Lifestyle

Jeep's Uphill Struggle


For potential buyers of Chrysler, Jeep is a tempting asset, but the iconic brand has been so mismanaged that its value may be compromised

As DaimlerChrysler (DCX) and its investment bankers get ready to show Chrysler Group's books to prospective buyers, Jeep is the asset that will be uppermost in browsers' minds.

But they had better look close. Chrysler has mismanaged the iconic brand, the original off-roader and long-time military warhorse, to the point where its best future may lay outside the U.S.

"Jeep is golden," asserts Jason Vines, Chrysler Group vice-president for communications. But if you ask some dealers and analysts, there may be something coming out of the Jeep goose besides gold.

At the recent National Association of Automobile Dealers gathering in Las Vegas, some 300 dealers and auto executives were presented with new findings from J.D. Power & Assoc. (JDP) showing that among 22 non-luxury brands in four of six key categories Jeep scored in the bottom 25%. According to dealers present at the meeting and one Chrysler official, these categories included profit per vehicle, customer relations, quality, and marketing effectiveness. (Like BusinessWeek.com, J.D. Power is a division of The McGraw-Hill Companies (MHP).)

Losing Its Sheen

The company's overall score in the bottom 25% of mass-market brands wasn't what dealers, who look upon the annual JDP analysis to help guide their investments, expected. Tom Libby of Power Information Network (PIN), an affiliate of JDP, says the specific data was proprietary. "But there's no question that Jeep has been going in the wrong direction, at least in the U.S," he adds.

Jeep, which was made up entirely of body-on-frame SUVs until the last few months, has suffered the same downturn as other SUVs. Jeep sales overall were down just 3.5% last year. But that's misleading because of new models added in 2006. Sales of Jeep Grand Cherokee were down 35%. Jeep Liberty sales were down 20%.

Chrysler has been trying to broaden the appeal of Jeep, but the results have been mixed. According to PIN's Libby, the sales of Jeep Commander, launched in 2005, have come almost entirely out of the Jeep Grand Cherokee franchise. The Commander was meant to satisfy the demand by some Grand Cherokee owners for a third row of seats without having to change the styling and packaging of the Grand Cherokee. Making a Grand Cherokee longer, say Chrysler executives, would have changed the look of the vehicle and its off-road performance.

Splitting the Brand

But almost immediately after launching with a starting average transaction price price of around $37,000, its chilly reception forced Chrysler to discount the model by $5,000 (see BusinessWeek.com, 6/15/06, "Detroit's Mid-Size SUV Problem"). PIN's Libby notes that Commander sales came almost entirely from Grand Cherokee sales.

Indeed, the off-road performance of any Jeep is at the heart of its image and the debate within Chrysler. In the last five months, Chrysler launched the car-based crossover vehicles Compass and Patriot, which aren't "trail-rated" for serious off-roading (see BusinessWeek.com, 10/25/06, "Jeep's Misguided Compass"). Chrysler execs say they extensively interviewed die-hard Jeep owners to ask whether selling junior Jeeps would dent the brand.

The result? Jeep fans said as long as the hard-core off-roaders like Wrangler and Grand Cherokee are protected, the soccer-Mom class could have their grocery-hauling Jeeps. But why two? The decision was driven entirely by production concerns, say Chrysler insiders, not consumer research. Chrysler wanted to fill up its Belvedere, Ill., plant, which manufactures the Dodge Caliber as well as the two Jeeps. However, Chrysler may end up discounting the new models if demand is low, which hurts Jeep's overall brand value.

Reinvigorating a Classic

Jeep, says independent marketing consultant Dan Gorrell, was the first SUV to climb to large sales volume and to be embraced by the suburban homeowner as a family car. "It was the unofficial vehicle of Mill Valley in the 1980s," said Gorrell. But, says the consultant, Jeep's big problem is that its brand franchise has been attacked by every side as SUVs and crossovers with four-wheel-drive options have proliferated. All the more reason, he says, to keep Jeep authentic as the benchmark for off-roading.

A clue to how Jeep can stay strong is in the surprise success of the Jeep Wrangler Unlimited, a new four-door version of the rugged Wrangler, a descendant of the original Jeep CJ and the original Jeep Willys military car. The Unlimited has been selling without any incentives. Last month, Chrysler sold almost 9,000 Wranglers, an increase of 134% from a year earlier, owing entirely to the popularity of the four-door model. Better for Chrysler, the Unlimited has been selling at close to $30,000. That makes it a profit bonanza for Chrysler.

Chrysler is now looking at a makeover of Jeep marketing. It recently announced it was talking to ad agencies beyond BBDO, Detroit, which handles all of Chrysler's North American advertising. Part of the future of Jeep, say Chrysler insiders, is to put alternative-fuel vehicles into the franchise to steel its image with outdoors-minded consumers. Chrysler has sold a limited supply of Liberty diesels already. And it recently introduced a diesel Grand Cherokee. The engine, built by Mercedes-Benz, will produce 215 hp and 376 ft-lb of torque, estimated mileage is 19 mpg in the city and 23 mpg on the highway, and it produces 20% less carbon-dioxide emissions when compared with a standard gas engine. The current V-8 Grand Cherokee with similar torque and towing capacity gets 15/20 mpg.

Still a Hot Property

However confused Jeep's image is in the U.S., the brand doesn't suffer from muddiness abroad except when it's four-wheeling through the muck of Chinese or Indonesian back roads or the sands of Iran and Dubai. Last year, 41% of Chrysler's sales abroad last year were Jeeps, compared with 22% in the U.S. And sales overseas were up 15%. Jesse Toprak, an analyst at Edmunds.com, says Jeep is an aspirational brand in markets such as China, South America, and the Middle East. "It's a very valuable global brand, which you can't say about Chrysler and Dodge," says Toprak.

Back in 1987, Chrysler paid $1.1 billion to take over American Motors from Renault, and the objective then was to get hold of the Jeep brand. Twenty years later, as the buyers circle Chrysler, Jeep is again at the top of the list of marketable assets.


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