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Fear and Cost-Cutting at Chrysler Group

Why does Chrysler's market share keep falling? People can come up with many answers, but I believe the basic issues is fear.

Bob Eaton arranged the sale to Daimler-Benz in the belief, fueled by industry analysts, that Chrysler could not compete on its own.

Was this true? Honda, Fiat, and BMW do quite well on their own. Given a few more years of reinvesting its profits, Chrysler could have accomplished the same kind of turnaround as Volkswagen, especially if it had forged alliances with other automakers.

Chrysler's pre- and post-takeover behavior was ironic, in that the company continued to pinch pennies. Their comeback was fueled partly by cost savings, but mainly by the decision that Chrysler would, rather than embarking on a cost-cutting binge, invest heavily in new cars, new technologies, and new ways of working.

Now, given the choice between investment and cost-cutting, Chrysler has chosen cost-cutting. The company has returned to its 1997 budgets, despite amazing profits. Rather than increase its market share by building factories (or taking over other companies' factories), Chrysler is cowering in the corner, fearful for the downturn, heeding analysts who claim that overcapacity is rife in the industry. Chrysler will not be building enough PT Cruisers to fill demand. No additional capacity is being dedicated to the Cruiser. Any new cars come at the expense of other Chryslers.

Cost-cutting did not work for General Motors, which faced similar issues at the same time - why would it work for Chrysler now?

Not capitalizing on the PT Cruiser is an incredible mistake. Microvans are a craze because they offer nearly all the advantages of full-size minivans with better gas mileage, handling, and image. The PT Cruiser could easily outsell the Ford Explorer, but it will not, because Chysler is too scared to build them. Instead, competitors will take over the market - many already sell microvans in Europe. Chrysler is giving up an amazing opportunity to convince import, Ford, and GM owners that Chrysler can indeed build a dependable car.

Indeed, the ultimate cost-cutting move is the end of Plymouth, a division with hardly any unique marketing costs. Rather than build up the Chrysler name by making sure every Chrysler is upscale, as with Acura and Infiniti, Chrysler is pushing Chrysler down into Plymouth's place.

Other indications of cost-cutting abound. The original Neon easily beat other cars in its price range. The new one is about average. The fans have been pushing for a supercharged Neon for years, but we've seen no sign of this happening - other than the same rumors we've been hearing since 1994.

The 300M should have a five-speed to be a true BMW challenger. Chrysler says they can't afford it. Volkswagen, Toyota, and Honda can in nearly every car they make. Not Chrysler, fearful they might not sell.

Want a Sebring with a five-speed and V6? Sorry, you need to get a Mitsubishi model with the Chrysler name on it. The actual Chrysler Sebring, the sedan model, is not available with that combination. In fact, if you want a six cylinder engine with a five speed, you are limited to Volkswagen, Toyota, Honda, Mitsubishi, BMW, General Motors, and Ford. But not Chrysler.

Where are Chrysler's competitors while they are listening to the analysts? For less than the cost of developing a single new model, Ford has purchased Volvo's car business. And Land Rover. And most of Mazda. Honda has expanded, building new plants in the US and selling engines to GM - they plan to expand by 45% in the next few years. Don't be surprised if the Odyssey takes over the Caravan's position as the #1 minivan. They'd have it now if they could build enough Odysseys.

I miss the courageous Chrysler that would have created the capacity to build as many PT Cruisers as they could sell, through partnerships or by renovating abandoned plants. I miss the Chrysler that would have kept the Neon at the head of its class and stayed at the forefront of technology. Personally, my fear is that Chrysler, due to its own fear, will, like Nash, Hudson, and AMC, find itself lost to history, the victim of bad decisions and an unwise merger.

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