5 Reasons Chrysler is (Still) Doomed

Chrysler Group LLC, the Fiat-run venture that is the latest reincarnation of this automaker that went bankrupt a year ago, is recalling almost 575,000 vehicles due to brake defects. While the number of Chrysler minivans and Jeeps affected is far less than the 8 million vehicles recalled in a series of black eyes for Toyota (TM), it is larger than the 400,000 Odyssey vans and Element SUVs or so recalled by Honda (HMC).

Brake line and wiring defects alone aren’t necessarily going to sink Chrysler — if they remain isolated and don’t snowball like the Toyota recalls. But taken collectively with all the other challenges facing the automaker, this is a problem that Chrysler just doesn’t need. The Detroit automaker has been struggling since it declared bankruptcy a year ago in April of 2009. As of yet the partnership with Fiat has not provided the fleet of small, fuel efficient cars that were promised to U.S. consumers, and as a result the company has not capitalized on the rebound in auto sales like many of its competitors.

Unfortunately, Chrysler may not get it together anytime soon. Back in March, Louis Navellier offered up his five top reasons why Chrysler is doomed. We stand a few months removed, but here are five more in case you think the death of Chrysler is greatly exaggerated:

Recall Woes Level the Field: Sure, Toyota stock took a tumble in 2010 thanks to recall woes. But then came Honda’s brake-related troubles, and now Chrysler’s. What’s more, the BP crude oil spill has stolen all the media attention and the once-hyped allegations of Toyota’s brake cover-up are long gone. True, Toyota isn’t firing on all cylinders – but the automaker’s Lexus luxury brand posted a 31% gain in May to show that consumers haven’t written Toyota off.

Harder Year-Over-Year Comparisons: Since Chrysler declared bankruptcy in April 2009, May sales were some of the worst in recent memory for the automaker. That means a significant increase was all but guaranteed this time around. Consider that its Dodge Charger posted a sales increase on paper that boasts 130% growth. Impressive, but considering the raw sales number was only 9,625 of the vehicles in May, it doesn’t look so hot. The bottom line is that improvement over the darkest days last year doesn’t mean much unless it’s sustainable – and in the great scheme of things, selling 5,000 more muscle cars is not going to save Chrysler.

Rising Tide Won’t Last Forever: Speaking of sustainable, while major automakers all reported large gains in May sales as overall U.S. vehicle sales increased 19%, investors shouldn’t sound the all clear. Industry experts note that the majority of vehicle purchases on the month were not made by individual consumers but rather by businesses. GM reported a 17% gain in sales compared to a year ago, but fleet sales accounted for 38% of that tally – a whopping 45% increase over last year. Ford Motor Co. (F) reported a 23% rise in sales its remaining three brands but saw 37% of those sales go to fleets. As for Chrysler? Well, it’s overall sales were up 33% — but the company doesn’t release its fleet figures. Hmm.

Jeep Sales Continue to Be an Anchor: Once a cash cow during the SUV craze, Jeep actually held back Chrysler’s impressive sales leap in May. Jeep sold almost 23,000 vehicles to tally a modest 6% increase from the previous year. That’s not a good sign, considering gas prices are still fairly affordable. The problem is that Jeeps are a lot like convertibles – fun cars that are painfully impractical. A $30,000 toy is hard to justify in this era of new austerity. Sure, there are still people who can afford soft-top Jeeps – but most of them can also afford a BMW, Lexus or other plus brands. That leaves the outdoorsy Jeep in a no-man’s land between impractical for regular folks and not luxurious enough for the big spenders.

Where is Fiat? After all the fuss American auto writers made about the sticky Fingers of Fiat, it’s been a heck of a lot of nothing so far. The handwringing over how U.S. consumers will feel about the brand, about whether Chrysler branding or Fiat branding will be used – it has all been a very long and drawn out academic exercise. As of right now, the only small to mid-sized “car” under the Chrysler brand is the PT Cruiser. In the Dodge family, the Caliber offers a smaller automobile for families – but starting at over $17,000, this is hardly in the same league as compacts like the Chevy Aveo, Nissan Versa, Ford Focus, Hyundai Elantra and Toyota Yaris that can all be picked up for at least $5,000 less (albeit with fewer options). Without a low priced Fiat to get Chrysler in on the ground floor of auto sales, this company will continue to suffer.

Article printed from InvestorPlace Media, https://investorplace.com/2010/06/chrysler-fiat-auto-sales-recall-toyota-tm-honda-hmc-strike-ford-motor-f/.

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