Reborn Chrysler hits road facing familiar problems

DETROIT - Chrysler was reborn Wednesday under a new Italian parent, but it can't shake the shadows of its past: It's not selling enough cars, its fleet is tilted to trucks and SUVs, and help is more than a year away.

A 42-day trip through bankruptcy court cleansed the company of much of its debt and labor costs, but many analysts say Chrysler's immediate future is bleak. It lost $8 billion in 2008, and sales are down by almost half for the first five months of this year.

Cars designed by its new owner, Italy's Fiat Group SpA, won't make it to the United States until late 2010. Even then there are no guarantees American drivers will want the tiny cars in which Fiat specializes.

In the meantime, Chrysler is left with few new vehicles headed to its drastically reduced network of dealers. Its aging lineup is heavy with bigger vehicles. And its offerings in the growing small and midsize markets haven't caught on.

"The showroom is not going to look terribly different over the next 18 months," said Aaron Bragman, an analyst for the consulting firm IHS Global Insight. Bragman said Chrysler faces tremendous competition, especially from new cars in the works at General Motors and Ford.

Even if the new Chrysler Group LLC can survive, the super-small Fiat cars that are popular in Europe, like the 500 and Grand Punto, could be out of step with Americans, who like bigger cars and are used to lower gas prices.

During Fiat's last run at the U.S. market, in the 1970s and '80s, reliability problems led people to suggest the name stood for "Fix it again, Tony."

Fiat CEO Sergio Marchionne was named chief executive of the new company, and Chrysler CEO Bob Nardelli said farewell to employees and ended his tumultuous 20-month reign. Marchionne quickly shook up the management, replacing Chrysler's chiefs of marketing, finance and product development and cutting layers to make the company more focused on individual brands, such as Jeep, Chrysler and Dodge.

Jim Press, who was Toyota Motor Corporation's top U.S. executive until he joined Chrysler in 2007, was named deputy CEO and will probably run the company when Marchionne is in Italy.

In an e-mail to Chrysler's 54,000 workers, Marchionne acknowledged the company's problems and said he was determined to repair them. Five years ago, he wrote, he stepped into a similar situation at Fiat, perceived at the time as a failing bureaucracy that made poor cars.

"Through hard work and tough choices, we have remade Fiat into a profitable company that produces some of the most popular, reliable and environmentally friendly cars in the world," he wrote. "We can and will accomplish the same results here."

Converting Chrysler factories

Work is already underway to convert Chrysler factories to produce small Italian-designed cars. Neither Chrysler nor Fiat would say which models would come first nor how many would be imported to the United States.

Chrysler plans to roll out new versions of its popular Jeep Grand Cherokee SUV and Chrysler 300 large sedan by the end of next year, along with a rechargeable electric vehicle. But Bragman said those were probably delayed in the bankruptcy process, making the next 18 months look iffy.

The good news for Chrysler is that it has cut its expenses enough that it can break even with lower sales, said Gary Dilts, senior vice president of global automotive operations for J.D. Power and Associates.

He said much of the drop in sales this year for Chrysler came from cuts in its sales to rental car companies. Chrysler actually made small gains in market share in sales to individuals in the first five months of 2009.

The struggling company has offered the heftiest rebates and other incentives to buyers recently. But it remains to be seen whether Chrysler can produce amazing cars, not just amazing deals.

Marchionne has said Fiat could start selling a successful North America-made remake of the 500 minicar as soon as next year. Fiat also plans to relaunch the sporty Alfa Romeo brand in North America.