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Chrysler Crunch Hits the Viper


Chrysler needs to raise cash and could sell its high-performance Viper marque, and sales of other assets could follow

Is Chrysler slithering away from the Viper?

It's possible. Chrysler Chairman and CEO Robert Nardelli said Aug. 27 that the company has enlisted investment banking firm Lazard Freres to explore strategic options for the Dodge Viper, Chrysler's iconic 600-horsepower sports car.

Chrysler needs to raise cash. Viper is one of the assets Chrysler has marked for sale in a play to raise a total of $1 billion. Chief Financial Officer Ron Kolka told BusinessWeek in an interview in early August (BusinessWeek.com, 8/1/08) that the company is burning cash and, even though it has posted a $1.1 billion operating profit in the first half of the year, Chrysler is losing money. "Maybe being in the limited-edition sports car business is a luxury they can't afford," says John Casesa, principal of consulting firm Casesa Shapiro Group. "If it raises $400 million, that's half a car program."

Sports Car Cred

In business terms, selling Viper outright wouldn't hurt the company much. The Viper franchise does give Chrysler credibility with the hard-core auto enthusiast crowd. But the automaker hasn't been able to connect the sports car's powerful image with the other cars in Dodge showrooms, says James N. Hall, principal of 293 Analysts, a Detroit auto consulting firm.

The Viper became its own franchise with minimal connection to the trucks, SUVs, and minivans that most Dodge customers buy, Hall said. Dodge made an attempt to marry the Viper's image with the SR-T performance versions of its stock cars. But even that connection was pretty thin, Hall says. "After a while, Viper became an icon of its own," he said. "Then it has to justify itself on a product and marketing basis."

Its limited sale of 594 cars in the first half of this year also doesn't justify national advertising, Hall says. So in the end, Chrysler didn't get enough out of it.

Chrysler notes that the company might not part with the brand. There are several options. Other than selling the franchise, Chrysler could cut a joint-venture deal that has someone else building the car for the company. Right now, it's assembled by hand in a small specialty shop in Detroit.

Technology Transfer

Chrysler could sell the technology to another sports car player. That firm could make Vipers for Dodge and other sports cars—using similar technology and hardware—for its own brand, Hall says. Industry insiders say that a company like super sports car firm Saleen, which is tied to specialty parts company ASC, could cut a deal to make the car. Saleen could then make sports cars under its brand name and a similar car for Dodge.

Another player, such as Canadian parts company Magna International (MGA), could manufacture the Viper for Chrysler, which would then continue to market and sell the car. Magna assembled cars for automakers in its plant in Graz, Austria, and has set its sights on a similar operation in the U.S.

Chrysler started building the Viper in 1992. General Motors (GM) Vice-Chairman Robert Lutz, then a top Chrysler executive, started the car to give the Dodge brand some cachet. Since then, the car has been overhauled just twice. A new version came out last year, but it was mechanically very similar to the existing car.

One problem, analysts say, is that Chrysler never really invested enough to freshen the car or support marketing efforts around the brand. Bob Martin, a senior consultant at the CarLab, a consulting firm in Orange, Calif., likened the possible sale of Viper to efforts by GM to shop its Hummer SUV division. "Viper has a small, loyal buyer base. But like its Motown brethren, Chrysler appears incapable of supporting a niche product," Martin says.

For Now, No Split-Up

Industry analysts have speculated since Cerberus Capital Management bought a controlling 80% stake in Chrysler last year that the private equity giant might split up the automaker, selling its core Jeep brand and the minivan franchise if it couldn't fix the company. But Chrysler management has said firmly that it is trying to fix the company and right now, it is exploring strategic options only for the Viper.

Selling the Viper franchise is clearly a cash-raising move, but not much of a cost saver, says Thomas Stallkamp, former Chrysler president and now a partner with private equity firm Ripplewood Holdings. He says the Viper doesn't cost much to build and isn't much of a financial drag. "It's another sign that they're becoming more of a marketer," Stallkamp says.

Welch is BusinessWeek's Detroit bureau chief.

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