Chrysler Eyes New Global Strategy

You could say Chrysler has the red, white and blues. Despite spending nine years under German ownership, Chrysler remains the most American-focused of Detroit's Big Three automakers. The company — which was sold in August by Germany's Daimler to the private equity firm Cerberus for $7.4 billion — is more dependent upon the U.S. market than either General Motors or Ford. Only 8% of Chrysler cars are sold outside North America. While, in decades past, that may have been a sensible strategy, this concentration is increasingly a liability as U.S. market growth has slowed, and competition from imports is revving up. Indeed, Chrysler's first half domestic sales were down 2.3% from 2006, a year in which it posted a $1.5 billion loss. "Given how competitive the U.S. market has become, for us to grow, we need to address that balance," says Michael Manley, the Detroit-based executive vice president who is steering Chrysler's international efforts.

That means going global. Chrysler is particularly looking to sell cars in fast-growing developing markets, notably China and Russia. But it also expects to increase sales in mature markets, including Western Europe and Japan. In Europe, for instance, it's adding 100 new dealerships to aid that effort. Chrysler executives say their minimum goal is to double foreign sales to 400,000 cars within five years. That's an achievable target, according to Jeremy Anwyl, chief executive of auto research website edmunds.com. "They're looking to double from a low base, so they're giving themselves a little wiggle room."

Early results are encouraging. Chrysler's non-U.S. sales jumped 10% in the second quarter of this year, and it anticipates selling 250,000 cars overseas by the end of 2007. Currently, Western Europe accounts for about half of Chrysler's sales abroad. That percentage will drop to 35% to 40% as it ramps up efforts in Asia, Eastern Europe and Latin America. Analyst Jay Nagley of consultant Spyder Automotive wonders why Chrysler even bothers with Western Europe, a very developed, tough market. It should, he says, concentrate on emerging markets. "At least in those countries, everyone is starting from scratch." But Chrysler's Manley says Western Europe is too large a market to ignore, especially since Chrysler has an existing dealership network in place there that it can build on. Back at home, ironically, the problem is too many dealerships. So the company is continuing to close some while increasing the number of its foreign outlets. The automaker has around 5,250 dealers, about a quarter of them overseas. Manley says the total number of dealerships will remain static, but the share of foreign showrooms will grow to 35%.

Chrysler's overseas push also includes making more models available globally. In the U.K., for example, 18 models will be on offer by next year, up from six in 2003. Nevertheless, Chrysler cars still reflect the company's domestic orientation. "They're built for American drivers and U.S. conditions," Anwyl says, which could limit their appeal in foreign markets. But Manley says Chrysler began addressing that problem in 2003, when it started taking international needs into account. It's tripling the number of cars available with right-hand drive, for instance, and quadrupling to 16 the number with a diesel engine option. It also launched its Dodge brand overseas for the first time last year with the introduction of the compact Caliber. This summer, two other Dodge models debuted worldwide: the Avenger, a midsize sedan; and the Nitro, a midsize SUV.

The positioning of Dodge as a global brand puzzles John Monks, a Detroit-based analyst with Autopolis, a consulting group. "Jeep is its only brand with real appeal." Manley admits that "a lot of people [overseas] don't know Dodge," which makes it harder to market. But Dodge is the only Chrysler brand producing small cars, which are popular in Asia and Latin America. Certainly the Caliber is so far doing well: its first-year overseas sales overseas should hit 35,000 to 40,000.

Chrysler's global plans also include licensing production to local carmakers in some developing countries, which it says is the fastest way to introduce products in overseas markets. China's South East Motors began producing Grand Voyager minivans in August under a licensing arrangement. And Manley says licensed production of Chrysler cars in Russia could begin "within the year." Jumping into emerging markets and using joint ventures are "very attractive propositions," Anwyl says, but "these things take time." But as foreign rivals increasingly put the squeeze on Chrysler on its home turf, it can't afford to take a leisurely scenic route to global success. Chrysler's biggest worry is it left it too late to put its international ambitions into high gear.