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Chrysler Halts Production of Natural Gas Cars, Trucks

Automobiles: The company blames high production costs and low demand.

July 10, 1996|DONALD W. NAUSS | TIMES STAFF WRITER

DETROIT — In a major setback for the natural-gas-powered vehicle industry, Chrysler Corp. said Tuesday that it is suspending production of the vehicles because of high costs and disappointing demand.

The move by Chrysler, which has been a leader in natural gas autos, was a letdown for those hoping that federal mandates and clean air rules would spur development of a market for clean-burning, natural-gas-powered vehicles.

Industry advocates questioned the auto maker's motives and argued that demand for natural gas vehicles is growing rapidly. They noted that Chrysler is dropping out after losing its sales crown to Ford Motor Co. and just as General Motors Corp. and Honda Motor Co. are poised to enter the market.

"This will hurt the growth of the industry," said Rich Kolodziej, president of the Natural Gas Vehicle Coalition. "There is pent-up demand out there that I don't feel we are adequately feeding."

But Chrysler said it has sold only 696 of the 5,200 natural gas vehicles it projected to sell in 1996. In the previous four years, the auto maker sold about 4,000 natural gas vans, minivans and pickup trucks.

"At the very low volumes the industry is experiencing, we cannot make a business case for the 1997 model year," said Mike Clement, Chrysler's manager of alternative vehicle sales and marketing.

Natural gas vehicles cost $3,000 to $5,000 more than similar gasoline-powered cars and trucks. Natural gas is cheaper than gasoline but has only half the driving range of a gasoline model.

Because today's internal combustion engines can readily run on natural gas, many have seen the fuel as a more practical approach to cleaning the air than electric vehicles, which call for complete vehicle redesigns and new infrastructure for maintenance and fueling.

There are about 50,000 natural-gas-powered vehicles on U.S. roads, most of them in private and government car and truck fleets. The biggest markets are California, Texas and Washington, D.C.

While Chrysler's sales have tumbled nearly 50% from 1994, Ford sales have surged. Ford sold fewer than 100 natural gas vehicles in 1995 but about 2,200 in 1996--three times as many as Chrysler.

"We are ready, willing and able to supply vehicles to customers," said Ford spokeswoman Karen Holtschneider. "If Chrysler doesn't want to step up to the plate, we would be more than happy to do so."

Still, she said, Chrysler's bowing out will be detrimental to a fledgling industry that is costly to compete in and could take decades to adequately develop.

But other competitors are ready to step in. GM stopped selling natural gas vehicles in 1994 after it discovered a safety defect in its storage tanks. GM plans to reenter the market with a 1997 pickup that will run on both natural gas and gasoline. Honda also plans to introduce a natural gas Civic in 1998.

Several in the industry questioned Chrysler's claim that demand for natural gas vehicles is low. They said there were instances where customers placed orders with Chrysler that were not met or were delayed for months.

An executive at Southern California Gas Co. said there have been several instances where airport shuttle van companies in Los Angeles have been unable to get full-size natural gas Dodge Ram vans.

"We are bewildered as to why Chrysler is leaving the market," said Gwoon Tom, business planning manager for SoCal Gas' natural gas vehicle group. "They are leaving when we are seeing more demand and when other manufacturers see it as a good time to join the market."

Chrysler executives emphasized that the auto maker is only temporarily halting production and will continue to conduct research and development with the hope of reentering the market once costs come down.

Chrysler spokesman Jason Vines said part of the problem is the high cost of the heavy storage tanks that hold the compressed natural gas. The Big Three auto makers have formed a consortium to study ways to lower the cost of the storage tanks, but little progress has been reported so far.

Chrysler also said sales were hurt this year by a one-year delay in implementing the federal Energy Policy Act, which requires state governments and gas utilities to buy natural gas vehicles for their fleets.

But the statute takes effect next year and will require companies and governments to buy about 15,000 vehicles next year.

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