Bloomberg News

Marchionne’s Dart Letdown Shows Chrysler Still Lacks Cars

January 22, 2013

Chrysler Revival Incomplete as Dart Trails Civic by 5-to-1

Attendees view the Chrysler Dodge Dart vehicle during the 2012 North American International Auto Show (NAIAS) in Detroit. Photographer: Scott Eells/Bloomberg

Chrysler Group LLC’s pairing up with Fiat SpA (F) was supposed to transform its car lineup into one that Americans would covet, starting with the much-hyped Dodge Dart’s debut a year ago. So far, buyers aren’t budging.

Taking on some of the most popular models on the road, the new Dodge is off to a slow start. Chrysler sold just one Dart for every five Civics that Honda Motor Co. retailed the last four months of 2012. General Motors Co. (GM:US)’s Chevrolet Cruze, the No. 4 compact car in the market, outsold the Dart almost 4-to-1 during that span.

The Dart’s early letdown is a rare blemish in Chrysler Chief Executive Officer Sergio Marchionne’s turnaround, which includes a 33-month streak of rising U.S. sales and three years of market-share gains. The car’s underperformance illustrates an unresolved challenge that helped thrust the automaker into bankruptcy: convincing buyers it has more to offer than sport- utility vehicles, pickups, minivans and big sedans.

“Fiat has the smaller-car expertise, they’re the European maker, and there were high expectations for that to work,” Joe Langley, an analyst for LMC Automotive, said in a telephone interview. “But Chrysler is playing in a space where they’re going to have to conquest buyers, and you have a lot of consumers that are going to stick to what they know and trust.”

Chrysler’s sales gains are built on the familiar standbys -- Ram pickups, SUVs from the Jeep brand such as Grand Cherokee, and the Dodge Grand Caravan and Chrysler Town & Country minivans.

Car Lineup

The Dart is positioned between the Fiat 500, which made strides last year while still failing to crack Chrysler Group’s top 10-selling models, and the 200 midsize sedan, which often sells with heavy incentives or to fleet customers. The new models have barely dented the company’s light-truck reliance.

Chrysler’s trucks, minivans and SUVs were 70 percent of its sales last year, according to researcher Autodata Corp. That’s down from 73 percent in 2008, the last full year before Turin, Italy-based Fiat struck its alliance with Chrysler. Those segments accounted for less than half of total industry sales, Woodcliff Lake, New Jersey-based Autodata’s figures show.

Operating with a sales mix still skewed toward larger vehicles poses a threat to the market-share gains. President Barack Obama cited cars that were less popular, reliable and fuel efficient than competitors as the culprits that led to the demise of Chrysler’s predecessor when it filed for bankruptcy in April 2009.

‘Fundamentally Positive’

“It’s certainly important for Chrysler to get small cars right,” Steven Rattner, the former head of Obama’s automotive task force, wrote in an e-mail. Still, “the situation with the Dart does not lead me to change my fundamentally positive view of the company and its prospects.”

Marchionne is relying on Chrysler and its string of five quarterly profits to offset losses at Fiat’s mass-market brands in Europe, where automakers are coping with the worst sales slump in 19 years. Fiat gained 25 percent this year through yesterday as Marchionne works to merge the automakers by 2015.

As Chrysler’s first car based on a Fiat architecture, Dart was one of 2012’s most anticipated new entries. Building an iteration of the car that gets 40 miles (64 kilometers) per gallon was the final milestone set by the Obama administration to trigger an increase in Fiat’s ownership of Auburn Hills, Michigan-based Chrysler.

Marchionne, also the CEO of Fiat, laid out the stakes for Dart to 11.2 million viewers on 60 Minutes in March. Any serious carmaker that is unable to make it in the compact-car segment, he said, is “doomed.”

Unpopular Transmissions

The first Darts trickled into dealerships in June after the company initially said it would begin production in early second quarter. And when they did reach showrooms, the cars came with a drive type that most Americans don’t want: manual transmissions.

At least the first 5,000 Darts shipped to dealers were equipped with manuals, contributing to the slow sales start, Reid Bigland, president of the Dodge brand, said last week.

“It was an opportunity to get the vehicles out,” he said in an interview at the Detroit auto show. Less than 15 percent of compact cars are sold with a manual transmission, he estimated. “We knew they were going to be slower-turning, but we didn’t have enough to meet the dealer demand to begin with.”

The Dart debuted to positive reviews. An engineer with Consumer Reports in April called the Dart a “frisky compact that’s entertaining to drive” and wrote that his first impressions were that the car “certainly seems competitive.”

Brutal Segment

With those encouraging words, the Dart set out to take on some of the world’s best cars. Loyalty to the compact segment’s stalwarts -- Honda’s Civic and Toyota Motor Corp. (7203)’s Corolla -- nearly rival that of GM and Ford Motor Co. (F:US)’s full-size pickup owners, according to researcher Edmunds.

The Civic and Corolla both had loyalty rates of about 30 percent last year, better than Ram and short of more than 35 percent for GM’s Silverado and Ford’s F-150. The Dodge Caliber, the car that Dart replaced, had a retention rate of less than 6 percent in its last year on the market, data from Santa Monica, California-based Edmunds shows.

Unlike with full-size pickups, where GM, Ford and Chrysler control more than 90 percent of the market, the Civic and Corolla are followed by a pack of good compacts. Other staunch competitors include Hyundai Motor Co.’s Elantra, Ford’s Focus and Volswagen AG’s Jetta.

“The problem is not the car; the problem is launching a new nameplate in probably the most competitive segment,” Dave Sullivan, an analyst at AutoPacific Inc., said in a telephone interview. “It’s just going to take some time for Chrysler to get some traction.”

Lacking ‘Legacy’

Chrysler’s dealer base lacks happy car buyers that are coming back to order another compact from them, said David Kelleher, president of Chrysler’s national dealer council.

“We have no legacy customer in that segment,” said Kelleher, a Chrysler dealer in Glenn Mills, Pennsylvania. “Anything we ever sold there was to the people that either were buying the dealer or buying the deal. That’s not a base to draw from.”

Marchionne, 60, during a press conference last week, disputed that Chrysler’s weak track record with compact cars makes it harder for the Dart to succeed.

“That’s not been a problem; it really hasn’t,” he said. “Whoever’s buying that car doesn’t have an historical memory of our segment predecessors. It’s almost virgin territory when you’re talking to young buyers now.”

Nine-Speed Transmission

The Dart was slow to get rolling because problems beneath the hood extended beyond the initial availability of only manuals, Marchionne said. Darts eventually were equipped with optional dry-dual clutch automatic transmissions that, while popular in Europe, are unfamiliar to Americans, he told reporters.

“If there’s a mismatch to consumer expectation, you’re going to pay the price, and we have,” he said. The Dart “will do well. It could have done a lot better had we completed all the powertrain solutions. These are coming.”

The Dart eventually will have an available nine-speed transmission that Chrysler is developing with Germany’s ZF Friedrichshafen AG, Marchionne said. The nine-speed uses its additional gears to run more efficiently.

That fix will have to wait until the second half of the year, at the earliest. The replacement to the Jeep Liberty SUV, which Chrysler plans to introduce midyear, will be the first model to get the nine-speed transmission, Marchionne said. Chrysler may have as many as 200,000 of those transmissions available this year that will be spread between the Liberty and possibly a revamped 200 sedan first before the Dart, he said.

100,000 Threshold

Chrysler probably won’t make it to 100,000 Dart deliveries this year, said Bigland, who is also the company’s head of U.S. sales. If that prediction holds, the Dart could trail the seven similar-sized cars that exceeded the six-figure threshold in 2012, according to Autodata. Honda delivered 317,909 Civics, and Toyota sold 290,947 Corollas last year.

The company is also trying a new marketing effort for the car. Chrysler last week introduced DodgeDartRegistry.com, a variation on the online wedding registry. The site lets potential buyers raise money toward the purchase of a Dart down to individual parts, such as a steering wheel or seat.

The registry will be folded into Dart’s ad campaign, which started in July with the commercial “How to Change Cars Forever” featuring New England Patriots quarterback Tom Brady.

“Watch and see, Dart’s going to be just fine,” Kelleher, the Chrysler dealer, said in a telephone interview. “You can run all the Tom Brady ads you want, but one ad isn’t going to put it into the culture. It takes time to sink in.”

To contact the reporter on this story: Craig Trudell in Southfield, Michigan, at ctrudell1@bloomberg.net; Mark Clothier in Southfield, Michigan, at mclothier@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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