Would You Buy a Car from Chrysler?

Persuading buyers to take a chance on the bankrupt automaker might turn out to be tougher than working Chrysler out of court

By David Kiley

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Now that Chrysler has done what was once unthinkable for Detroit's Big Three carmakers—filing for Chapter 11 bankruptcy reorganization—everyone from President Barack Obama to the automaker's own public relations department has tried to assure car owners and would-be buyers that the company is going to continue operating and that its warranties are safe. But the question for consumers is, should I buy a Chrysler now? And how about one of those Fiats I hear are coming to America?

Consumers can be spooked by the idea of buying from a bankrupt company; many equate bankruptcy with "closing the doors." Car-buying site Cars.com says 21% of consumers it polled said a bankruptcy would affect their decision on which company they would buy a car from.

So Chrysler and its dwindling army of dealers know that the job of selling cars just got a lot tougher. They will have to do a lot of advertising and communicating in the next 60 days to keep people coming into showrooms.

"They should shout from the mountain tops in ads and every other way they know how that they are here and not going anywhere," says Jason Vines, former communications chief at Chrysler as well as Ford (F), who has dealt with several public relations crises. "Now is not the time to be shy."

The Quality Problem

Even before this, talk of a bankruptcy filing had been hammering Chrysler's U.S. sales. They are down 46% so far this year, worse than the 38% decline for the industry. Part of that, of course, is the impact of the recession and scarcity of consumer credit. But it is hard to feel good about Chrysler's vehicles based on the independent data available on reliability and quality. Consumer Reports, for example, recommends no Chrysler, Dodge, or Jeep vehicles in its auto guide this year. Nor does J.D. Power & Associates (like BusinessWeek, a unit of The McGraw-Hill Companies (MHP)) have great things to say. It rates Chrysler's vehicles considerably lower on quality than rivals and industry averages.

Worse, J.D. Power also scores Chrysler very low in its Automotive Performance Execution & Layout Study, which surveys buyers on how well a vehicle is executed and designed after they have lived with it a while. All three Chrysler brands score well below the industry average. Several of Chrysler's key models—Chrysler Sebring, Jeep Liberty, and Grand Cherokee—score at or near the bottom of each category. All three brands also score well below average on Power's Vehicle Dependability Study, which measures how reliable vehicles are over three years of ownership.

Chrysler executives says that it takes time for any improvements in cars to be proven. "We have made great progress in the nearly two years we have been working at it, but it takes time for these improvements to be reflected in the scores," said Chrysler Vice-Chairman James Press in a recent interview with BusinessWeek.

One worry that automakers have about bankruptcy—that buyers will assume no one will be around to fix their car—should be allayed by the fact that warranties on Chrysler products have been guaranteed by the U.S. government since Mar. 31. That continues through the Chapter 11 bankruptcy process.

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