The death of the minivan (and Chrysler?)
Posted
Jun 30 2008, 06:59 PM
by
Charley Blaine
Rating:
Chrysler exists because Lee Iacocca bet the company on the minivan. Now, thanks to the oil crisis, the minivan looks like it could be on its last legs.
One of the company's two minivan assembly plants will be shut indefinitely on Oct. 31, Chrysler said today. The problem is that families -- the target market for minivans -- have been particularly affected by rising gas and food prices, falling home values and more difficulty in borrowing money.
It's a humiliating development for Chrysler, which spent $1.4 billion on the redesign of its two industry-leading minivans, the Chrysler Town & Country and Dodge Grand Caravan. And then saw sales go, well, nowhere.
"Everything that a family needs is more expensive right now, and so the last thing they're looking at is, 'Do they need to replace their Honda Odyssey?'" said Rebecca Lindland, an auto analyst for Global Insight, the economic consulting firm.
U.S. minivan sales peaked at 1.37 million in 2000, 17 years after Chrysler introduced them. They've been falling steadily since and are expected to fall below 650,000 this year for the first time since 1986. Sales of the Dodge Caravan were off 35% through May from a year ago and 13% for the Chrysler Town & Country, according to Autodata Corp., which tracks industry sales.
The minivan has been Chrysler's top product for years, and Chrysler has 30% of the minivan market. (The minivan came after Chrysler nearly collapsed in the 1970s and required a government debt guarantee to stay in business.)
But sales are off because SUVs have become far trendier. The much bigger problem: soaring gasoline prices that have made minivans even more vulnerable.
"The future of the segment is up in the air," Tom Libby, senior director of industry analysis for the Power Information Network, a division of J.D. Power and Associates, told The Associated Press recently.
But Chrysler created some of its own problems. Among the biggest issues: It discontinued its smaller-wheel model because it couldn't put in all the features that were in the redesigned models. That decision now haunts the company because buyers have been put off by the higher prices required to pay for the new minivans.
After stopping production at its minivan plant, in suburban St. Louis, Chrysler will still make minivans at a plant in Windsor, Ont., outside Detroit. It is also cutting a shift at a truck assembly plant in Fenton, Mo. In all, about 2,400 of 3,500 workers at the Fenton facilities will be affected.
Chrysler’s announcement comes at the end of a dismal quarter for the industry. Sales reports that the automakers will release Tuesday are expected to show that June was the worst month in at least 15 years, with sales down about 17% from a year ago, according to estimates by Edmunds.com.
Chrysler, which makes a higher proportion of trucks than the other major automakers, is believed to have fared the worst, but all three Detroit automakers are projected to report drops of at least 25%.
The combined monthly U.S. market share for Chrysler, Ford Motor and General Motors domestic brands is estimated to be 45.4% in June, down from 51.4% in June 2007 but up slightly from the historic low of 45.3% in May, Edmunds says.
There is growing speculation Chrysler might seek to break itself up or file for bankruptcy. The company denies both possibilities. Shares of GM and Ford are down 53.4% and 28% this year, respectively.
Edmunds.com's forecast calls for five of the Big Six automakers to report lower sales than a year ago; only Honda is expected to show an increase. Some analysts predict Toyota will outsell GM in June. However, GM's launch of 72-Hour Zero Percent Financing sale may keep GM in front of Toyota.
The decrease would extend the industry's sales slump to eight straight months, the longest tumble in seven years. Gasoline prices in June topped $4 a gallon for the first time and consumer confidence hit a 16-year low, prompting more Americans to postpone purchases of new vehicles.
Those who did buy were drawn to cars and "crossover" wagons that blend car and truck features, Bloomberg News said. On June 1, the industry had the lowest supply of cars for that date in at least 17 years, according to trade publication Automotive News.
Inventories of compact cars and hybrids are "going down at a rate we've never really seen before, and automakers are caught a bit unprepared," Jesse Toprak, an Edmunds.com analyst told Bloomberg. "It might take several years to fully meet the consumers' demands."
