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Chrysler Group LLC Chief Executive Officer Sergio Marchionne has designed a five-year plan that outlines the path to recovery after the automaker was forced into bankruptcy earlier this year, he said yesterday (Wednesday). A recent report showed this path may lead to China, which has supplanted the United States as the world's largest auto market.
Marchionne, speaking to reporters at the, said the restructuring of Chrysler would be a slow process and more difficult than previously expected. Chrysler will unveil the five-year business plan by the end of November.
"We were surprised by how little had been done in the past 24 months," Marchionne said. "It will be a slow progress in the beginning, but we will see significant improvement in 2010."
Chrysler's new CEO, who also heads its controlling stakeholder Fiat SpA (ADR OTC: FIATY), said U.S. industry-wide auto sales should be more than 11 million next year, from about 10 million forecast for this year.
While Marchionne didn't go into great detail about his five-year plan, some actions have already been put into place. The executive has pulled Chrysler out of manufacturing partnerships, and implemented some management changes such as installing separate CEOs to manage the Chrysler, Dodge and Jeep brands, The Wall Street Journal reported.
September sales in the U.S. auto industry – which got a much-needed boost from the government's Car Allowance Rebate System (CARS), popularly known as Cash for Clunkers – are off 19% so far this month, Chrysler brand President and CEO Peter Fong told Bloomberg News.
Many analysts and auto dealers believe the success of CARS was merely a case of consumers accelerating purchases they would have made later in the year. If this month's decline continues in the coming months, the premature sales could hurt automakers that are now upping production for the third quarter to replenish inventories depleted by factory shutdowns earlier this summer.
"We are going to see harsh reality in September," Marchionne said, referring to the sales decline following Cash for Clunkers, and describing the U.S. industry results as a "disaster." General Motors Co. Chief Executive Officer Fritz Henderson echoed Marchionne's sentiment, describing the market as "very weak" this month.
Still, a 19% decline this month would equate to a 10.1 million seasonally adjusted annual sales rate (SAAR), higher than any of the first six months in this year. Cash for Clunkers boosted that number past the 11 million mark in August.
Chrysler's Fong is optimistic about the near future, based on the company's low inventory levels.
"For Chrysler, our story is a lack of inventory," Fong told Bloomberg. "It's the lowest level that anyone can remember. I think it's likely that car sales will bounce back next month."
Chrysler dealers currently have 83,000 vehicles on hand, about one-quarter of what they had a year ago, according to Fong.
Marchionne has often spoken of the need for Fiat to join a bigger group to reach an annual production of 5.5 million to 6 million units, and expressed confidence that its stake in Chrysler will be enough to reach that goal. Together, Chrysler and Fiat currently have a production of 4 million vehicles.
The China Factor
Just a few months after took a controlling stake in the No. 3 automaker in the United States, Chrysler renewed its hunt for a manufacturing partner in China, people with knowledge of the discussions told the International Business Times.
GM's China Group President and Managing Director Kevin Wale said on Sept. 1 that GM now expects total industry sales this year in Mainland China to be 11.5 million to 12 million, up from 9.1 million in 2008. So far this year, GM has sold 1.1 million vehicles in China, , Reuters reported.
Meanwhile, GM's estimate for the United States call for sales of 10.5 million this year, down from 13.2 million in 2008.
Representatives of Chrysler and Fiat have sounded out automakers in the Red Dragon about a partnership that would involve one of those companies making a vehicle for the Chinese market based on a Chrysler platform, the sources said.
"China is an extremely important market for Chrysler to get into and there is great interest in that market," Chrysler spokesman Gualbergo Ranieri told the IBT, pointing out that no deal with a Chinese partner had been signed.
Chrysler had expressed a specific interest in finding a Chinese manufacturing partner for the platform – known as the "C-platform" – used to manufacture its Jeep Compass vehicle. It also forms the basis for the Dodge Caliber and Jeep Patriot. The company currently sells four Jeep models and the Dodge Caliber and Journey in China, but all of those are imported from North America.
Fiat's Chinese joint venture partner Guangzhou Auto was one of the companies approached by Chrysler. Fiat signed its deal with Guangzhou in July.
Chrysler also visited Changfeng Auto in Hunan to explore the possibility of selling engine models to Changfeng or having the Chinese automaker start local production of a Chrysler model, according to a source with direct knowledge of those talks.
News and Related Story Links:
Chrysler Turnaround "Slow Progress": CEO
- The Wall Street Journal:
Marchionne: Fiat, Chrysler Don't Need Another Partner
- Bloomberg News:
Chrysler Executives Say U.S. Sales Plunging
- International Business Times:
Chrysler Renews Search For China Partner – Sources
China Auto Sales to Top U.S. This Year for the First Time