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Chrysler planning to make deep cuts in models

From the Detroit Free Press:

Chrysler planning to make deep cuts in models

February 8, 2008

SAN FRANCISCO -- Chrysler LLC, undergoing a rapid realignment, is making plans to cut the number of models it sells by perhaps half as it also moves aggressively to slim down its dealer network, according to people briefed on the plans.

The Auburn Hills automaker has been working under its so-called Project Alpha to get more of its dealers to sell all three of its brands -- Dodge, Chrysler and Jeep -- under one roof. But Chrysler, purchased last year by private-equity firm Cerberus Capital Management, has realized it must work to eliminate duplication in its product lineup to speed the process, the Free Press was told.

"Alpha is only good if you don't have competing nameplates underneath the same franchises," a dealer told the Free Press. Chrysler has about 3,700 dealers.

Alpha is being replaced by Project Genesis to eliminate more models and be more aggressive about dealer consolidation.

Dealers familiar with the new plan say they've not yet been told which models will be eliminated, nor have they been given a definite number.
Chrysler President Jim Press is slated to speak to Chrysler dealers in San Francisco this weekend during the National Automobile Dealers Association's annual meeting.

A Chrysler spokeswoman would not comment on the reports to the Free Press late Thursday.

A year ago at the dealers meeting, Steve Girsky, a former Morgan Stanley analyst and adviser to General Motors Corp. Chief Executive Officer Rick Wagoner, said that two-thirds of domestic-brand dealerships needed to go before the remaining stores would be as profitable as import-brand dealerships.

Other experts say that eliminating as few as 20% of domestic-brand dealers would be sufficient, but that would still involve thousands of dealerships across the country.

The Free Press reported last summer that excess dealerships cost the Detroit automakers as much as $4 billion a year. Dealers who sell Ford, Chevrolet and Chrysler average fewer than 600 sales per store each year. Those selling Toyota, Honda or Nissan average more than 1,200.

Many dealers, however, are reluctant to sell their businesses, and state franchise laws protect dealers from being forced out of business, giving them leverage in negotiating a price.

Since Cerberus took control in August, Chrysler, as the first major U.S. automaker to be privately held in more than 50 years, has moved quickly. In November, Chrysler CEO Bob Nardelli announced the elimination of as many as 12,000 jobs on top of 13,000 already planned. At the time, he also cut four models, including the Chrysler Crossfire and Dodge Magnum.
He also has indicated the automaker could sell as many as 200,000 fewer vehicles in the less-desirable fleet market.

Dealers in Detroit heard about Genesis during a Feb. 1 meeting with top Chrysler executives, who pointed to Boston as an example of how their consolidation efforts need to work, according to people familiar with the meeting. The Boston market has about 27 dealers. Under the new Genesis plan, Boston might have nine dealers.

As Project Genesis evolves, Chrysler said it will work with its dealers on options to create customer-driven alternatives that align the dealer network with the product portfolio.

"In the end, we will have a more viable dealer body focused on the customer," Press said. "When that happens, the customer, dealer and company wins. That builds commitment, drives profitability and builds franchise value."

Late last year, Chrysler denied reports in the Wall Street Journal that the automaker was contemplating a plan to eliminate as many as 1,000 dealers. Under the Boston example, one dealer said the 1,000 seemed possible.
"If you're a single-point store, you may only have a couple vehicles to sell. Your future is with the big three" -- Chrysler, Dodge and Jeep, another dealer said Thursday.

To help speed up consolidation, Chrysler is working through its regional business centers to help put together deals to sell or buy franchises, according to people familiar with the actions.

One dealer, who attended the meeting, said Chrysler actively is soliciting ideas from dealers on what they want to do and suggested that Cerberus would be involved in ways, such as providing experts on finance, real estate and, possibly loans, to help accelerate the process.

When Cerberus first acquired Chrysler from DaimlerChrysler AG, some dealers speculated that the private-equity firm planned to spend big money to help consolidate quicker. Chrysler, which was on track to lose $1.6 billion last year, seems to be watching its cash flow very closely. That could damper dealers' hopes of a big payout.

Additional Info:
Dealership glut
Industry analysts have said the domestic auto companies have too many dealerships for their share of the U.S. market, which has fallen dramatically since the 1970s. Toyota dealerships average three times as many sales per store as Ford and Chevrolet dealerships, for example.

Sales per dealership in 2006:
Toyota: 1,827
Lexus: 1,500
Honda: 1,289
BMW: 810
Ford: 639
Chevrolet: 583
Dodge: 375
Cadillac: 153

SAN FRANCISCO -- Today Chrysler Vice Chairman and President Jim Press and his executive team completed an eight-city “New Day” road show, reaching approximately 3,000 of its dealer partners to discuss the company’s 2008 strategy and express their commitment to product, dealers and customers; driving dealer profitability, and building franchise value.

During the meetings, the company introduced a new corporate initiative, Project Genesis, intended to align the needs and wants of the customer with its product portfolio and the dealer network. With the overall goal of taking care of the customer, Chrysler LLC plans to align Chrysler, Jeep and Dodge product offerings in one facility. The company did not provide a timeline for the initiative.

“We started a dialogue with our National Dealer Council and continued the process by listening carefully to what our dealer partners had to say,” Jim Press said. “Here at the National Automotive Dealer Association Conference we have the opportunity to hear from more of our dealers. The results of all of this exchange will be factored in to our long-range plan. At this point, we have not made any final decisions regarding our dealer optimization or future product plans, nor has the company set any firm timelines. Our dealers are and will continue to be an integral part of this process moving forward.”

As Project Genesis evolves, the company will work with its dealers on a menu of options to create customer-driven alternatives that align the dealer network with the product portfolio.

“In the end, we will have a more viable dealer body focused on the customer,” said Press. “When that happens, the customer, dealer and company wins. That builds commitment, drives profitability and builds franchise value.”
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