Road to recovery could be bumpy

DETROIT - Chrysler was reborn yesterday under a new Italian parent, but it cannot shake the shadows of its past: It's not selling enough cars, its fleet is tilted to trucks and SUVs, and help is more than a year away.

A 42-day stay in Bankruptcy Court cleansed the company of much of its debt and labor costs, but many analysts still say Chrysler's immediate future is bleak. It lost $8 billion in 2008, and sales are down by almost half for the first five months of this year from the same period last year.

Cars designed by its new owner, Italy's Fiat Group S.p.A., will not make it to the United States until late 2010. And even then there are no guarantees American drivers will want the tiny cars in which Fiat specializes.

In the meantime, Chrysler is left with few new models headed to its reduced network of dealers. Its aging model lineup is still heavy with bigger vehicles that guzzle gasoline and that consumers are not buying. And its offerings in the growing small and midsize markets have not caught on.

"The showroom is not going to look terribly different over the next 18 months," said Aaron Bragman, an analyst for the consulting firm IHS Global Insight Inc. "They're going to try and maintain market share in a down market with products, many of which haven't been redesigned in several years."

Bragman said Chrysler faced strong competition, especially from new cars from General Motors Corp. and Ford Motor Co.

Even if the new Chrysler Group L.L.C. can survive under Fiat's ownership, the supersmall Fiat cars that have been popular in Europe, such as the 500 and Grand Punto, could be out of step with Americans who like bigger cars and are used to lower gasoline prices.

Also, during Fiat's last run at the U.S. market, in the 1970s and 1980s, reliability problems led people to suggest the name stood for "fix it again, Tony."

"Fiat is really not a known commodity in the U.S. market," said David Koehler, a clinical marketing professor at the University of Illinois at Chicago. "It doesn't resonate with the target market."

The new Chrysler began operations yesterday morning after the U.S. Supreme Court on Tuesday refused to hear an appeal of lower court decisions that allowed the transfer of most of the old Chrysler's assets to Fiat.

Fiat chief executive officer Sergio Marchionne was named chief executive of the new company, and Chrysler CEO Bob Nardelli said farewell to employees.

Marchionne quickly shook up the management, replacing Chrysler's chiefs of marketing, finance, and product development and cutting layers of managers to make the company more focused on its individual brands: Jeep, Chrysler, and Dodge.

Jim Press, who was Toyota Motor Corp.'s top U.S. executive until he joined Chrysler in 2007, was named deputy chief executive and will probably run the company whenever Marchionne is in Italy.

In an e-mail to Chrysler's 54,000 workers, Marchionne acknowledged the company's problems and said he was determined to repair them. Five years ago, he wrote, he stepped into a similar situation at Fiat, perceived at the time as a failing bureaucracy that made poor cars.

"Through hard work and tough choices, we have remade Fiat into a profitable company that produces some of the most popular, reliable, and environmentally friendly cars in the world," he wrote. "We can and will accomplish the same results here."

Marchionne's immediate problem is weak offerings in the market for small and midsize cars. Chrysler's smallest vehicles, the Dodge Caliber and Jeep Compass and Patriot, have sales amounting to less than one-third of those of the Toyota Corolla, the nation's top-selling small car.

The good news for Chrysler is that it has cut costs enough so it can break even with lower sales, said Gary Dilts, senior vice president of global automotive operations for J.D. Power & Associates.