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Jeep Cherokee Delay A Potential Setback for Chrysler

Maker again looking at IPO options.

by on Jul.30, 2013

Stuck in the mud? Chrysler desperately needs to get the new Jeep Cherokee into showrooms.

Chrysler has confirmed that it will delay the media preview for the new Jeep Cherokee while it works out the kinks with the new and desperately needed crossover-utility vehicle .

For the moment, the sales launch of the new Cherokee remains on schedule, but even if that doesn’t slip, as well, it is the latest chapter in a long-running automotive soap opera that goes by the name Chrysler.

Meanwhile, in an unexpected turn, the maker’s CEO let slip that a long-discussed initial public stock offering that it seemed to have abandoned a couple of years ago is apparently back in Chrysler’s plans.

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“We will introduce the vehicle to media and consumers as soon as that process is complete,” Chrysler said in a statement after advising journalists expecting to drive the next Jeep Cherokee next week that the program was being delayed by a month. “While the media drive timing has changed, production continues and the vehicles will be in showrooms in September,” Chrysler said.

“Our senior management has stated many times that we will only introduce a vehicle – to consumers and media – when it is flawless. Over the last couple of weeks during final quality and durability testing, we have discovered the opportunity to further improve powertrain calibration in the Jeep Cherokee,” the statement added.

(Chrysler posts a 16% profit increase for Q2. Click Here for the full report.)

Chrysler spokesman Todd Goyer later told TheDetroitBureau.com that improvements to Cherokee’s powertrain calibrations will require “re-flashing.” The new calibrations will not require any mechanical changes, he stressed, adding that, “Any report suggesting it requires mechanical changes is just wrong.”

According to the spokesman, Chrysler plans still call for the 2014 Jeep Cherokee to reach showrooms during the third quarter – which ends Sept. 30.

Sergio Marchionne, Chrysler/Fiat chief executive officer, indicated during a conference call with analyts and reporters that the slow start of production of the new crossover will mean the Chrysler Group now expects to fall perhaps 100,000 units short of its original goal of building 2.7 million vehicle in 2013. Nonetheless, the company will build more vehicles this year than it did in 2012 and expects to build an additional 200,000 units in 2014.

“We’re paying a huge price for not having the Liberty for nearly a year,” Marchionne said, referring to the old SUV the new Cherokee will replace.

(Radical redesign for reborn Jeep Cherokee. Click Here for a closer look.)

But the introduction of the nine-speed transmission that will go into the crossover is a complex installation, he noted, adding that “We need to make sure the transmission is capable of performing the way one expects from a Jeep,” he said. “We have a lot of work to do in August,” he said.

The Toledo North plant has already started building the Cherokee but vehicles are being held back from delivery to dealers until the company is satisfied it is ready for showrooms, according to Marchionne, who has described the Cherokee as vital to the company’s future expansion plans.

Chrysler has hired 1,200 new workers at the Ohio factory and production on a second shift is scheduled to begin the week of August 19th, noted Marchionne, who said he was impressed with the high morale in the plant, which he visited last week.

“The delay isn’t because of inexperienced workers,” he insisted.

Marchionne also said he expects that overall sales of new vehicles will remain strong. He also noted Chrysler now expects to post its 40th consecutive month of vehicle sales increases when it releases its sales figures for July. “I don’t think we’re at peak volumes,” Marchionne said, adding the market and the economy appear very stable right now.

Chrysler is continuing to invest heavily in its “industrial base,” Marchionne said. The investments will provide Chrysler with the technology that it required to compete now and in the future, he said. “We justr have a lot of work to catch up on to make state of the art technology available in our cars.

However, the lack of saleable vehicles from the Jeep plant in Toledo has made it more difficult to meet its guidance.

Chrysler on Tuesday nonetheless managed to squeeze out a 16% increase in second-quarter earnings compared to a year ago. And it wasn’t the only company pleased by the $507 million net profit.  Its Italian partner Fiat SpA posted a net profit of 435 million euros for the second quarter, compared to earnings of 239 million euros a year earlier.  Without Chrysler’s contribution, Fiat would have posted a 247 million euro loss during the second quarter.

Marchionne also said Chrysler was preparing for an initial public offering of stock. “We’re hurrying. but I’ve nothing to report on the status of the IPO.”

The apparent decision to go with an IPO is an unexpectedly reversal of course. Marchionne had recently been pushing for a merger of the two companies that would skip a separate Chrysler stock offering.

It’s unclear why the new strategy has been reached. But it could be one of the prospects Marchionne and his planning team have settled on while they wait to see what they will have to pay for the remaining Chrysler stock now held by the United Auto Workers Union’s retiree health care fund. The final decision is now in the hands of the Delaware courts.

Paul A. Eisenstein contributed to this report.

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3 Responses to “Jeep Cherokee Delay A Potential Setback for Chrysler”

  1. Jorge M. says:

    I can definitely see where programming an 8-speed trans in a Jeep is a big challenge considering the diverse applications of this vehicle.

  2. raywode says:

    The 2014 Cherokee’s transmission is a 9-speed, not an 8-speed (the Dodge Dart will get it also). And why is Chrysler “a long running soap opera”? Marchionne and his management team have the guts to delay a vehicle’s release if it’s necessary to get it absolutely right, even if it costs them some sales. It would be nice if all carmakers (and all manufacturers) were this serious about quality.

    • Paul A. Eisenstein says:

      Thank you for the catch, Ray. I will pass your note to our correspondent to respond.

      Paul E.