06/07/2009 11:03 am ET Updated May 25, 2011

Is Chrysler Out of the Woods Yet?

James Kwak cites Chrysler's May sales figures as proof that his predictions of last December are correct, and that a poll which indicated 91% of Americans wouldn't buy a car from a bankrupt Chrysler was just poorly worded:

In May - during which Chrysler was in bankruptcy - Chrysler sales were down 47% from the year-ago period. Overall sales were down 34%, which means non-Chrysler sales were down around 33%. So as a crude estimate, if Chrysler were like the average automaker, for every 100 cars it sold last May, it would have sold 67 cars this May. Instead, it sold 53. That's a 21% decrease - a lot less than the 91% predicted.

It may well be true that the Chrysler brand fares well in bankruptcy, but I think those conclusions are a bit premature:

Discounts of up to $12,000 are driving Chrysler cars off the lot nationwide as bargain-hunting consumers help terminated dealers clear inventory before the June 9 deadline.

"We've actually had a better month than we've ever had. The [Jeep] lot is empty," said Hamid Saghafi of Dulles Jeep in Leesburg, Va.

"We're trying to make deals, some ugly deals, and get them off our lots. Ugly to us, pretty to the customer."

On Thursday, June 4 Chrysler dealers began to testify in bankruptcy court, protesting the terms of Chrysler's plan to terminate 789 dealerships across the country starting on June 9.  To say that the impact of this bankruptcy has not fully been absorbed across the country would be an understatement.

(As a side note, Tyler Durden has an interesting drill-down on the dealership closings.)

But more to the point -- Chrysler's May sales were heavily subsidized.  Unless Chrysler plans to keep giving cars away at cost, those figures are anomalous.

I don't think there was any other choice for Chrysler, and the bankruptcy was well executed. But nobody with brand management experience would shrug off a statistic wherein 91% of the public say they won't buy a car from a company in bankruptcy, no matter how poorly worded the question was.  The reason that people like Richard Shelby and Bob Corker were so cavalier about it was because they were trying to break the UAW.  Theirs was an ideological, not a pragmatic crusade.

Chrysler and GM will spend a lot of money trying to deal with that brand damage.  Future sales won't happen in a vacuum -- Chrysler will continue to offer incentives to make their product attractive.  I'm hopeful that the US automakers will be able to rebrand themselves in the US as "new and improved," that the government will level the playing field by dealing with healthcare and providing a productive regulatory environment, and that the "halo effect" of new environmentally-friendly marques will provide a salutary climate for sales.

But I think it's a bit early to conclude the US automakers will emerge from bankruptcy with their brands unscathed, or predict how people will feel about them in the future based on Chrysler's May "fire sale" sales figures.

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