Will Fiat pull the plug on Chrysler?
Just the other day, it was announced that sales of the Dodge Dart — one of the first post-bankruptcy new-design Chrysler products — are down 33 percent this year so far. Toyota has sold nearly five times as many Corollas during the same period. The Dart is now in 9th place in the segment, sales-wise.
Given that the Dart is only one year old (launched as an all-new model for 2013) this is extremely worrisome news for Chrysler. The Belvidere, Illinois plant where Darts are assembled has been partially idled — with weeks-long layoffs for hundreds of workers. And — sure sign of desperation — Chrysler has upped the incentives for prospective Dart buyers from $400 last year to $2,200 per vehicle.
But even that is not likely to work if buyers think the Dart’s a stinker. It does Chrysler no good to “sell” cars at a loss, either.
That can go on for only so long.
Whatever affection older generations felt for the original Dart, it hasn’t transferred to the new one — or to younger generations who have no memory of the original car.
Fiat — Chrysler’s fief overlord — is surely watching all this with growing concern. The Italian automotive conglomerate bought the bankrupted remains of Chrysler Corp. not for its cars but for access to its dealer network — and thereby, access to American car buyers, who haven’t seen a new Fiat (or Alfa) in decades. It was worth it to Fiat to buy-in for the sake of successfully re-launching Fiat (and Alfa) cars in the U.S. market.
There were some initial stumbles. Sales of the 500 micro-car — launched in 2012 — were not as strong as had been hoped for during the first calendar year of its availability and as recently as this fall, overall sales had declined by an almost-Dart 29 percent. But the problem — apparently — was not with the car as such (or the Fiat brand) but with the fact that the 500 was the only Fiat in Fiat stores and it only came two ways (coupe and convertible). This limited portfolio limited sales, apparently.
Things began to change — dramatically, in Fiat’s favor — with the introduction of the high-performance 500 Abarth (a rival to the Mini Cooper S and other hot-shoe compacts) and the introduction of the 500L — a five-door wagon that gave Fiat-inclined buyers who needed more passenger (and cargo) space than the 500 could give them a reason to shop Fiat rather than some other brand.
Sales of the high-performance 500 Abarth were up 56 percent in January — and the regular 500 earned a Polk Automotive Loyalty Award — an industry award given to car models whose owners demonstrate brand loyalty and satisfaction with their purchase.
There is some good news on the other side of the street. Jeep sales — mostly on the strength of new models like the just-redesigned Grand Cherokee — are up. So also sales of Ram trucks (spun off from the Dodge brand a couple years back).
But Chrysler’s cars are — mostly — in (cue George Bush senior) deep doo-doo. The Dart thing is particularly troubling for two reasons.
First of all, the Dart is a collaborative effort between the Italians and the Americans. It is based on the Alfa Romeo Giulietta (Alfa is part of the Fiat conglomerate) and was supposed to infuse the moribund Dodge brand with import/euro-car sophistication — qualities notably lacking in Chrysler’s pre-bankruptcy small car, the Dodge Neon. That car sold well for a time — until buyers began to realize it was not particularly well-made. One still sees ’90s-era Corollas on the road today. Still-operational ’90s-era Neons are a much less common sight. The new Dart was supposed to remedy this but — so far — has not.
This would be bad regardless, but a failure in the small car segment is potentially devastating for Chrysler. Small, entry-level cars are a major automaker’s bread and butter. It’s where the volume is — and thus, the profits.
Also the practical necessity.
Chrysler — like everyone else selling cars — is facing a federal fuel economy fatwa (Corporate Average Fuel Economy, CAFE for short) that goes into effect less than two years from now that imposes a mandatory minimum of 35.5 MPG average. Cars that do not make this cut will become more expensive to manufacture — and sell — as a result of “gas guzzler” fines. This will exert pressure on every automaker to cull models that do not generate profits sufficient to offset their cost to manufacture — or which can no longer be sold at a profit sufficient to justify their continued existence.
The Dart is one of just two current Chrysler/Dodge passenger cars (the other being the new Chrysler 200) that makes the 35.5 MPG cut — or even come close. The Luca Brasi-esque full-size 300 sedan is an admirable car, but it’s also a gas hog — even with its V-6 engine (and forget about the V-8). The Challenger muscle car, the Charger — even the minivans — hungry muthas, all.
Dodge — Chrysler Corp. — needs a successful economy car to even out its CAFE numbers. To make it feasible to continue selling V-6 and V-8 300s and Chargers and Challengers.
And the Dart isn’t cutting the mustard.
I would not be deeply shocked to see — a year or three down the road — Fiat either divesting itself of Chrysler and building its brand in the U.S. on the merits of its own cars (and through its own dealer network, which it is busily establishing) or shearing off all but the viable stuff — which may be primarily (or possibly only) the Jeep and Ram truck stuff.
This is just speculation — but someone’s gotta do it.
Personally, I hope Chrysler’s okay — and that Fiat management isn’t already discussing behind closed doors a possible exit strategy.
But now that Fiat has succeeded — does it still need Chrysler?
That is the $64,000 question.