Chrysler's pain threshold is high due to inventory

CHICAGO (Reuters) - Chrysler's pain threshold is high when it comes to how long a strike by the United Auto Workers union must last before the U.S. automaker will start losing sales, analysts and investors said on Wednesday.

The UAW workers at all but five assembly plants operated by Chrysler walked out on strike on Wednesday, marking the second work stoppage called by the union in as many weeks. The UAW settled a two-day strike with General Motors Corp last month.

While Chrysler's lineup includes such strong sellers as its newly remodelled minivans and the Jeep Wrangler sport utility vehicles, the inventory of many cars and trucks has swelled above normal levels due to slow sales. That high inventory led to the idling of the five plants the UAW is not striking.

Analysts said the U.S. automaker could withstand a strike that stretches into three weeks.

"Two to three weeks is the pain threshold because there's enough inventory, even for those hard-to-find vehicles including Wrangler, that can last two to three weeks," said Edmunds.com analyst Jesse Toprak. "After that, you're getting into those scarce vehicles becoming basically nonexistent at the dealerships."

"Consumers are not as loyal as they used to be. They'll turn to some other brand," added Toprak, who does not expect the strike to last more than one or two weeks.

Chrysler had a 71-day supply of vehicles in inventory at the end of September. U.S. automakers typically prefer a number closer to 60 days.

Compounding pressure on the automaker, the Teamsters union said it would honour the UAW strike by its 10,000 carhaul members not crossing or working behind picket lines.

Still, investors said a strike that reduced Chrysler's high inventory would not necessarily be bad.

"Initially, a couple weeks (strike) probably benefits the company because it clears out inventory," said Tim Ghriskey, chief investment officer with Solaris Asset Management.

Chrysler was dogged by inventory management problems in 2006, including its disclosure that it had been holding large numbers of vehicles in a "sales bank" before they had been ordered for showrooms.

At one point last year, it had about 100,000 vehicles in the sales bank that were not being disclosed in its monthly sales calls for analysts.

"When you're facing a high level of inventory that tells you that you can go quite a ways," said David Cole, chairman of the Centre for Automotive Research in Ann Arbor, Michigan. "In fact, you can use that shutdown ... to get your inventory into a little bit more manageable range."

The main concern is the just launched minivans, which could be hurt by even a one-week strike, analysts said.

Chrysler executives have said the introduction of the new Dodge Caravan and Chrysler Town & Country models represents the company's biggest product launch this year.

"This is a critical time ... because they're spending a lot of money on marketing to coincide with the actual vehicles hitting the lots," Edmunds.com's Toprak said of the launch.

"Minivans ... still remain very profitable for the automaker," he added. "With the absence of Ford and GM in the minivan market this year, there's a lot of opportunity for Chrysler there in terms of capturing market share."

Chrysler began a major advertising campaign last week emphasizing the interior, safety and technology of the minivans, which are built in Windsor, Canada, and St. Louis, Missouri.

The Canadian Auto Workers union has said Chrysler's minivan plant in Windsor, Ontario, could shut down Wednesday afternoon because of lack of parts. It receives components from U.S. plants that are on strike.