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Friday
Mar112016

No One to Blame but Themselves

By Christopher A. Sawyer

Sales of Chrysler's 200 tanked when FCA management confirmed it would be replaced by more profitable crossovers.This is all getting a bit tiring… and boring. In one corner we have the team at Fiat Chrysler holding a meeting with its Fiat dealers, trying to explain how it will make them whole. In another corner, we have VW Group of America announcing that its leader, Michael Horn, is leaving “by mutual agreement”. Too bad nobody warned the dealers, many of whom expressed concern that it is just another sign of mismanagement by the leadership in Germany.

The common thread that runs through both these items is that neither company — FCA or VW — is serious about selling vehicles in the U.S., nor has any idea about how to fix its problems. They are the Keystone Cops of the auto industry, whose continual missteps continue to erode the  confidence of buyers on whom they must rely for salvation.

Take, for example, Sergio Marchionne’s announcement that FCA would stop making the Dodge Dart and Chrysler 200, and replace them with crossovers. It was so poorly handled that it was hard, at first, to determine whether production of these cars would stop immediately, or if they would just run out their lifecycle and not be replaced. What happened next was so very predictable: people stopped buying the cars for fear that they would have an orphan with no resale value or factory support. Brilliant! An intelligent leader wouldn’t have announced their company’s directional change, dealing with it only as word leaked out to the press, and then on a “we don’t discuss future product plans” basis. But to then follow this up with word of talks with other automakers whose products could be pressed into service to replace these cars is the height of irresponsibility, especially when Marchionne adds the manufacture of FCA’s small cars would be contracted out to someone “who is better at it than we are and who has got the capacity available. We’re not going to make the car. We’re not the guys who are going to do the manufacturing of the car.” Mr. Insult meet Mr. Injury.

FCA CEO Sergio Marchionne seems to change plans more often than most people change their socks.Statements like these suggest to buyers that the Dart and 200 are poorly made, and should be avoided. Along with their other shortcomings — perceived more than real — and Fiat’s historically low quality reputation, it’s enough to send potential customers looking elsewhere. No wonder Dart and 200 sales have dropped off a cliff since news broke of FCA’s plans. Toyota sells more than 32,000 Camrys per month and Honda 25,000 Accords, but Chrysler sold less than 7,000 200s in February. That’s down 58% from the previous month and 61% from one year ago. And that’s with a number of offers, including 0% APR, an up to $2,500 cash allowance, low lease rates, and up to $6,000 in combined cash on select inventory. The same inventory, I might add, that has forced Chrysler to idle the Sterling Heights Assembly Plant (SHAP) where the 200 is built to be idled for nine weeks!

This plant was overhauled at cost of more than $1 billion, and was originally designed to build the 200 alongside the latest cars and crossovers from Alfa Romeo. Both were to share the Compact Wide US (CWUS) platform with its transverse front-drive powertrain and optional all-wheel drive. It’s the same platform that underpins the underperforming Dodge Dart that saw its sales fall nine percent in February and 26% so far this year. Unfortunately for FCA, Marchionne’s plans for Alfa Romeo have changed a number of times, with the latest strategy built around rear drive for the Giulia and above, a couple of crossovers, and some smaller front-drive cars. So the investment in SHAP now must be absorbed by a new line of crossovers.

Over at VW, things are no less haphazard, and a long way from the 800,000 units per year VW planned to sell in the U.S. by the 2018 model year. And the recent departure of Michael Horn leaves dealers at the mercy of their German overlords. Men who apparently could not stomach Horn’s blunt assessment of VW’s plans and strategy.

Undoubtedly happy to be divirced from VW, former U.S. CEO Michael Horn was loved by dealers because he listened to them.VW’s problems, however, extend well beyond the diesel cheating scandal. Even Helen Keller could see that the automaker was headed for trouble. Its lineup is one of the oldest in the market. The U.S. full-size CrossBlue crossover concept was shown at Detroit in 2013, despite the fact that VW had no plans to build the vehicle and its Tennessee plant desperately needed more product. It took two more years for the folks in Germany to give it the okay, and it will be at least another year before VW has an entry in this hot market segment. What’s that word again? Oh yeah, Brilliant!

Despite all of the talk about taking the U.S. market seriously, building German-engineered vehicles tailored to the needs and desires of Americans, and competing head-to-head with the entrenched competition, VW’s German overlords did what they have done traditionally: paid lip service to change and snatched defeat from the jaws of victory. The diesel misbehavior was just one example of the hubris running through VW headquarters, punctuated by the debacle that is the assembly plant in Chattanooga, Tennessee. Whether inviting the UAW in against its worker’s wishes or building a plant dedicated to a U.S.-only Passat sedan with the hopes that eventually more models might built off this platform would follow, VW had no firm plans in place. Like Marchionne’s machinations with Alfa Romeo, the Chrysler 200 and the Sterling Heights plant, this sort of malfeasance borders on the criminal for its wanton waste of capital.

One day VW's Chatgtanooga assembly plant will be a business school case study on how not to do things.Now Horn, who at least listened to the U.S. dealers and acted as point man for VW in the U.S. during the diesel mess, is gone, having jointly agreed with VW management that he should “pursue other interests”. If they were angry that sales continue to dive, they shouldn’t blame Horn. They should look in the mirror. VW isn’t allowed to sell its diesel-powered vehicles, its vehicle lineup is aging (e.g. Hyundai has introduced two generations of Elantra during the lifetime of the current Jetta), crossovers are still in the future and not on dealers’ lots, and — even before the diesel debacle — no one could tell you what VW means as a brand. Horn didn’t do this, Germany did.

In much the same way Fiat is responsible for the current situation at its American outpost. Convinced it had the next Mini Cooper, it built its future on selling variants of the 500. And while the diminutive hatchback did well at the beginning, sales soon tailed off. Fiat had oversold the market. Then it introduced the 500L and then the 500X, each of which has stolen sales from the model that preceded it. There has been no substantive increase in 500 sales — none — as buyers moved up the line, but new recruits have not come to fill their place. Sales per model are stagnant, and quality is not a strongpoint. Plus, unlike Mini, which was a single model that has been built into a line of vehicles, Fiat is a brand that has been subsumed by a single car line. And now those dealers who believed that Marchionne and company would follow through on their plans to grow Fiat and sell Alfa Romeos in the same showrooms are left holding the bag. Alfa has been twinned with Maserati and moved upmarket, Fiat is still The 500 Car Company, and the future of FCA is increasingly tenuous. As with VW, if Marchionne is looking for someone to blame, he should look in the mirror.

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