Chrysler Sale Succeeding Where Dr. Z, Celine Failed

Study: Consumers Keener to Buy From New Owner

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DETROIT ( -- It hasn't made a single cost-cutting or marketing move yet, but Cerberus Capital Management's massive $7.45 billion deal to buy 80% of Chrysler is already paying off.
Photo: AP

Chrysler Group President Tom W. LaSorda, Cerberus Capital Management Chairman John W. Snow and DaimlerChrysler CEO Dieter Zetsche at the announcement of the sale of Chrysler Group to the private-equity company.

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The automaker's sales are expected to rise 4.4% this year simply because it's under new management, according to CNW Marketing Research President Art Spinella, providing yet more evidence that consumers factor the well-being of a corporation into their purchasing decisions. In research done last week, CNW found that many people who were looking to buy cars had purposely stayed away from Chrysler, Dodge and Jeep, fearing the company's much-publicized financial woes might result in bankruptcy or company dissolution.

Informed consumers
But the acquisition by a private-equity player was a relief: CNW found that of the 1,600 people it surveyed who intended to buy a car, 41% were aware of the for-sale sign on the automaker. Of that group, almost three-quarters -- 73% -- said they were hesitant to put a ChryslerGroup product on their shopping list. Now 28% said they would consider Chrysler.

"This is an opportunity to build product momentum," said Mr. Spinella, noting there will be a six-month honeymoon to start a "fairly aggressive marketing to let people know there's a new Chrysler." It will be the third "new" Chrysler in 30-odd years -- one unshackled from Wall Street, which "could revolutionize" the car business, said Wes Brown, VP of Iceology. Charlie Hughes, president of BrandRules, predicted Chrysler management would learn more from Cerberus than the other way around. Cerberus, he said, has "pretty smart business people."

It will need them. Chrysler Group last week reported a pretax loss of nearly $2 billion in the first quarter vs. a profit of $847 million a year ago, although it said $1.2 billion was due to restructuring charges. While Chrysler was the only Detroit automaker to report an increase in U.S. vehicle sales last month vs. a year ago, its four-month tally slid by 3% to 730,353 units compared with the year before.

Lemons, now lemonade
Chrysler's mistakes helped legitimize the sale. Beginning in late 2005, the automaker ignored dealers' pleas to slow production and kept building more vehicles than the retailers could sell. Chrysler compounded the problem by producing a "sales bank" of as many as 100,000 unassigned units not ordered by dealers or buyers.

Tom LaSorda, president-CEO of Chrysler Group, who will have the same title at the new Chrysler Corp., said dealer inventory last month stood at a manageable 480,000 units.

But Chrysler has to move that metal. "Everyone is happy and smiling at the moment," said John Bulcroft, president of consultant Advisory Group, but if Mr. LaSorda and his team can't make good progress on Chrysler's three-year recovery plan by the end of next year, "there's going to be some fantastic cutting and slashing," Mr. Bulcroft said. "It's not going to be a pretty sight."

Four of the six experts interviewed for this report don't expect Mr. LaSorda to remain Chrysler's leader for the long haul. Todd Turner, president of CarConcepts, is convinced former Chrysler COO Wolfgang Bernhard eventually will take the helm. Mr. Bernhard left Volkswagen in January amid a management shake-up and was hired by Cerberus in March as a consultant. He's still wrangling with VW to throw out his two-year non-compete clause. "Why would Cerberus hire Bernhard for him to stand in the wings?" Mr. Turner asked.
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