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Chrysler to Reduce Dealer Deliveries 16%

The cuts are a dramatic shift from the group's January prediction that it would be boosting production this year.

September 20, 2006|John O'Dell | Times Staff Writer

Chrysler Group, once held out as the shining example of what could go right at an American automaker, has joined its Detroit-area rivals in the downward spiral of slumping sales, mounting losses and declining production.

The company, the U.S. arm of DaimlerChrysler of Germany, said Tuesday that it would cut deliveries to dealers by 16% in the second half of this year as it attempted to slash inventories of slow-selling pickup trucks and sport utility vehicles.

The reductions are a dramatic change from a jaunty Chrysler's prediction in January that it would be boosting production this year because of the success of cars such as the new Dodge Caliber compact and the sporty Chrysler 300 and Dodge Charger sedans.

But DaimlerChrysler announced last week that the U.S. group would lose $1.52 billion in the third quarter amid slumping sales -- more than twice the loss previously predicted.

The U-turn from star to also-ran has been rapid: Sales of its Chrysler, Dodge and Jeep brands rose in the first three months this year from the same period in 2005.

In a conference call with analysts and reporters Tuesday, Chrysler Group's chief executive, Tom LaSorda, also raised the specter of layoffs and plant closures as the automaker attempts to reverse its sudden slide.

The company will furlough thousands of employees for short periods as it trims production the remainder of the year, he said.

And executives are "looking at the entire business model to determine if there's further action beyond that," LaSorda said.

DaimlerChrysler CEO Dieter Zetsche, in a statement that was Webcast on Tuesday from company headquarters in Stuttgart, said: "There's no way around but saying we were too optimistic."

Several of Chrysler Group's passenger cars -- the Dodge Stratus and Chrysler Sebring mid-size cars and the Dodge Neon compact -- were at the end of their model lives and had all but stopped selling early in the year, said analyst George Peterson of market research firm AutoPacific in Tustin. And on the truck side, rising fuel prices hurt the company through the summer, he said.

Unlike larger rivals General Motors Corp. and Ford Motor Co., which started cutting production early this year, Chrysler Group kept building and "was stashing cars and trucks on lots all around southeast Michigan, even as sales were declining," Peterson said.

Most of the reduction in the second half will come in the Dodge pickup and Dodge and Jeep SUV lines. With those cuts, the automaker joins GM and Ford in responding to customers' shift to smaller, more fuelefficient cars and crossover utility vehicles from the larger and thirstier pickups and truck-based SUVs that have been their bread and butter for more than a decade.

The pickups, SUVs and minivans sold under the Chrysler, Dodge and Jeep brands account for about 70% of Chrysler Group sales.

Many of the cuts for this year have already taken place: The company said deliveries to dealers for the third quarter, which ends in 10 days, would be down 24% from last year. Deliveries will drop by nearly 10% in the fourth quarter.

Chrysler Group expects to deliver 705,000 vehicles to its dealers for the six months ending Dec. 31, or 135,000 fewer than it delivered in the last half of 2005.

Deliveries for the third quarter will be down by 90,000 vehicles, and the company plans to ship 45,000 fewer cars and trucks in the final quarter, spokesman Dave Elshoff said.

The automaker, which this year has yielded third place in the U.S. market to Toyota Motor Corp. -- also will trim production at factories here and in Canada for the rest of the year. Spokesman Jason Vines said Chrysler would build about 70,000 fewer vehicles in the second half than previously scheduled but was unable to provide a final production tally.

Despite the success of its new Caliber compact and several expensive sales incentive campaigns this summer, Chrysler has seen U.S. sales decline steadily since April.

After posting annual sales gains in 2004 and 2005, Chrysler is down 9.7% for the first eight months this year from the same period in 2005.

LaSorda said he expected the shift toward more fuel-efficient vehicles to be a permanent change in the U.S. market. He said it would be premature to discuss factory closures but left the possibility of some shutdowns on the table, saying that "the majority of our plants will need to remain open."

Also Tuesday, Standard & Poor's Corp. dropped its long-term corporate credit rating on Ford and its Ford Motor Credit Co. to a B from the previous B-plus. The rating is now five steps below investment grade.

The rating firm sent Ford's notes deeper into "junk" status because of "the seemingly relentless deterioration in Ford's North American automotive operations," S&P credit analyst Robert Schulz said.

Ford said Friday that it would speed and expand the job cuts and factory closings it had announced in January as part of its Way Forward restructuring plan.

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john.odell@latimes.com

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