Solutions in the Short-Term Lane



By Warren Brown
Sunday, May 11, 2008; Page G02

It's the nutty season in the automobile industry. Falling sales and soaring gasoline prices are causing the insanity. Politics is making it worse.
There's no doubt that things are bad on the sales front. Overall, sales were down 6.8 percent in April compared with sales in the same month a year ago. That was the sixth consecutive decline, measured monthly on a year-to-year comparison basis. It was the 10th decline in the past 11 months, Automotive News Data Center records show.
Trucks and sport-utility vehicles were the hardest hit. General Motors' Hummer division sales plummeted 45.6 percent in April. Truck-heavy Chrysler saw its sales drop 40.4 percent. Conversations with Washington area dealers last week confirmed what the data shows.
"We really saw it in our stores last month," said Vincent A. Sheehy IV, president of the 20-store Sheehy Auto Stores, based in Fairfax. "Sales of small cars were up 30 percent. We're really selling cars. But trucks are another story."
Dealers nationwide, including Toyota dealers, are stuck with trucks. But Chrysler and Dodge dealers appear to be the most stuck. Dodge dealers across the country have a 109-day supply of big trucks in an industry where a 62-day supply of trucks historically has been considered normal, Automotive News data show.
That large unsold inventory is costing Chrysler/Dodge dealers plenty in interest rates and taxes, so much that desperation in the truest meaning of the term has set in.
Some of those Chrysler/Dodge dealers are offering rebates as high as $13,000 to move their trucks. Chrysler's management, in turn, has come up with a sales incentive program that is so nutty, it is worthy of a presidential candidate.
Called "Let's Refuel America," the Chrysler program would cap any fuel -- unleaded or premium gasoline, diesel or ethanol -- at $2.99 a gallon for three years for any customer buying a Chrysler or Dodge product between May 6 and June 2 this year. The program applies to a wide range of Chrysler and Dodge vehicles, including sport-utility models and those trucks clogging the company's new-vehicle lots.
This is a program being offered by the same Chrysler that historically has balked at being forced by the federal government to raise fuel economy standards. Now, with its clear-the-lots "Let's Refuel America" program, it is taking the short-term risk of sales-weighted, federal fuel economy standards by flooding the market with vehicles that have less than stellar fuel efficiency.
Nuts!
But in business and politics, common sense goes out the window when desperation sets in. Thus, we have one of the Democratic presidential candidates, Sen. Hillary Rodham Clinton (N.Y.), joining presumptive Republican nominee Sen. John McCain (Ariz.) calling for a summer moratorium on federal gasoline and diesel taxes. Never mind that both Clinton and McCain last year backed major increases in federal fuel economy standards. Never mind that both of them know, or should know, that original federal fuel economy standards put in place in 1975 were undermined by consumers drunk on cheap gasoline.
The suffering across the country stemming from high fuel prices is real, the politicians and Chrysler executives say. The time to do something dramatic is now, if only to temporarily relieve the psychological burden of high fuel costs, they argue. But they say little or nothing about the potential consequences of their proposed short-term fixes.
Maybe if McCain and Clinton are unsuccessful in their political bids they can get jobs at Chrysler. But they might want to think long and hard about such a move. Chrysler is losing so much money that Daimler, which retains a 19.9 percent interest in the U.S. company it once owned outright, is cutting the book value of its Chrysler share from $2.19 billion to $845 million. Cerberus Capital Management, the private-equity investment firm that bought 80.1 percent of Chrysler from Daimler last year, is having a major case of buyer's remorse about its purchase, according to industry sources.
Cerberus, which lately has been flirting with Nissan/Renault, the Japanese-French car company, could wind up offloading Chrysler to Nissan. That would give Nissan a broader array of pickup trucks, should trucks ever become big sellers in the U.S. market again. Chrysler would have access to Nissan's excellent small-car portfolio, which it needs now and will need in the future.
That would make more sense than a money-losing company subsidizing gasoline sales.




I don't particularly agree with Chrysler's "Refuel America" program or the idea of a moratorium on the federal gas tax. Its Chryslers fault for over-producing large trucks... the Chrysler Aspen for example, give me a break. Building an over-sized luxury SUV by simply putting leather seats and a Chrysler badge on a Durango? Now the lots are full of MOPAR trucks. The idea of a nissan chrysler buyout is interesting however it seems like a big risk for Nissan. But could you imagine the offspring of that merger? A two seater like the 350Z (or the new 370Z) or GT-R with the Chrysler badge? However due to Chrysler's marketing strategy it would quickly face the same demise as our ill-fated Crossfires!