February 11, 2008
Chrysler tries to shrink its dealers to fit
The question of what Chrysler is going to do under Cerberus Capital Management is a fascinating one, since so many of the strategies typically pursued by private equity-owned companies run directly at odds to those adopted by the Detroit Big Three in the past couple of decades.
All the indications are from briefings given by Jim Press, Chrysler’s vice-chairman, here and here are that it will not only try to shrink the typically bloated product line up of Detroit companies but will also take on its dealers, which have been a drag on restructuring. That is quite a departure from the normal Detroit way of doing things.
One big problem facing the Detroit companies is that they have multiple brands that used to be distinct - GM’s brands were carefully stratified by Alfred Sloan to provide "a car for every purse and purpose" - but now overlap confusingly.
Mr Press cites the similarities between the Chrysler Sebring and the Dodge Avenger as an example of where this has led. This point struck me when I sat in both these cars at the Detroit International Auto Show last month, wondering how to tell them apart (and why anyone would want to buy either one).
Chrysler now wants to do something that seems obvious to an outsider: to stop producing similar cars under its Chrysler, Dodge and Jeep brands and instead make the brands distinct, so that consumers expect different things from each one.
For Chrysler, Dodge and Jeep, you can equally read Chevrolet, Saturn and Buick at GM, Mercury and Lincoln at Ford.
Still, as is often the case in the auto industry, various things militate against doing the obvious. One of them is the US dealer networks of these companies, which are now too large for their shrunken output. Dealers would suffer further from brand consolidation in the short-term.
One former marketing executive of a Big Three company I talked to once said that the dealer network was partially to blame for product proliferation because any time that a successful vehicle was produced under one of its brands, the dealers for its other brands demanded equivalents.
It is not easy to take an axe to the dealer networks since dealers are protected by state laws and have often invested a lot of capital in their franchises. GM executives sometimes cite the prohibitive cost of cutting its Oldsmobile brand as a reason for proceeding cautiously.
Of course, it would be unfair to blame the debacle entirely on the dealers. The Detroit companies also fell foul of their notion that many different models could be produced from a single platform. That led to them knocking out similar cars under different marques to save money.
But it is striking that Chrysler is trying to shrink its dealer network at the same time as consolidating its product range. Bob Nardelli, Chrysler’s chief executive, and Mr Press must realise that it is difficult to achieve the second without the first.
