history. The Chrysler-Fiat alliance has now exited the bankruptcy process and is poised to emerge as a competitive, viable automaker.

As rocky as the road has been so far, company officials said the restructuring has preserved 50,000 jobs worldwide and 30,000 jobs in the United States, along with thousands of employees at dealers and suppliers.