Though Chrysler CEO Robert Nardelli has admitted that sales have been worse than expected, it is unclear what action the private equity-owned automaker will take to address this, a US-based analyst has said.
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In a research note, Global Insight auto analyst Aaron Bragman noted that Robert Nardelli reportedly had sent an email to company employees admitting that sales have been 20% lower than expected during the first half of the year, and that the outlook for the rest of 2008 was less than spectacular.
Bragman said Chrysler is “struggling badly” in the difficult US market, with the company’s truck sales down 24% for the year and car sales down 7.3%, and this trend is accelerating. Those products responsible for the majority of the company’s revenues – trucks, SUVs, and minivans – are simply not selling well in an environment in which fuel is costing US$4 a gallon.
He said Nardelli is reportedly attempting to instigate a rapid and sweeping shift towards a corporate culture that mimics that at General Electric, the executive’s former employer, but whether he has time to effect such a change before Chrysler’s private equity owners lose patience and cut their losses remains to be seen.
Bragman noted that Nardelli has not said what changes might occur as a result of the worse-than-expected performance though the company has already decided to reduce production, including a five-week hiatus of Dodge Ram pick-up production, which will double as the model-year changeover to the new 2009 version takes place.
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By GlobalDataCiting the Wall Street Journal, Bragman said Nardelli had begun a programme to re-educate a significant portion of executives within the company, leading a three-day training session this week that would hopefully refocus the company on customer-centric processes. This was the first of four or five sessions planned for nearly 300 top executives throughout the year.
“While Nardelli is busy reworking the company’s processes and structure, reports indicate that top sales boss Jim Press is busy reworking the product line-up, tweaking Chrysler’s existing products and pushing hard for new ones,” wrote Bragman.
“The two have reportedly been working closely to change Chrysler’s mindset, having arrived to find a company that promoted more on the grounds of seniority than accomplishment, and which operated according to unrealistic sales and production plans that ultimately led to incentives and overproduction.”
He noted that both executives had stated that private equity owner Cerberus Capital Management has been extremely supportive, with evidence that the wide range of experts available to Chrysler management through Cerberus is being put to good use through the inclusion of outside suggestions to improve the business.
Bragman said the company’s marketing programmes are not having the desired effect, with AutoObserver.com reporting that its latest sales idea – offering petrol at a guaranteed $2.99 per gallon for three years – has “barely moved the needle” in terms of monthly sales.
Nearly 70% of the line-up is made up of trucks, and of those the majority are large body-on-frame pick-ups and sport utility vehicles (SUVs). Sales of these types of vehicle have positively plummeted: sales of the Dodge Ram pick-up are down nearly 27% for the year, while sales of the company’s SUVs, such as the Durango, Grand Cherokee, and Commander, are down 44%, 26%, and 48%, respectively. But this is not unique to Chrysler, as the rest of the industry has been facing similar drops in volume as fuel prices skyrocket.
“What is more troubling for Chrysler is the fall in its passenger car sales,” said Bragman. “The company’s cars are simply not resonating with consumers, despite mild increases in sales of the Caliber compact and a more substantial increase in sales of the Jeep Patriot crossover utility vehicle (CUV). Sales of the Sebring sedan are down 16% in the year through to May, while sales of the big Charger fell 7.8% and those of the ageing 300 sedan declined a full 30% for the first five months of the year.
“But more troubling is the slump in sales of the company’s new minivans, traditionally Chrysler’s bread-and-butter income generators along with the big trucks. Dodge Caravan sales are down 35% for the year, and Chrysler Town & Country sales have fallen 13% as well.
“With Global Insight forecasting the current U.S. economic slump to last at least throughout the rest of this year, there simply is no other way to say it: Chrysler is in serious trouble.”
He added that Nardelli’s efforts to instil a GE-like corporate culture at Chrysler have yet to produce anything other than a stream of departures of talented personnel. Jason Vines, the company’s outspoken public relations director, and Mark Donoughe, the top engineer for the company’s critical D-platform project, both left after reportedly clashing with the top executive’s style.
“However, a change in culture cannot occur overnight, despite the dire urgency of the situation, and the GE-style system has an arguably successful track record, having worked quite well at that global powerhouse. Whether or not the system will successfully translate to an automaker remains to be seen, but the more pressing question is simply whether or not Chrysler has enough time to try it.
“With truck sales faltering and the company’s minivans not finding the kind of reception the company had anticipated, the question of how much longer Cerberus will tolerate the kind of cash burn currently being seen becomes quite relevant.
“Add to this the fact that the products that might help Chrysler to turn around its North American fortunes are still nearly two years away, and one cannot help but think that Cerberus may soon be looking at its options for Chrysler.”
