Toronto — Among all the cards Sergio Marchionne is playing as he tries to revive Chrysler, two in particular need to turn up aces – the new compact and mid-sized cars arriving in 2012 and 2013.
“If we can't play there, we don't have an effective product portfolio,” the chief executive officer of Chrysler Group LLC and Fiat SpA declared earlier this week as he unveiled a five-year business plan designed to restore the No. 3 Detroit auto maker to levels of profitability it hasn't seen in more than a decade.
He's right, but playing there effectively will require a dramatic reversal of fortune in segments where Chrysler badly trails all its major competitors, many of which will crank out new compacts and mid-sized cars before Chrysler or just as the auto maker's new cars arrive.
Turning around Chrysler's performance in the two largest chunks of the U.S. market is a key element of the company's plan to boost its market share to more than 13 per cent by 2014 from less than 9 per cent in 2009.
Those two segments – known technically as C and D sized vehicles – are not only large, they're growing and should grow further in the next decade as more strict fuel economy regulations come into force.
“Unless you're present in the C and D segments in the United States, you're nobody,” Mr. Marchionne said at another point in his presentation, underscoring what Chrysler needs to do.
The new Dodge and Chrysler compacts are scheduled to roll out in 2012 and replace the Dodge Caliber. That's a year after the brand-new Chevrolet Cruze, a redesigned Ford Focus and a new Honda Civic are introduced. A year later come new versions of the Nissan Sentra and Hyundai Elantra.
All those cars and the Chevrolet model the Cruze will replace are selling better than Caliber this year.
Stepping up a size, the market will be even more crowded with redesigned or new cars before new Dodge and Chrysler mid-sized sedans arrive in 2013 to replace the Dodge Avenger and Chrysler Sebring, which now rank 10th and 13th among 17 models.
A new Volkswagen model out of a plant the German car maker is building in Tennessee will come on line in 2011, along with a redesigned Hyundai Sonata.
Chevrolet Impala, Toyota Camry and Nissan Altima models will be redesigned for 2012. And there will be a street fight in 2013 with a new Chevrolet Malibu, Ford Fusion and Honda Accord to compete with the new Chrysler products.
So what will the Chrysler cars need if they are to have any chance of winning back customers the auto maker has lost?
“They're going to have to have absolutely world-class interiors and exteriors,” said long-time industry analyst Joe Phillippi, who heads Auto Trends Consulting Inc. in Short Hills, N.J.
“They've got to be absolutely ‘wow' cars.”
As a short-term fix, Chrysler will remake the interiors and exteriors on the Avenger and Sebring next year.
The cars in these segments don't generate the profits of $6,000 (U.S.) to $8,000 or more that auto makers derive from crossover utility vehicles and sport utility vehicles.
In a healthy market, compacts will produce between $600 and $1,200 in profit, depending on whether it's a base model of a car or a more upscale version, one former senior industry executive.
A high-end mid-sized model can contribute $1,800 on average to an auto maker's bottom line. So the size of the D segment makes it important.
An auto maker that sells 200,000 mid-sized cars generating $1,500 profit on average can earn $300-million in profit from that one segment.
Despite their sales performance, two of the three Chrysler compact and mid-sized models are holding their own in average transaction prices in the U.S. market, according to data from auto research and consumer data firm Edmunds.com.
It's difficult to extract profit figures from transaction prices, but the firm's data showed that Caliber prices sat at $18,778 in the first 10 months of the year, compared with $18,855 for the Honda Civic and $17,722 for the Ford Focus.
Avenger, at $21,521, trailed Fusion, Malibu and Sonata, while Sebring prices were the highest of those five cars.
