Chrysler's next fear: High gas prices

Even low to mid $3 range would kill them off.

Chrysler's next fear: High gas prices
http://tinyurl.com/mre9z8

With Fiat's fuel-efficient cars more than a year away from helping
Chrysler, the company prays rising gas prices won't kill its
bread-and-butter truck and SUV sales.
By Peter Valdes-Dapena, CNNMoney.com senior writer
Last Updated: June 11, 2009: 3:32 PM ET

NEW YORK (CNNMoney.com) -- In the auto business, timing really is
everything.

Even as Chrysler embarks on its path to resurgence, its short-term
survival is threatened by rising gas prices and a product line still
dominated by trucks and SUVs.

Fiat of Italy, stands ready to assist with its fuel-efficient small
cars. But those won't be ready for at least a year.

That means Chrysler has to hope that gas prices don't spike this summer.

"If gas prices continue to go up, the challenge for Chrysler becomes
greater and greater," said Tom Libby, president of the Society of
Automotive Analysts.

Chrysler's best stuff is still its biggest stuff. Its most well-regarded
vehicles are the new Dodge Ram pick-up, the Dodge Challenger muscle car
and the Chrysler 300C, a V8-powered sedan -- not the type of vehicles
consumers flock to when gas prices are high.

This problem is not specific to Chrysler. All domestic manufacturers
face challenges when gas prices go up. Import carmakers have been
focused on selling small cars more than the SUV-loving U.S. carmakers.

When consumers shift to smaller cars that command lower prices and
deliver slimmer profits American automakers struggle to compete.

Last summer, as gas prices rose toward $4 a gallon, sales of the
Chrysler 300 dropped more than 40% from the year before. Sales of the
Dodge Durango and Chrysler Aspen full-size SUVs also plummeted. Chrysler
eventually took the big SUVs out of production altogether as inventories
backed up.

Sales of GM (GMGMQ) and Ford's (F, Fortune 500) big trucks dropped, too,
but at least they had some decent small, fuel efficient cars to offer
shoppers. Sales of the Ford Focus and Chevrolet Cobalt took off.

Chrysler's smaller cars couldn't stand up to the competition: Sales of
Chrysler's Dodge Caliber, for example, didn't budge.

"GM has more products in the pipeline and, right now, they have more
competitive products in key segments," said Libby.

Since last year, GM's Chevrolet Malibu mid-size sedan has gained market
share against its foreign competitors in spite of the crisis gripping
the automaker and the industry. Ford has made even more headway with its
new Fusion sedan, more than doubling its share of the market since the
beginning of 2008.

Chrysler's Sebring sedan, meanwhile, has gone from about 5.5% of the
mid-size car market at the start of 2008 to just 1.4% today.

Besides mid-size sedans and small cars, small crossover SUVs have become
a key segment as consumers look to save gas while still getting SUV
functionality. Ford already has the popular Ford Escape and Mercury
Mariner in that segment, which also includes the Honda CR-V and Toyota Rav4.

GM will introduce three new small crossover vehicles in the next few
weeks: The redesigned Chevrolet Equinox, the GMC Terrain and a new
Cadillac SRX.

Meanwhile, Chrysler offers the Dodge Nitro. While it may look like a
crossover SUV, it's actually a truck-based SUV based on the Jeep
Liberty. It rides rougher than a real crossover SUV and its fuel economy
is 25% worse than that of a V6-powered Ford Escape. Also, the Nitro
isn't even available with a 4-cylinder engine, which Ford's Escape offers.

"If the Nitro were a good small SUV, or if they had a family sedan that
was anywhere close to the Malibu, they wouldn't be where they are
today," said Jake Fisher, a senior automotive engineer for Consumer
Reports magazine.

Chrysler's recently redesigned Dodge Ram truck is very good, he said,
but that just continues Chrysler's traditional reliance on big trucks.

Chrysler does have the Journey, a mid-size crossover SUV with an
available third row of seats. While it doesn't match up to what many
competitors offer, Fisher said, the Journey is decent. It gives the
carmaker something with which to compete in that segment.

He contrasts that to the small Caliber which is essentially a small SUV
playing the role of a compact car. In fact, Chrysler markets the nearly
identical Jeep Compass as a small crossover SUV.

"Since Chrysler lost the Neon and went with the Caliber, they
essentially don't have a small car at all," he said.

Fortunately for Chrysler, the current rise in gas prices doesn't signal
a run-up like last summer's unprecedented rise, said Jeff Schuster,
executive director of forecasting for J.D. Power and Associates.

"If you look historically at the summer rise, the levels we're at right
now are very similar to that," he said.

Gas prices will start creating a real problem for Chrysler Group if they
begin approaching the $4.00 a gallon mark, Schuster said. That's what
started a panic shift in the market last year as consumers began a
sudden rush to small cars.

Chrysler admits that it's hoping gas prices don't spike too high.

"None of us wants to see $4.50 a gallon gas," Chrysler spokesman Scott
Brown said. Any carmaker would say the same thing, though, he noted.

In the meantime, Brown said, having the company's best product be a
large pick-up isn't such a bad thing. Americans still like big trucks
and they remain profitable vehicles. "If we had to have one thing to
hang our hats on, I think we'd want it to be the Ram," he said.

 

But the American consumer is so schizophrenic that they will have no
memory of $4 gasoline during the summer when it falls back to $2 during
the winter.

The the sedan's are unecessarily heavy, including the Challenger - which
doesn't even come in a FWD option.

Chrysler was putzing around since 2006, wondering what small car they
were going to build. The price they pay now to get a small car into
production is outrageous. They have to give themselves to Fiat to get
the small car they should have had several years ago.

 

I thought the Nitro/Liberty were unibody? If so, they might well be
lousy crossover SUVs, but I wouldn't call them truck-based.

 

Mercedes has small, fuel-efficient cars. They weren't and aren't being sold
in USA, AFAIK.

Smart, A Class, B Class. The last two may not look as funky as some Fiats,
but they sure have a better reputation, especially now that the A Class no
longer has reliability issues.

DAS

To send an e-mail directly replace "spam" with "schmetterling"

 

Somebody seems to be selling Smart in the US -- at least, I've seen a
few of them on the road. I haven't looked closely enough to see if
maybe they've got Chihuahua license plates...

I'm not quite sure how this was a response to my thinking Nitro/Liberty
are unibody?

 

It was more a response to an earlier post in the thread (mentioning Fiat's
small cars). Was just trying to avoid another branch...

I don't think Smarts or A Class are being brought into the US 'officially'
(yet...). Your remark about Chihuahua plates is exactly the point. The
mass of US drivers is not ready for really small cars. (I suppose at least
partly because of the large distances that many drive with bigger
families -- or used to.)

Anyway, there are other ways of achieving fuel economy besides microengines,
e.g. turbodiesels running on low-sulfur fuel. A 2-litre td, for example, is
quite remarkable.

It can even do well at the traffic-lights Grand Prix.

DAS

To send an e-mail directly replace "spam" with "schmetterling"

 

Smart's have been available in Canada for at least the past 3 years, if
not 4 or 5.

There has been much written during 2005 - 2008 about the A and
particularly B class Merc's coming to the US. Lots of talk about a
re-designed B version specifically for US, even powered by natural gas.
Main problem seems to be the US-Euro exchange rate making the B too
expensive for the US market.

Apparently the B's have been sold in Canada since 2006 (or maybe 2005).
No B model is offered on the US Mercedes website. It's written that the
B will be introduced to the US in 2011.

I don't think the A class will ever come to North America.

It's not about fuel efficieny. In North America, it's about size,
price, utility, and safety (perceived or real).

 

Quite so. And that's Mercedes. What chance Fiat's small cars in USA?

Well, they will be cheaper, no doubt. But price also depends on spec level
of entry-level model (and exchange rate). Certainly in UK the Merc base
price was higher than in Germany for similar models for quite a while; now I
wouldn't know.

DAS

To send an e-mail directly replace "spam" with "schmetterling"

 

We have a few of those Mercedes small cars in Canada.
They aren't attracting many purchasers, even with our higher than the
USA gas prices.

Smart: Bought mostly by businesses, for inner city delivery service.
Very few are bought for personal use. With the current model the Smart
here went backwards in engine, from diesel to gasoline fueled.

B Class: Nice looking, nicely fitted, but costs about 80% more than the
functionally same Caliber; which sells reasonably well here.
The B Class also has much competition from similar, but much lower cost
Asian cars, so it will never have a high volume in Canada.

 

The Smart car is a joke. It's not that cheap, doesn't get very good mpg
and is tiny. There are many other small cars including 4 doors that get
better mpg.

 

That's the point!

And which is why it sells well in places like Rome and London...

It still makes me giggle when I see one parked at 90 deg to the kerb, as one
does once in a while. Risky, of course, if other cars park up close...
(can't open the doors then).

DAS

To send an e-mail directly replace "spam" with "schmetterling"
---

[...]

[...]

 

It depends on the size and price of the Fiats we get in NAFTA, as to
whether they will be popular. The Fiat Uno size I rented in the UK a
number of years ago won't do it.
Here in Vancouver, BC the bottom end popular small cars are now the
Toyota Yaris, Honda Civic and the Nissan Versa.
These cars can be used for both commuting or as a single car.
They are about 70% of the price of a lesser equipped Smart car.

The Smart car doesn't stand a chance here, except for some speciality
applications. Now if the Smart were built in some low cost country,
that's no longer China, but perhaps parts of Africa, it may stand a
chance if the price were 70% of the Asian cars I mentioned above. That
works out to te Smart being 50% of the current price.
I find it surprising that Daimler keeps plugging away with the Smart,
yet losing lots of money. Big profits on their other cars must cover
these loses.
If they don't discontinue building this money loser in Europe, the Tata
Nano will eventually put an end to it for Daimler.

 

I thought they had turned the profit corner after dropping the various line
extensions that were tried.

BTW, the Smart is a second or third car for most (almost all) owners, AFAIK.

DAS

To send an e-mail directly replace "spam" with "schmetterling"

 

Why would anyone buy a Smart car? They're expensive, handle horribly
and their mpg rather poor compared to other conventional small 4 door
cars. I don't get it!

Now I do like the Smart Coupe. Sharp looking fun car but they stopped
producing it a few years ago.

 

Its shortness. I doubt I would buy one, though.

I did test-drive a Smart on country roads some miles out of London,
deliberately choosing the model with the smallest engine.

I found it perfectly comfortable with fairly decent handling. It met the
requirement of being two 'full-size' comfortable seats on wheels.

It also performs quite well in the Euro ENCAP safety test:

http://www.euroncap.com/tests/smart/fortwo.aspx

Click on the 'older' link to see more tests of small cars.

DAS

To send an e-mail directly replace "spam" with "schmetterling"
---
[...]

[...]