By on August 16, 2011

While Chrysler Group sends its Fiat 500 upmarket with Gucci special editions, its sending its Dodge, Chrysler and Ram brands downmarket with a lower prices, 90-days-same-as-cash deals and a variety of tie-ins. First up, the news [via Automotive News [sub]]that Chrysler is cutting the price on 200 and Dodge’s Avenger by $200, and the Dodge Journey by over $1,000 [UPDATE: plus,$3k off Grand Cherokee] is strange indeed. Chrysler’s sales, market share and transaction prices are up, while its incentives and fleet sales are down… and meanwhile, its key competitors are raising prices on increased material costs. Oh, and average transaction prices across the industry have been breaking records all year. With volume slow and prices (as well as costs) rising, Chrysler has no real reason to be lowering prices beyond hunting for volume that may or may not be there. At the expense, it must be added, of profitability. But if you look at Chrysler Group’s most recent maneuvers, it seems that lower prices might not an isolated move on market share. It seems that Chrysler Group is actually strategically positioning itself as the Wal-Mart automaker… literally.

Marissa Hunter, head of Ram brand advertising tells Automotive News [sub] that the truck brand would be expanding its “experiential advertising” to “thousands” of Wal-Mart stores later this year. But not, according to Hunter, because of similarities in pricing strategies.

We recognize the alignment between truck buyers, the hunting/fishing lifestyle and Wal-Mart. We are working on promotion that brings all three together.

Still, what one attribute is Wal-Mart known for? The quality that Frank Zappa identified as “cheepnis.” After all, there are plenty of other stores that connect with “the hunting/fishing lifestyle” that don’t carry Wal-Mart’s ultra-cheap, made-in-China, local business-destroying baggage. And alongside the lower prices, Chrysler Group’s rolling out another Wal-Mart style promotion: 90 days same as cash. Ultra-short-term spiffs like this show that Chrysler will fight GM every step of the way for subprime buyers.

In some respects, this positioning makes sense: Chrysler has to compete on something, and with a double-dip recession looming, why not price? The short answer: because Chrysler has worked too long and hard to rebuild its retail sales and pricing power to throw it all away by chasing low-profit volume. But with a tough 2011 sales target of 45% growth, Chrysler’s already turned to questionable tactics in search of more volume… and the Mopar Mob may now be reviving fears voiced earlier in the year about a price war in order to meet it.

 

 

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28 Comments on “Amid Record High Transaction Prices, Chrysler Cuts Prices On Key Models...”


  • avatar
    John Horner

    Setting pricing is much more complicated than most arm chair quarterbacks realize. A manufacturing business has large semi-fixed costs which do not readily go away by simply reducing volume. There are volume break points for factories, products and such which make establishing the right price much more complicated than can be reasonably analyzed without a lot of inside information.

    All we outsiders can really look at and get any meaning out of are structured financial reports such as are normally released by public companies on a quarterly basis. Even these are harder to tease insight out of than one might think.

    Considering the assets Chrysler’s US operations have to deal with right now they are making a lot more smart moves than they are making dumb ones.

    One thing is for sure, the player who is trying to make a dramatic market share move is going to be discounting more than the one who is not doing so. Hyundai built itself from nobody to significant player in the US in large part through very agressive pricing. Hyundai never would have gotten traction had they been matching Toyota and Honda pricing from the get go.

    Today’s self styled internet management gurus have rarely actually managed and grown a significant manufacturing business. Marchionne has a much deeper record of significant accomplishments in this regard than do any of us here on TTAC.

    • 0 avatar
      geeber

      One of the dumb moves is attempting to sell Dodge trucks under the new “Ram” banner. There is nothing wrong with the Dodge nameplate that better products won’t fix, and the last thing Chrysler needs is another brand name.

      • 0 avatar
        Pch101

        One of the dumb moves is attempting to sell Dodge trucks under the new “Ram” banner. There is nothing wrong with the Dodge nameplate that better products won’t fix, and the last thing Chrysler needs is another brand name.

        I completely agree. However, I suspect that there are other motivations for this, such as marginalizing Dodge in favor of cars with Alfa and Fiat branding.

        Marchionne didn’t get into this to save Chrysler, but to build up Fiat. I’m willing to bet that some of the European-based models planned for Dodge end up being sold with Fiat badges on them, especially if the Fiat 500 is successful.

        The downside here is that Marchionne may be making the Old GM error of fighting to save car brands (this time, Italian rather than American ones) just for the sake of it, instead of focusing on making money for the business. Not that Dodge is exactly a stellar brand, but it could be a regional brand that is made to be competitive in North America.

      • 0 avatar
        Zackman

        “…the last thing Chrysler needs is another brand name.”

        I agree – unless you drop “RAM” and replace it with “PLYMOUTH”! Now that’s a name that would get my attention! Dreaming of a 300-derivative called “Fury”…

    • 0 avatar

      But if TTAC stops “armchair quarterbacking” as you so dismissively put it, who will you have to armchair quarterback?

      Seriously though, I have no problem being wrong about this. As you point out, not being an insider, I can only discuss issues of perception… but then, in business isn’t perception just as important as reality?

      Besides, I’m constitutionally incapable of throwing up my hands, saying “eh, Sergio has this covered” and looking away. Also, if the “us” in your final sentence refers to TTAC’s readers, I would say you’re flat wrong. You might be surprised by who regularly reads these pages… yes, even folks as accomplished as Sergio stop by for some regular “armchair quarterbacking.” Shocking, I know.

      • 0 avatar
        Pch101

        I can only discuss issues of perception… but then, in business isn’t perception just as important as reality?

        I don’t agree with the snide “armchair quarterbacking” quip. But the useful takeaway from Mr. Horner’s comment is that one should not take a one-size-fits-all approach to analyzing these things.

        We use shorthand such as “Detroit” to describe these industry-wide problems, but at the end of the day, these are individual companies with individual problems. They all have a history of sharing some common dilemmas, but the solutions aren’t exactly the same, and we shouldn’t confuse the shorthand with the analysis that is required.

        GM’s problem was that it was too big. Too many models, too many brands, too many dealers, too much bureaucracy, too much sprawl. The Old GM continually pursued volume for its own sake, but at the expense of profitability and product quality, which was a serious mistake.

        Chrysler has had many of the same quality and product problems, but in terms of size, it has the opposite problem of GM — it is too small. Whereas GM would have been better off if it cut volumes in favor of margin, Chrysler needs to maintain a certain volume just to amortize its fixed costs. And unlike GM or Ford, Chrysler has had little international presence, which makes it far more vulnerable to US economic cycles and market conditions, for better or for worse.

        Marchionne’s challenge was to either grow Fiat or die. He opted for the former, and an acquisition was the fastest way to add some scale. But that scale isn’t really there yet, given the lack of integration between the two companies, so he needs to work fast. This is, in many respects, a fundamentally different challenge from what either Ford or GM face, and it calls for a different set of responses. While GM should be faulted if it chases share for the sake of it, Chrysler is in a different boat.

    • 0 avatar
      wsn

      “Setting pricing is much more complicated than most arm chair quarterbacks realize. A manufacturing business has large semi-fixed costs which do not readily go away by simply reducing volume. ”

      – But the costs readily go away by declaring bankruptcy and throwing all the bond obligations out of the window. However, GM seems to be slipping even after the bailout and cash infusion…

    • 0 avatar
      PenguinBoy

      +1 John Horner

      Also, as an outsider on the internet, I’m not sure this move is as dumb as it is made out to be. Sergio seems keen to reduce incentives, adjusting the base price of the vehicle to be closer to what the market is willing to pay is one way of doing it. This will have the effect of improving resale values as a percentage of MSRP retained after a period of time – which will eventually help strengthen the brand…

  • avatar
    86er

    After all, there are plenty of other stores that connect with “the hunting/fishing lifestyle” that don’t carry Wal-Mart’s ultra-cheap, made-in-China, local business-destroying baggage.

    Like Cabella’s. Although Wal-Mart is trying to muscle in on their turf too.

    Mind you, Ford has the Cabella’s edition… oh man this is confusing.

    • 0 avatar
      JMII

      Or Bass Pro… which has paired up with Toyota.

      Does a $200 price drop on a $22,000 vehicle even matter? Or are they doing it just so they can have a “roll-back” smiley face in all their ads?

  • avatar
    Pch101

    Chrysler has no real reason to be lowering prices beyond hunting for volume that may or may not be there

    The simple answer is market share — not just building their own, but also taking it away from the other guys. In a mature market, conquest sales are key, and as the smallest Detroit player, it’s more of a legitimate concern. It’s an issue of having the critical mass needed to maintain staying power.

    Still, what one attribute is Wal-Mart known for? The quality that Frank Zappa identified as “cheepness.”

    Walmart is also known for its ubiquity. In places such as the Midwest, Walmart is everywhere. I’m not sure if that’s a great way to sell cars, but there is a logic to it.

    Hyundai earned its way back into the US market by selling at a price point, including dumping cars into fleet. Chrysler may be attempting something similar, although unlike the case with Hyundai, there doesn’t seem to be a quality story to go with it.

  • avatar
    philadlj

    Jaguar XJ6 Vanden Plas
    AMC Pacer Levi’s
    Ford Explorer Eddie Bauer
    Mercury Villager Nautica
    Subaru Forester L.L. Bean
    Ford Super Duty Cabela’s
    Ram 1500 Wal-Mart

  • avatar
    gottacook

    Zappa’s 1974 song about Japanese monster movies was called “Cheepnis” (not “Cheepness”).

  • avatar
    SherbornSean

    Make hay while the sun shines. Chrysler has maybe a 6 month window before Toyota and Honda manufacturing capacity return to pre-Tsunami levels. After that, vehicles like the Journey and 200 are doomed.

    • 0 avatar
      Volt 230

      There will always be a market for such vehicles at a lower price point, some buyers just will not buy used and will shop price when they believed what the automotive media has been preaching for years: “they’re all equally good now, it doesn’t matter what you buy”

    • 0 avatar
      PenguinBoy

      I doubt the supply of Toyota and Honda products will have a material impact on Chrysler’s volume – I doubt many Toyonda intenders cross shop Chrysler products.

  • avatar
    V572625694

    Making a virtue of a necessity?

  • avatar
    Advo

    Looks like Nissan missed out on a way to increase their full-sized truck sales to something approaching decent.

    Unless they’re looking to align themselves with Apple quality and start showing them in Apple stores.

  • avatar
    hreardon

    If this is the only opportunity Fiatsler can exploit, then that’s what they have to do. Certainly they’re not happy about it, but you take your competitive advantage where you can and hope that it is effective in the long run.

    What this really says, though, is that we have a very competitive market in the auto industry and ultimately that’s good for consumers. Whether or not that means things are good for investors is a different story, but there are still good deals to be had – and Americans, we like us some good deals.

    On the opposite end you have brands that actually have pricing power and operate that way. Take Audi’s strategy in North America. They have explicitly stated that growth will not come at the expense of profitability, hence Audi’s go-it-slow and low level of incentives approach. Likely this has to do with Germany demanding some profitability out of its US arm after losing billions the past ten years, but regardless, the approach seems to be working. Ask anyone who has tried to buy an Audi other than a run of the mill A4 for a significant discount off of MSRP lately, especially the A3 Q5 or Q7.

  • avatar
    jimboy

    I think you’ll notice that the price cuts are mostly on ‘mature’ models that have paid off some of their amortization costs. Plus, as on the Grand Cherokee, their options and standard features have been reshuffled to reflect the new pricing. As to the Wal-Mart tie in for Ram, I think it’s an excellent idea. While I am not personally a Wal-Mart shopper, I would be willing to bet that a high percentage of people who drive Ram’s, or F-150′s, Sierra’s, etc, are. Smart marketing for truck buyers.

  • avatar
    HiFlite999

    Hasn’t anyone noticed Chrysler’s new slant on advertising, starting with the Eminem Superbowl? Their new target is the tough guy working class or the success stories from that class. There are enough cars for metrosexual luxo-buyers out there (Audi, MINI, etc). They are not attempting any more to out-Cadillac Cadillac. Jeep and Ram already have a beach head in this “tough” market, so why not leverage that? Good strategy I think.


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