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Tuesday, April 19, 2011

Why German Luxury Carmakers Should Be Afraid of Chrysler

By Ted Santos

In Chrysler’s Super Bowl XLV commercial, a brutally honest narrator muses, “What does Detroit know about luxury?” A better question would be “What do US automakers know about luxury?”


Chrysler’s new “Imported from Detroit” slogan implies that they have America’s answer to luxury European automakers. However, their newly minted line, including the $19,245 MSRP 200 Series featured in the commercial, stops short of the price, quality and performance of a top-line BMW, Daimler, or Audi. 

Chrysler should consider a more audacious approach to capture the luxury car market. Looking at the numbers, there is an opportunity for an American automaker to make a play. As the economy rebounds from its March 2009 lows, high-end items are making the strongest comeback. The big three German automakers, including BMW, VW, and Daimler, are expected to exceed pre-recession revenues after adding over $90 billion in market value since 2009.[1] Audi, the third largest luxury brand in the world, announced that its US sales were up 20% from a year ago.[2] However, GM, Ford and Chrysler have quietly allowed Europe to take the majority of the affluent auto market in the US.

To make matters worse, over the last decade, Chrysler’s share of new-vehicle sales in this country declined steadily from 14.5% to 10.7% according to Autodata Corp. Their calendar year-to-date sales were down 0.1% from March of 2010 [3]. When sales drop, as they did at the end of the decade, Chrysler scaled back by closing plants and laying off employees. Unfortunately this strategy is a short-term solution and has not increased car sales.

A long-term overhaul of Chrysler’s brand would be a complex and ambitious undertaking. For a sense of what this may entail, here are three steps that could be taken to transform Chrysler into a luxury carmaker: re-branding with exclusive style and bold messages like “Imported from Detroit”, capitalizing on aftermarket sales, and partnering with Apple Computer on design.

To see how that fits together, it may be best to view Chrysler several years in the future. Imagine it is the year 2020, eleven years after Fiat purchased a significant portion of the company:

To start, Fiat Group focused on re-branding Chrysler. It left Dodge alone as a separate brand so that its sales of cars and light trucks could serve as a cash cow as Chrysler looked to reshape its image.

Although Chrysler’s nascent brand was fairly neutral, the benefits of its connections with Daimler were evident, especially in the design of the 300 series, which looks like a close cousin of the Bentley.

Given these close ties to high-end auto manufacturers, Fiat saw an opportunity to parlay what they identified as America’s major contribution to the high performance automobile market: Chrysler’s own Dodge Viper.  Chrysler redesigned the Viper to create a new sports car that retained the Viper¹s performance, yet came with unprecedented luxury features and revolutionary styling. Additionally, Chrysler developed a line of luxury sedans that could compete with the Mercedes S-class and BMW 7-series. To top it off, they redesigned dealerships to appeal to affluent buyers.

Management also expanded their operations to capture aftermarket sales. In 2007, car buyers were spending in excess of $30 billion annually in aftermarket upgrades. Chrysler redesigned Mopar, the arm of Chrysler dedicated to parts and services in order to incorporate aftermarket services into the assembly line and give buyers more custom options.

Finally, Chrysler’s exclusive partnership with Apple Computer offered unbeatable quality and interior design. Apple developed a stunningly original dashboard, user interface, and entertainment system with a range of entirely new capabilities in an intuitive format to complement Chrysler’s engineering.

This is clearly an aggressive project. It will require Chrysler to shrink its product line as well its revenues.  However, with a narrow market segment, they could build a much stronger organization. Given a renowned brand, higher margins and global sales, Chrysler could grow revenues to sustainable levels.

In taking on this commitment, Chrysler could restore the allure of the American made car and inspire innovation among the other US auto manufacturers. This fierce growth platform and global perspective could turn the spotlight back on the Detroit assembly line.

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Ted Santos is CEO of Turnaround Investment Partners (TIP). TIP serves as an outsourced Chief Innovation Officer to companies that are not meeting revenue growth expectations. Ted partners with CEOs and board members, serves as a trusted advisor to companies going through change, and coaches executives to uncover and penetrate untapped markets, shift corporate cultures and align staff and management to the corporate vision.



[1] Bloomberg, “German Top Carmakers Set for Record Profit as
Value Swells by $90 Billion”. Chris Reiter 2-14-2011
[2] The Independent, “Luxury Car-makers Drive the Boom in
German Exports”. Tony Patterson 2-9-2011, p. 38
[3] http://www.motorintelligence.com/fileopen.asp?File=SR_Sales2.xls

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