More Chrysler Models on Chopping Block?

DETROIT (Feb. 8) - Automaker Chrysler LLC aims to cut its product lineup by around a half and dramatically shrink its dealership network so it can sell its three brands under one roof, the Wall Street Journal reported on Friday, citing people familiar with the plan.

The proposal to cut the struggling U.S. automaker's product line of around 30 different trucks, cars and sports utility vehicles across the Chrysler, Dodge and Jeep brands to 15 or more within a few years is part of a drive to cut costs and create a leaner, more profitable company, the paper said.

Analysts welcomed such a move, saying a smaller, more focused Chrysler would have a better chance to thrive.

"This is just what the doctor ordered," said John Casesa, a former Wall Street analyst who now heads an advisory firm in New York specializing in the auto industry. "This strategy is decades overdue.

"It's an absolute imperative to have a viable business in North America," he added. "This company needs to eliminate waste that goes with having duplicate products in each (brand) channel and smaller stores with low profitability."

Shrinking the number of dealers will be difficult, however, because of laws in all the states protecting those businesses, analysts said. If Chrysler, with about 3,600 dealers, wants to move quickly, it likely will have to offer financial incentives.

Over the years, the automaker and its U.S. rivals, General Motors Corp and Ford Motor Co, have tried to shrink their dealer numbers, often facing great resistance. However, analysts said some dealers may be more receptive now, given the weak U.S. economy, if the offers are generous.

A smaller dealer base will translate into more attention for Chrysler's cars and stronger advertising, Casesa said. "A weak dealer network is a silent killer; like blood pressure," he said.

Chrysler said in a statement that Vice Chairman Jim Press had just completed an eight-day tour of about 3,000 Chrysler dealers during which the company had unveiled a new corporate initiative called "Project Genesis." The tour came ahead of the annual National Automobile Dealers Association meeting, taking place in San Francisco.

The head of the largest U.S. dealer called the plan "brilliant," saying his large stores were well placed in such a new environment.

"It will be extremely controversial," AutoNation Inc Chief Executive Mike Jackson told CNBC Television on Friday. "What's brilliant and powerful is that they've combined their product strategy with their retail strategy.

"You can't survive unless you get the entire product offering. You'll either be out of business or in a high throughput model," he added. "This is where they had to go."

The Chrysler project is designed to "align the dealer network with the product portfolio," the company said, without commenting directly on the newspaper report.

"At this point, we have not made any final decisions regarding our dealer optimization or future product plans, nor has the company set any firm timelines," Press said in the statement. "Our dealers are and will continue to be an integral part of this process moving forward."

Chrysler is owned by private equity company Cerberus Capital Management, which bought an 80 percent stake in the company from Daimler AG last August. Since appointing former Home Depot Inc CEO Robert Nardelli to run the company, Cerberus has been expected to shake up established practices in Detroit.

Indeed, in an unexpected move last week, Chrysler abruptly canceled contracts with financially struggling supplier Plastech Engineered Products Inc and moved to seize equipment at the supplier's plants that the automaker said it owns.

That dispute led Plastech to file for bankruptcy and stop production of parts for Chrysler, forcing the automaker this week to shut production at four assembly plants for a day before an interim deal was reached.

Last month, Chrysler officials told Reuters that the company was rolling out an initiative called "New Day" that included a $150 million package of vehicle upgrades. Chrysler also said at the time it was committed to removing weak links from its product lineup.

"In the end, we will have a more viable dealer body focused on the customer," Press said on Friday.

Also on Friday, Jerry York, an advisor to billionaire investor Kirk Kerkorian, said at a panel in Chicago that the U.S. automaker cannot succeed by itself. York is a former Chrysler chief financial officer and Kerkorian has tried to buy Chrysler in the past.

"Chrysler as a stand-alone company is not viable," York said at an event being held in conjunction with the Chicago Auto Show. He added that Cerberus was likely weighing all options due to the intense pressure Chrysler is under.

Last November, York said at the Reuters Autos Summit he ultimately expected Chrysler to be combined with an overseas automaker once Cerberus fixed it up. Some analysts have suggested Carlos Ghosn, chief executive of Japan's Nissan Motor Co Ltd, might be a willing partner.

Reporting by Nick Carey and Ben Klayman; Editing by Dave Zimmerman and Phil Berlowitz