• by Karl Greenberg , February 15, 2007

Look for fewer ads for huge dealer incentives from DaimlerChrysler as it seeks to shrink the costly program as part of its effort to turn the company around after a $1.4 billion loss in 2006. Chrysler is also putting its money behind smaller vehicles, expecting that currently steady gas prices will rise again.

Tom LaSorda, CEO of Chrysler Group, told a press conference yesterday that incentive programs in which Chrysler was offering an average of $4,250 per vehicle (industry average is $2,200), resulted in negative net pricing.

The plan, he said, is to reduce dealer count by 10% to 15% to improve dealer profitability by introducing a raft of new products and a major reduction in truck volume--thereby lowering both incentives and inventory, especially among the slow-selling SUVs and trucks.

"We have 32 nameplates today," he said. "We would be looking at reducing nameplates in specific segments, at least by 20%." Don't look for hybrids to be among them too soon, though, since a deal Chrysler made with General Motors and BMW last year means GM will benefit from hybrids first with vehicles like the Saturn Aura Green Line, which comes out this spring.

"The sequence will be: first, GM, then Chrysler, then Mercedes, then BMW," said DaimlerChrysler CEO Dieter Zetsche.

Zetsche said the key to Chrysler Group's turnaround would be more such deals like the one it has with Volkswagen to build minivans in North America for VW's dealers and a recent agreement with Chery Automobile Company of China, as well as the rollout of smaller, more fuel-efficient cars and crossovers.

It plans to shut the Newark, Del., assembly plant that makes the slow-selling Durango and Chrysler Aspen trucks, for example.

LaSorda added that a $3 billion investment in power train technology will precede the rollout of 20 new and 13 refreshed vehicles over two years. Among them: new Chrysler Town & Country and Dodge Grand Caravan minivans; and Dodge's new mid-sized sedan Avenger, which replaces the Stratus; the convertible version of the recently launched Chrysler Sebring; and a new version of the Jeep Liberty compact SUV.

Todd Turner, president of Car Concepts, Los Angeles, says leadership at Chrysler is an issue, especially in trying circumstances.

"My worry has been that the top of the leadership [at Chrysler Group] is not terribly dynamic. Right now they need someone much more gregarious. It's critical because a strong, charismatic leadership helps create a culture and environment where one feels one is the best, and that comes through in marketing communications, with dealers, and with customers and brand identity."

The strategy of expanding the portfolio toward smaller vehicles makes sense, he says, and recent sales numbers for such vehicles as Dodge Nitro, Jeep Compass and Chrysler Sebring aren't necessarily a fair reflection of how the strategy will work because it's early in the game. "We have to be cautious because everything was introduced last October," Turner adds.

The large incentives Chrysler has been putting on certain vehicles doesn't make it easier to suss out how the new vehicles are doing, notes Turner. The Jeep Compass is selling strongly, having accounted for 5,000 units delivered in December.

But as shockingly well as the new Wrangler unlimited four-door is doing, less clear is where the sales are coming from. Turner says sales of the vehicle are up 100%, though sales of the Jeep Liberty compact SUV are down, "which may be due to the new Wrangler. And sales of the Grand Cherokee are down, because they sold so many of the Jeep Commander SUVs in January, because of incentives."

As part of the plant closings and reorganization, Chrysler said 13,000 employees, or 16% of its work force, would lose their jobs by the end of 2009, including 11,000 hourly workers.

Parent DaimlerChrysler also said it would not rule out a sale of the division.