California Autos Examiner

Friday, October 02, 2009

Marchionne: There will be blood, but not as much as you are thinking

Sergio Marchionne pondering uses of a bowling pin?

How do you spin a lousy sales month? Well I think Sergio Marchionne, the Chief Executive Officer of both Chrysler Group LLC and Fiat S.p.A, does a fairly decent job of things.

Click here to view a slideshow of future Chrysler products and the current models that will bridge the company until reinforcements can arrive.

As you are probably aware, Chrysler had a horrible September, falling 42% when comparing September 2009 to September 2008. Few manufacturers did well in September, but even among those appalling numbers Chrysler was amongst the worst. How do you make a silk purse out of that?

In a photo opportunity turned impromptu question and answer, Marchionne spoke about September's sales and quipped about Chrysler,

We’re not bleeding as people think we are.

Hence the inspiration for this article's headline. It is important to note that Marchionne made no connections to the Academy Award winning movie "There Will Be Blood."

How does Marchionne explain September's sales? He made several key points, summarized by the author:

  1. Cash for clunkers turned the market on its head and there was bound to be some disturbance in the force.
  2. Chrysler manufacturing facilities were down for a substantial part of the spring and part of the summer, lessing supply.
  3. Big incentives are beginning to disappear, helping to restore pricing points but in the short term lowering sales volume.

Those are valid considerations, but looking beyond those points is the fact that Chrysler's product pipeline is quite empty. In every interview that Marchionne has given lately, he keeps telling journalists and analysts to wait until November when the company will announce a comprehensive product plan. Only then will we truly have an idea of just how much blood there will be and what, if any, milkshakes Marchionne will be drinking.

What follows is a transcript of Marchionne's remarks during a photo op for the visit of the Italian Economic Development Minister to Chrysler World Headquarters in Auburn Hills, MI. You can watch the video embedded below if you would rather hear Marchionne say it himself.

On the issue of Chrysler I think that one of the things you need to be absolutely careful about is that when you start looking at market share data, for any of the automotive producers in the U.S., there are a number of things that have impacted on market share, volumes in the month of September. We have just come off a substantial inducement to consumption that was associated with the Cash for Clunkers program, and that in and by itself is a disturbance that, at least from Chrysler’s standpoint, one, was unexpected and was announced at a time in which our industrial machine was just about ready to get started up and running. Effectively, most of our plants had been out for a substantial part of the spring and part of the summer; and the machines had not come back on until the end of July. Secondly, this process that we’re going through, and we have been through this on the Fiat side. When I arrived in 2004 we had to go through the same type of painful process of watching market share decline as we cleaned up our commercial practices in the field. And so a lot of the inducements that were being offered in the marketplace by American car manufacturers are beginning to disappear. So the heavy incentive checks that one could find in most dealers are no longer available, the discipline required to maintain pricing in order to stay profitable in the car making business, the benefits of that philosophy are beginning to work their way through, we are not the only ones that are adopting this structure ourselves, General Motors has become a lot more disciplined on this than we have been. That is bound initially to cause a contraction of the position because your starting point was exaggerated and so you need to work through this process of cleansing; it’s painful it looks ugly, people sit back and say ‘what are you going to do to try and incentivize the demand, the real issue is that we need to go back to making products that people want at a price that is accessible and defensible in a competitive framework. All the work that has gone on here since we came in on June 10 has been geared at providing the framework to effectively drive volume over the medium to long term. September is not an indication of future performance, I’m not apologizing for it, it is the consequence of a number of actions that were taken in the past, all of which have culminated in the month of September – you may see similar numbers in October, I don’t know. Our intention is to improve share from this point on, but I don’t get alarmed. The machine is timed, we’re not bleeding as people think we are, the level of cost consciousness at this house is probably at a historical high, the real important issue is to try and build a future. And I would just ask you to wait until November and you can see it. The future is a lot a lot better than the market share in September would indicate.

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