Chrysler saddled with slew of 2006 leftovers

Last year's models are still clogging lots; 60% of dealers were unprofitable

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At the north american International Auto Show last week, Chrysler Group President-CEO Tom LaSorda wore an apron to unveil the new Dodge and Chrysler minivans coming this fall. Appearing with chef Bobby Flay on a kitchen-like stage, he quipped that "the kitchen has been pretty hot lately."

And how: Even as it rolls out its 2007 lineup, Chrysler is struggling to unload inventory from the record 10 new models introduced last year, despite some $800 million in media spending. So many unsold '06 models have stacked on lots that an astounding 60% of Chrysler Group dealers were unprofitable last year, according to three dealers in different parts of the U.S.

The heat's now on Mr. LaSorda, who is overseeing marketing and sales following the sudden resignation of Joe Eberhardt, exec VP-sales and marketing. Mr. LaSorda is tweaking Chrysler's advertising in 2007 to address dealer complaints that campaigns for new models didn't generate showroom traffic or reveal enough about new models.

The automaker alienated dealers by building too many 2006 models as demand slowed for its big trucks and SUVs, and it compounded the problem by producing what the industry calls a "sales bank" of as many as 100,000 unassigned units not ordered by dealers or buyers.

"We eliminated our famous sales bank in December" by shipping the vehicles to dealers, said George Murphy, senior VP-global brand marketing for Chrysler Group. Chrysler Group's sales bank was below 10,000 vehicles at the end of December, a spokesman said.

But those vehicles are now on dealer lots, and it's up to them to move them, said Mike Jackson, chairman-CEO of AutoNation, the country's biggest publicly traded chain of car dealerships. He said those 2006 products "are oddly configured" with unpopular combinations of features, and are "orphans of sort," he said. Sales-bank cars are extremely difficult to move without heavy price incentives, he said.

Not only that, the 2006 models are competing with the 2007s, which Mr. Jackson said "disrupts" smooth launches for the new models. The new Chrysler Aspen SUV, for example, competes with the older Dodge Durango, with which it shares underpinnings, dealers said. The cool new Dodge Nitro has been well-received but is going head-to-head with the Jeep Liberty.


The automaker's misguided overproduction moves in 2006 hurt profits at AutoNation's Chrysler Group outlets, although it remained profitable, Mr. Jackson said. Other dealers didn't fare so well after paying higher interest rates and insurance on unsold inventory that sat around.

A Chrysler Group spokesman, while declining to comment on what portion of its dealer body was in the red last year, called the 60% figure "pretty shaky." Todd Turner, president of consultant CarConcepts, pegs it at less than 40%.

Between June 1 and the end of December, Chrysler Group reduced its total inventory of 2006 and 2007 models, including the sales-bank units, to 538,000 units from 650,000, the spokesman said.

The automaker has a slew of all-new 2007 models to launch in the first quarter, including the Chrysler Sebring sedan and convertible, Dodge Avenger sedan, and Jeep Patriot. New Dodge and Chrysler minivans plus the second-generation Jeep Liberty launch this fall.

The Dodge Nitro SUV launch, which started in December, will get new ads that "are more traditional," showing the truck on the road, Mr. Murphy said. Launch ads for the new Jeep Patriot SUV, arriving in March, will also be "a little more traditional" for the Jeep brand, showing it off road and probably with the "go-anywhere-do-anything" look of past Jeep work, he said.

Mr. Turner, however, said Chrysler Group ads need more than tweaking: "They need to overhaul their advertising." He said the automaker has amazing new products, "but I don't see that in the advertising. I don't see any compelling reason to purchase [them] over the competition."
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