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Hot car, cool earnings
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November 15, 2000: 5:19 p.m. ET
PT Cruiser may be hot, but it is causing Chrysler to make few profits, friends
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Alan Dickinson was so impressed with Chrysler's PT Cruiser after taking a ride in a friend's last April, that he promptly went to the dealer in his rural Indiana town and put down $1,000 on one.
He's still waiting for the car, and he may have to wait until next year before he can finally get behind the wheel.
And yet, despite having its hottest vehicle in memory in what is still a booming market for overall auto sales, Germany's DaimlerChrysler reported a third-quarter loss for Chrysler, the company's U.S. unit. It is in such financial trouble that James Holden, its chief executive, is reportedly going to lose his job during a management meeting in Germany at the end of the week.
 Analysts say that as hot a car as PT Cruiser has been, it is too small to produce the big margins the No. 3 U.S. automaker needs to make up for increased competition in its core light-truck market.
It's not just shareholders, analysts and the German management are also critical of Chrysler's current state of affairs.
PT Cruiser customers, who are almost fanatical in their devotion to the vehicle, are also virulent critics of Chrysler's sales procedures of their favorite vehicles.
"I see this time and time again," said Scott Kissinger, founder of PTenthusiasts.org, one of several Web sites started by fans of the vehicle. "There are lots of people who this is their first purchase from Chrysler. They could have been a convert, but because of a six to eight month wait, they swear this will be their first and last Chrysler."
Seven months later, no closer to a Cruiser
Dickinson's wait is a good example of the kind of frustration that is hurting the company.
Dickinson said he was told he would have to wait eight to ten weeks for his to arrive, given the popularity of the small car designed to look like a 1930s gangster's car. But since the lease on his Mazda didn't end until Aug. 1, he figured he had enough time.
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"They could have been a convert, but because of a six to eight month wait, they swear this will be their first and last Chrysler."
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Scott Kissinger
Founder of PT Enthusiasts.org |
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Since then, he's checked with DaimlerChrysler weekly to see when his fully loaded silver PT Cruiser would be built -- and waited -- and waited.
One day he saw someone drive a silver PT Cruiser through his town and swung around and started following it, finally pulling into the owner's driveway to ask him where he had gotten it. The owner said he had gone to a suburban Chicago dealership, and paid $1,800 above list price, in order to get his car.
"I wish I had done that," he now says ruefully. "If I had known, I would have."
Dickinson continued to wait. He arranged with Mazda to extend his lease on a month-to-month basis, paying hundreds of dollars a month while he waited.
He stopped calling DaimlerChrysler, and started stopping in his dealership on a weekly basis to check on his car. Last week he got word the status of his order had changed, that it is finally scheduled to be built, although a specific build date is not yet available.
"It was like going to heaven from hell. Or at least purgatory," he said.
But despite that development he's still waiting. As for the best estimate for how much longer he'll have to wait: "The woman who I talked with said it would take about eight to ten weeks," he said.
Allocation systems is blamed
Officials of DaimlerChrysler said they understand the frustration of Dickinson and some other customers. But they say the allocation system used for the PT Cruiser is the same system for all other models to try to keep an even supply of different vehicles on dealers' lots. Those that sell more of a model get more of that vehicle to offer customers. Rensselaer Chrysler Dodge and Jeep, which Dickinson ordered his PT Cruiser has been getting only one PT Cruiser a month since its April debut.
"This is how we allocate all our vehicles and have done so for 20-some years," said Dominick Infante, spokesman for Chrysler. "What's unusual is the demand. I don't think there's been anything this hot since the '64 [Ford] Mustang."
 Infante said that at the larger dealers the average wait is closer to two months than six months or more. The Mexican plant that makes the PT Cruiser is now up to full production and orders should soon start to be filled. At full production the plant is expected to make 180,000 PT Cruisers annually, although only 120,000 will be made this year. Through October, 69,681 of the Cruisers have been sold.
Infante said that in a couple of weeks Chrysler will start an unprecedented examination of the list of pending orders, eliminating duplicate orders and allocating the rest of the production of this year's models to dealers so customers should get a better idea of an arrival date.
"If there's a way to get older orders processed, we'd certainly do it, but it has to be within the parameters of an existing program," he said.
So customers who ordered the PT Cruiser at smaller dealerships will still be in for long waits. Bernie Larry, general manager of Rensselaer Chrysler Dodge and Jeep, said he has 15 orders waiting to be filled, and unless his allocation increases to two PT Cruisers a month from one, some of those customers are facing waits of more than a year.
"Even with two a month, they'll probably be getting 2002 models," he said.
Unlike many dealers, Larry isn't charging above list price. "Out here everyone knows everybody," he said. "It's hard to price gouge people."
Low price added to demand
With many, if not most, dealers routinely get thousands above list price for the PT Cruiser, financially troubled Chrysler apparently left money on the table with its pricing of the vehicle. The base cost of the base model was only $15,450 when it came up, and is now about $500 above that. Dickinson's fully loaded, top-line model costs $22,200, including sales tax and destination charges.
But analysts say that the model probably was priced correctly, given that it is still closer to a small car than a sport/utility vehicle or minivan. Though its design allows it to carry five passengers or a great deal of cargo, it is still built on the platform of the Neon compact car.
"There's the thought that if this is going to be so hot, why not price it higher? But if you do, maybe you lose volume and it doesn't stay hot as long, or you have to move to incentives and price cuts sooner, or you give a competitor a chance to enter the field sooner," said David Cole, director of office for study of automotive transportation at the University of Michigan. "The dealers certainly are making money. But the factory doesn't benefit from that."
Cole and other analysts said that the PT Cruiser's segment of the market just doesn't have the profit-margin potential as does the light-truck segment, which includes pickups, minivans and S/UVs.
Strong new entries into those segments by Japanese automakers, such as the Honda Odyssey which has surpassed the Chrysler Town and Country minivan to become the nation's third best-selling minivan behind the Dodge Caravan and Ford Windstar. That forced DaimlerChrysler to up the incentives on its minivans and put the Chrysler unit in the red for the third quarter.
"The margin they make [on the PT Cruiser] will always be relatively small," said Stephen Reitman, analyst with Merrill Lynch in London. "It's a nice contribution, it's certainly better than making Neons. But it doesn't do more than help on margin. The core [earnings] problem is on the minivan, and the problem there is competition."
Shares of DaimlerChrysler closed down 2.20 euros to 52.20 euros in Frankfurt trading Wednesday, helping to take the benchmark Dax index there lower. Shares of the American depository receipts of DaimlerChrysler (DCX: Research, Estimates) lost $1.46 to $44.94, after Reitman lowered his earnings estimates for the company for 2001, due to his estimates of the performance at Chrysler and likely loss contribution from its new Mitsubishi Motors affiliate. 
Click here to send mail to Chris Isidore
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