Chrysler Group LLC is preparing to increase offers for auto leases and upgrade several models in a bid to arrest a deep slide in sales without resorting to hefty discounts and other incentives, people familiar with the matter said.
Leasing options will be increased over the next six to eight months, with the goal to have leasing generate about 10% of the company's overall sales. Leasing currently accounts for 7% of Chrysler's sales total.
"We went from leasing accounting for 20% of our sales to zero earlier this year," said a person familiar with the matter. "There needs to be some leasing options but no more craziness."
In the past, Chrysler, General Motors Co. and Ford Motor Co. used to pump up sales for short periods of time by offering highly attractive leases in which customers didn't have to pay any money up front and could get a low monthly payment.
The sales gains were usually short-lived and in the long run the auto makers often incurred losses on those deals.
Chrysler and GM all but got out of leasing last year amid the financial crisis. But now Chrysler is scrambling to boost sales again. In November, the company's U.S. vehicle sales fell 25% from a year earlier while overall industry sales were flat. The company has had another tough month in December, according to dealers.
A person familiar with Chrysler's plans said the company won't go overboard on subsidizing leases this time. "Don't look for the no-money-down, $199 offers," this person said.
At the same time, Chrysler also is changing the combinations of its cars' features to make the vehicles more attractive.
For example, the Jeep Patriot, a compact sport-utility vehicle, will come with electric locks and electric windows in its base configuration, people familiar with the matter said. The Dodge Journey, a six-passenger wagon, is being tweaked so the car can be priced to compete against the Chevrolet Equinox, a model that GM recently redesigned.
The repositioning of Chrysler models is part of the five-year recovery plan outlined by Chief Executive Sergio Marchionne in November. Mr. Marchionne, also CEO of Fiat SpA, has vowed to bring Chrysler to break-even next year followed by a positive cash flow by 2011 and a plan to pay off the company's federal-government loans by 2014. He plans to accomplish the feat by introducing Fiat-designed cars in the U.S. That includes building and importing the Fiat 500 from a plant in Mexico.
"We believe sales have bottomed out, so it's no longer [about] making decisions based on a day-to-day outcome," said a person familiar with the matter. "It's about long term, instead of chasing sales. We are focusing on rebuilding the brands and reaching customers who shop based on image and quality rather than just getting a good deal."
Chrysler was still using big incentives a few months ago. In August, when the U.S. government offered "cash for clunkers" rebates of as much as $4,500, Chrysler added as much as $4,500 in rebates of its own, allowing consumers to knock as much as $9,000 off sticker prices.
Now on a monthly basis, managers from production, sales and marketing meet with Chief Financial Officer Richard Palmer to decide whether to offer more cash or cut production. The decision is made in about an hour rather than debated for weeks.
