Global Economics

Can Dodge Hit the Gas in Europe?


American auto makers have long dreamed of exporting their U.S. brands to Europe and beyond, but their efforts to gain traction in the world's second-largest auto market either sputtered or stood still. Eight years since the 1998 merger with Daimler-Benz, Chrysler still has the miniscule market share in Europe of 0.6% -- despite a management vow at the time of their union to double that share. So is it sheer hubris that's driving Chrysler to take its Dodge brand global, rolling out its chunky new Caliber compact in the all-important European market in June?

Chrysler executives say this time things will be different. Though Dodge is virtually unknown in Europe -- prompting Chrysler to set aside a marketing budget of several hundred million dollars over the next five years just to launch the brand -- it will be able to sell cars through DaimlerChrysler's (DCX) extensive European dealer network. That saves big money. Since the merger, DaimlerChrysler has harnessed many of its Old World Mercedes dealers to run separate Chrysler showrooms nearby, while sharing back-office operations.

CHANGING GEARS. "We think we can double our market share to 1.4% by 2009," says Thomas Hausch, executive director of international marketing and sales at Chrysler, in Auburn Hills, Mich. But European analysts say they have heard that kind of bold talk before -- and remain skeptical. Chrysler models sold in Europe, such as the PT Cruiser and Neon compact, have tended to be iconic cars that followed the path of shooting stars at best -- generating a spurt of sales and then rapidly falling off.

Last year the Neon, Caliber's predecessor, racked up sales of only 238 cars in Europe, down from a peak of 8,900 in 1997. And still untested is the ability of Mercedes dealers to cater to a downmarket clientele. "Mercedes has no handle on the target groups Dodge is trying to reach. They don't know how to sell Dodge cars. It's an unproven model," says one Frankfurt auto-industry analyst.

Competition is ferocious in Europe's overcrowded car market and margins have become razor thin. The onslaught of Asian auto makers over the past decade has prompted a Darwinian struggle that cost Europe's national champions 16.8% of their once-protected market and billions in restructuring costs. Now both the Japanese and the Koreans are turning up the heat again by setting up huge factories in low-wage Eastern Europe -- and the Europeans such as Renault, Peugeot,(PEUGY) and VW(VOLK) are rushing to produce there too.

SMALL PACKAGES. "The risk is, once the advertising is spent, Dodge's sales may drop like a stone," says Christopher Stuermer, senior analyst at market researcher Global Insight in Frankfurt. Global Insight forecasts European sales of the Caliber will peak in 2007 at 11,000. (For the first four months of 2006, Dodge sold 19,174 Calibers in the U.S., according to Automotive News.)

Chrysler executives chose the Caliber to lead the drive in part because compact cars are the biggest segment of the 16.8 million car European market, making up 24% of the total. And big horsepower in small packages is suddenly in style. From London to Rome, car buyers have begun snapping up peppy small cars packing 140 horsepower or more. By contrast, the kind of trucks that power sales at Dodge in the American market are nearly nonexistent in Europe -- and the large sedan segment is dominated by the German luxury brands. Chrysler sold only 4,000 of its 300C sedan in Europe last year, despite its popularity in the U.S.

To meet his target of doubling Chrysler's market share by 2009, Hausch must lure customers from a bevy of strong European brands such as Volkswagen, Renault, Opel, and Peugeot, with a combination of eye-catching design, quality, and performance -- or else he must beat the Asians at offering the best value.

SLICE OF THE PIE. "It's a long road," says Ferdinand Dudenhoeffer, director of the German Center for Automotive Research in Gelsenkirchen, who calls the 1.4% market-share target too ambitious. A failure to match rivals on quality could quickly puncture Dodge's hopes in Europe. "The styling (of the Caliber) is interesting, but the weakness is the interior. It looks cheap -- that won't generate a premium price," says Dudenhoeffer.

Hausch acknowledges the formidable competition, but insists Dodge is targeting a select 13% slice of Old World compact buyers with the Caliber -- mostly males with a median income of €34,000 ($44,000) who are looking for bold and powerful styling to express their individuality. The Caliber, which starts at $13,400 in the U.S., is a boxy hatchback with broad shoulders and SUV-like features, that will start around €14,000 ($17,900 at today's exchange rate).

Dodge will be positioned as the brand for car buyers seeking good value, roominess, and "the most horsepower per euro," Hausch says. Chrysler claims the 140-horsepower Caliber will cost roughly 10% less than what a similarly equipped European brand such as Volkswagen does, but analysts say it will be hard to match Asian rivals on price. Dodge is equipping its international fleet with a range of gas and diesel Volkswagen engines, including a popular 2-liter turbo diesel power train.

IN THE PIPELINE. "They are trying to position Dodge as a lifestyle brand -- a brand similar to Toyota's Scion for Europe," says Philipp Rosengarten, senior analyst at Global Insight in Frankfurt, who adds that Toyota (TM) has not tried to sell Scion in Europe because its target audience -- Gen X and Y types -- doesn't exist as a large, homogenous buyer group in the 12 countries of Western Europe.

Caliber is not the only car Dodge aims to take global. A total of five Dodge models will go international in 2006 and 2007, says Hausch, including the Caliber, the boxy Nitro SUV, the high-performance Dodge Caliber SRT4, and a larger sedan which has not yet been announced. And two more "surprises" are in the works.

Overall, the Chrysler Group, including the Dodge, Jeep, and Chrysler brands, plans to double the number of vehicles available outside North America to approximately 20. Of those, 12 will have an option for a diesel engine, up from four in 2003 -- a vital addition in a market where more than 50% of new car sales are diesel cars. Jeep's share of the European market has held steady at 0.2% since the merger between Daimler-Benz and Chrysler. Jeep's efforts to grow its sales in Europe have been cramped by the arrival of popular SUVs built by BMW and Mercedes.

BIG INSIDERS

Caliber and a handful of additional Dodge models in the pipeline may well juice sales for Chrysler. But the question is, will the effort pay off? Analysts note any auto maker can "buy" up to 2% of the European market with aggressive advertising campaigns -- as Daewoo did in the 1990s -- but getting beyond 2% means fielding a hit model, such as the Toyota's Yaris subcompact.

And Chrysler's effort to snare 1.4% of the Old World market -- or 236,000 cars -- pales in comparison to Ford's (F) and Opel's European sales of 1.4 million each. Ford of Europe owns 8.5% of the 16.8 million European cars sold and General Motors' (GM) Opel unit has 8.6%, but both design and produce in Europe -- and both are regarded as European carmakers.

RUGGED AMERICAN. Hausch explains that Chrysler's ambitions are more modest -- and that it isn't aiming to become a real volume player in Europe. Moreover, he says, Chrysler's international operations already turned profitable in 2004, and the big ad spending for Dodge won't produce any red ink. "We do not need to be as known as VW to reach our sales target," he says.

Why bother, then? Dodge's experiment in Europe may test the waters for a shift toward the globalization of auto-buying tastes and highlight whether the "rugged American West" brand image of Dodge can be exported outside the U.S. But even Chrysler isn't betting on big success until there are more signs that a new global auto customer is hot for distinctly American cars.


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