We're Bailing Out DCX
#1
06-18-2005, 12:55 AM
We're Bailing Out DCX
Here's a recent article out of the Wall Street Journal on how we're bailing out DCX with our purchases of our LX's.
Chrysler's Storied Hemi Motor Helps It Escape Gloom
Profitable -- and Fast -- Engine Makes Cars Seem Different; Rival Auto Makers Struggle
By NEAL E. BOUDETTE, Staff Reporter, The Wall Street Journal
(June 17) - Last month, Jason Kanakis went into National Dodge in Jacksonville, N.C., to buy the car of his dreams, the 2005 Dodge Magnum R/T. Hours of haggling later, he roared the sleek station wagon off the lot for $31,000, the "absolute limit" he could afford.
More on DaimlerChrysler
Talk About It: Post
Stock Quote: DCX
"The power and mystique of the Hemi made me more willing to go up," says the 34-year-old Marine. That's the name for the car's powerful V8 engine, which added $5,000 to the price. "I said to myself, 'that's 345 horsepower, my friend.' "
The Hemi engine, made famous by muscle cars of the 1960s and 1970s, is now helping make DaimlerChrysler AG a notable exception to the gloom that has descended on Detroit. Amid the U.S. auto industry's most severe crisis in a decade, the Hemi is revving up profits and market share. In particular, it's reviving sales of passenger cars, a stark change from Detroit's recent reliance on sport-utility vehicles and pickups.
The story of the Hemi is part luck -- Chrysler started tinkering with the engine almost a decade ago -- and part clever marketing. To escape from a slump five years ago, Chrysler's managers placed a premium on making cars that stand out, which it can sell for full price. As part of that thinking, it took the unusual step of making the Hemi engine the star of an advertising blitz. Soon TV viewers were intoning its tagline: "That thing got a Hemi?"
As a result, Chrysler was able to take advantage of a shift among car buyers: a nostalgic return to the souped-up muscle car. About half the Magnums, Dodge RAM trucks and Durango SUVs sold by Chrysler are fitted with Hemis, significantly more than the 30% to 35% the company expected. Its Hemi plant in Mexico is working around the clock and has increased output three times since production started three years ago.
By comparison, General Motors Corp. and Ford Motor Co. are reeling. Their bonds are rated junk by Standard & Poor's and several of their big suppliers are bankrupt or struggling. For the first quarter, GM posted a $1.1 billion loss and recently said it plans to cut 25,000 jobs and close a number of factories.
GM and Ford trace their troubles to a sharp decline in sales of large SUVs, which, along with pickup trucks, generate nearly all of their automotive profits. As far as cars are concerned, both manufacturers, after years of losing money, have skimped on design and innovation, compounding their poor performance. Few models are compelling enough for consumers to pay full price, let alone trade up to feature-packed versions where the big profits lie.
Now Chrysler's success with the Hemi is spurring countermoves by both competitors to make their vehicles appear more distinctive. Earlier this year, GM started a national advertising campaign with the tagline "Only GM," to highlight innovations such as its OnStar in-vehicle communications system. GM's engineers have urged their marketers to focus more on the company's engines.
Over at Ford, where some engineering staffers refer to the Hemi as the "Hemorrhoid" because of the pain it's inflicting on them, executives are also taking note. The company is already redesigning its brand new Five Hundred sedan after its slow start to make it more distinctive.
The new Hemi engine, which debuted in 2002, takes its name from rounded, or hemispherical, tops of its cylinders, and gives an exhilarating boost to a car's acceleration. The name and design are based on a legendary engine Chrysler produced in the muscle-car era. After Nascar's Richard Petty won 27 races in 1964 driving a 426-horsepower Hemi-powered Charger, the racing circuit banned the engine, thinking it gave drivers too much of an edge. After it was allowed back, with some restrictions, the Hemi enabled drivers to hit speeds of over 200 miles per hour.
Every customer who opts for a Hemi adds thousands of dollars to Chrysler's bottom line. That's because the Hemi's simple design makes it no more expensive to build than a smaller, standard V6 engine. A basic Chrysler 300 -- the broad-shouldered sedan that has wowed customers from rappers to retirees -- lists for $23,370. The Hemi version, called the 300C, sells for almost $10,000 more. While that model includes leather seats and other expensive features, analysts believe most of the difference is pure profit.
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Ron Harbour, president of Harbour Consulting, an influential auto-industry research firm, says the Hemi is driving Chrysler's recent success. "They've created an image in the market that pulls people up to a richer [price level]," he says. "That's how you make money in this business."
In an interview, Chrysler's chief, Dieter Zetsche, wouldn't specifically discuss the company's margins, but acknowledges the Hemi's role as "one of the building blocks of the turnaround of this company."
The company's continued success isn't guaranteed. Chrysler has made comebacks before only to fall back into crisis. Consumer tastes are fickle and there's no guarantee that these large, powerful cars will maintain their popularity. Meanwhile, Chrysler's lineup still includes several vehicles, such as the Sebring sedan, that sell only with big discounts, and a few, including the Dodge Neon, that lose money.
Yet last year, Chrysler sold 296,182 Hemi-powered vehicles, compared with 172,186 in 2003. For 2004, it reported operating profit of $1.9 billion, compared with a loss of $685 million the year earlier. This year, it's launching another Hemi-powered car, the Dodge Charger, a roomy, sporty four-door. So far, the signs are good: Of the Chargers ordered by dealers, 72% are Hemi models.
The engine that became the Hemi actually got its start in 1996, two years before the merger of Chrysler Corp. and Daimler-Benz AG, and was initially envisioned mostly for use in pickups. At the time, Chrysler was a distant third behind GM and Ford in that market because its trucks lacked what buyers love most: raw power.
The job of finding a solution went to an engineering team headed by Robert E. Lee. Growing up in Mansfield, Ohio, Mr. Lee tinkered with minibikes to make them faster. At Chrysler, he couldn't simply build a bigger engine. The company needed to meet fuel-efficiency and emissions standards. It also had some vague ideas about using the engine in passenger cars.
His group made some early decisions that had a big impact years later. First, the team chose a decades-old design that was inexpensive to build. Second, they borrowed an idea from auto racing and gave each cylinder two spark plugs instead of one. They rounded the cylinders' tops to crowd fuel and air into the center where the mixture burned quickly and cleanly. That boosted power and reduced emissions.
To help with fuel consumption -- just in case the V8 engine was ever put in a passenger car -- they also developed a system for automatically shutting off four of the eight cylinders while cruising on the highway.
By 2000, Chrysler was part of DaimlerChrysler and was losing billions. But under the tutelage of Mr. Zetsche, who had parachuted in from the company's Mercedes division, Chrysler was abandoning Detroit's unimaginative way of building and selling cars. Mr. Zetsche pushed engineers working on new cars to give each model features customers can't get elsewhere, additions for which they might pay extra.
During a meeting to review Mr. Lee's work, the engineer had some good news. He told his bosses the engine was smaller than GM's equivalent but at the same time more powerful and better on gas. Asked to explain how that was possible, Mr. Lee recalls saying: "Well, it's a Hemi." He pulled out a slide showing an engine with hemispherical cylinder heads similar to those Chrysler had in the 1960s.
Chrysler hadn't planned to revive the Hemi name, which is a Chrysler trademark, but Mr. Lee's comment sent its marketing department hurtling down that path. Focus groups and other research suggested the name meant nothing to younger car buyers. But interviews with people who owned the older Hemi-powered Dodge Chargers and Plymouth Barracudas showed the name had a positive image. It stood for power and reminded consumers of an era when American cars were the coolest things on wheels.
Chrysler's older Hemi-powered muscle cars weren't big sellers. Only 11,000 were built in that era. But for fans of racing and big American cars, that only added to the mystique.
George Murphy, a marketing specialist hired from Ford in 2001, was charged with making the Hemi engine as familiar to drivers as Intel Corp.'s chips are to PC users. In the 1990, Intel had pioneered the idea of turning a computer part into a consumer brand name with its "Intel Inside" ad campaign.
Before working at Ford, Mr. Murphy had spent years at General Electric Co. and Coca-Cola Co. His approach marked a departure from standard automotive marketing, which focuses on the car and its name, not the engine. A typical pickup ad, for example, would show the vehicle hauling a big boat or bouncing up rugged terrain.
In its marketing for the redesigned RAM pickup, which debuted the new Hemi in 2002, Chrysler depicted the engine as powerful but also as something people dream of owning. TV commercials showed two stereotyped hicks -- Mr. Zetsche refers to them as "Dumb and Dumber" -- ogling a RAM truck and asking, "That thing got a Hemi?" They were a hit.
The RAM pickup delivered more horsepower than the competing 6-liter V8 offered by GM at the time. In the truck's first year, sales jumped 13%. Chrysler tried the Hemi in a big SUV, the Dodge Durango, and its sales rose, too.
More importantly, to Chrysler's surprise, the brand took on a life of its own. "That thing got a Hemi?" became a popular catchphrase. Prices soared for restored original Hemi cars, such as the Plymouth 'Cuda, as the Barracuda came to be known. In May a lime green 1971 model sold for $735,000, almost twice the price of a few years ago, according to the seller, Mecum Auctioneers of Marengo, Ill.
When Chrysler launched a redesigned Jeep Grand Cherokee last summer, it offered the Hemi as an option but didn't put a badge on the outside, thinking Jeep owners wouldn't care. But customers began calling Chrysler's parts division to buy Hemi badges. In response, Chrysler started putting them on at the factory and recently increased badge sizes for all Hemi vehicles.
Joel Storm, a 57-year-old orthodontist from Freehold, N.J., says neighbors, friends and sometimes strangers have asked him to start his new Magnum R/T and pop the hood. "The draw is to look at the Hemi," he laughs.
The Hemi started to boost Chrysler's bottom line last year with the launch of its 300 sedan, a car that stands out for its sleek windows, bold grille and rear-wheel drive. What puts the car in a class by itself is the Hemi. American car makers stopped putting powerful V8 engines in most non-luxury sedans years ago. Japanese manufacturers also stick to smaller V6 engines for models such as the Toyota Camry.
The 300 arrived just as some consumers were tiring of SUVs. The Hemi-powered version offered an alternative. Thanks to Mr. Lee's cylinder-deactivation system, the car does 25 miles per gallon on the highway compared with 19 for a big SUV like Chevrolet's Suburban, according to the Environmental Protection Agency.
Hemi-powered models are now attracting the kind of big-spending customers who previously wouldn't have considered Chrysler. Art Strahan, a former National Football League defensive end, bought a Hemi-powered 300 for his wife in January and loaded it with options including videogame consoles for his grandchildren. The total price: more than $40,000. An equivalent Cadillac STS sedan, made by GM, with a 320-horsepower V8 engine, has a sticker price as high as $60,000.
Chrysler is now shipping the new Dodge Charger to dealerships. One in Pinckney, Mich., has two models on its lot. Woody Henrikson, a salesman, says when it comes to prices, there's not much room for negotiation. "It's pretty cut and dry," he says. "Chrysler's not discounting them."
Chrysler's Storied Hemi Motor Helps It Escape Gloom
Profitable -- and Fast -- Engine Makes Cars Seem Different; Rival Auto Makers Struggle
By NEAL E. BOUDETTE, Staff Reporter, The Wall Street Journal
(June 17) - Last month, Jason Kanakis went into National Dodge in Jacksonville, N.C., to buy the car of his dreams, the 2005 Dodge Magnum R/T. Hours of haggling later, he roared the sleek station wagon off the lot for $31,000, the "absolute limit" he could afford.
More on DaimlerChrysler
Talk About It: Post
Stock Quote: DCX
"The power and mystique of the Hemi made me more willing to go up," says the 34-year-old Marine. That's the name for the car's powerful V8 engine, which added $5,000 to the price. "I said to myself, 'that's 345 horsepower, my friend.' "
The Hemi engine, made famous by muscle cars of the 1960s and 1970s, is now helping make DaimlerChrysler AG a notable exception to the gloom that has descended on Detroit. Amid the U.S. auto industry's most severe crisis in a decade, the Hemi is revving up profits and market share. In particular, it's reviving sales of passenger cars, a stark change from Detroit's recent reliance on sport-utility vehicles and pickups.
The story of the Hemi is part luck -- Chrysler started tinkering with the engine almost a decade ago -- and part clever marketing. To escape from a slump five years ago, Chrysler's managers placed a premium on making cars that stand out, which it can sell for full price. As part of that thinking, it took the unusual step of making the Hemi engine the star of an advertising blitz. Soon TV viewers were intoning its tagline: "That thing got a Hemi?"
As a result, Chrysler was able to take advantage of a shift among car buyers: a nostalgic return to the souped-up muscle car. About half the Magnums, Dodge RAM trucks and Durango SUVs sold by Chrysler are fitted with Hemis, significantly more than the 30% to 35% the company expected. Its Hemi plant in Mexico is working around the clock and has increased output three times since production started three years ago.
By comparison, General Motors Corp. and Ford Motor Co. are reeling. Their bonds are rated junk by Standard & Poor's and several of their big suppliers are bankrupt or struggling. For the first quarter, GM posted a $1.1 billion loss and recently said it plans to cut 25,000 jobs and close a number of factories.
GM and Ford trace their troubles to a sharp decline in sales of large SUVs, which, along with pickup trucks, generate nearly all of their automotive profits. As far as cars are concerned, both manufacturers, after years of losing money, have skimped on design and innovation, compounding their poor performance. Few models are compelling enough for consumers to pay full price, let alone trade up to feature-packed versions where the big profits lie.
Now Chrysler's success with the Hemi is spurring countermoves by both competitors to make their vehicles appear more distinctive. Earlier this year, GM started a national advertising campaign with the tagline "Only GM," to highlight innovations such as its OnStar in-vehicle communications system. GM's engineers have urged their marketers to focus more on the company's engines.
Over at Ford, where some engineering staffers refer to the Hemi as the "Hemorrhoid" because of the pain it's inflicting on them, executives are also taking note. The company is already redesigning its brand new Five Hundred sedan after its slow start to make it more distinctive.
The new Hemi engine, which debuted in 2002, takes its name from rounded, or hemispherical, tops of its cylinders, and gives an exhilarating boost to a car's acceleration. The name and design are based on a legendary engine Chrysler produced in the muscle-car era. After Nascar's Richard Petty won 27 races in 1964 driving a 426-horsepower Hemi-powered Charger, the racing circuit banned the engine, thinking it gave drivers too much of an edge. After it was allowed back, with some restrictions, the Hemi enabled drivers to hit speeds of over 200 miles per hour.
Every customer who opts for a Hemi adds thousands of dollars to Chrysler's bottom line. That's because the Hemi's simple design makes it no more expensive to build than a smaller, standard V6 engine. A basic Chrysler 300 -- the broad-shouldered sedan that has wowed customers from rappers to retirees -- lists for $23,370. The Hemi version, called the 300C, sells for almost $10,000 more. While that model includes leather seats and other expensive features, analysts believe most of the difference is pure profit.
More From WSJ.com
ยท Marketers Seek To Make Cookies More Palatable
ยท Chrysler's Storied Hemi Motor Helps It Escape Gloom
ยท College Jocks Find Their Pro Careers in the Nascar Pits
Ron Harbour, president of Harbour Consulting, an influential auto-industry research firm, says the Hemi is driving Chrysler's recent success. "They've created an image in the market that pulls people up to a richer [price level]," he says. "That's how you make money in this business."
In an interview, Chrysler's chief, Dieter Zetsche, wouldn't specifically discuss the company's margins, but acknowledges the Hemi's role as "one of the building blocks of the turnaround of this company."
The company's continued success isn't guaranteed. Chrysler has made comebacks before only to fall back into crisis. Consumer tastes are fickle and there's no guarantee that these large, powerful cars will maintain their popularity. Meanwhile, Chrysler's lineup still includes several vehicles, such as the Sebring sedan, that sell only with big discounts, and a few, including the Dodge Neon, that lose money.
Yet last year, Chrysler sold 296,182 Hemi-powered vehicles, compared with 172,186 in 2003. For 2004, it reported operating profit of $1.9 billion, compared with a loss of $685 million the year earlier. This year, it's launching another Hemi-powered car, the Dodge Charger, a roomy, sporty four-door. So far, the signs are good: Of the Chargers ordered by dealers, 72% are Hemi models.
The engine that became the Hemi actually got its start in 1996, two years before the merger of Chrysler Corp. and Daimler-Benz AG, and was initially envisioned mostly for use in pickups. At the time, Chrysler was a distant third behind GM and Ford in that market because its trucks lacked what buyers love most: raw power.
The job of finding a solution went to an engineering team headed by Robert E. Lee. Growing up in Mansfield, Ohio, Mr. Lee tinkered with minibikes to make them faster. At Chrysler, he couldn't simply build a bigger engine. The company needed to meet fuel-efficiency and emissions standards. It also had some vague ideas about using the engine in passenger cars.
His group made some early decisions that had a big impact years later. First, the team chose a decades-old design that was inexpensive to build. Second, they borrowed an idea from auto racing and gave each cylinder two spark plugs instead of one. They rounded the cylinders' tops to crowd fuel and air into the center where the mixture burned quickly and cleanly. That boosted power and reduced emissions.
To help with fuel consumption -- just in case the V8 engine was ever put in a passenger car -- they also developed a system for automatically shutting off four of the eight cylinders while cruising on the highway.
By 2000, Chrysler was part of DaimlerChrysler and was losing billions. But under the tutelage of Mr. Zetsche, who had parachuted in from the company's Mercedes division, Chrysler was abandoning Detroit's unimaginative way of building and selling cars. Mr. Zetsche pushed engineers working on new cars to give each model features customers can't get elsewhere, additions for which they might pay extra.
During a meeting to review Mr. Lee's work, the engineer had some good news. He told his bosses the engine was smaller than GM's equivalent but at the same time more powerful and better on gas. Asked to explain how that was possible, Mr. Lee recalls saying: "Well, it's a Hemi." He pulled out a slide showing an engine with hemispherical cylinder heads similar to those Chrysler had in the 1960s.
Chrysler hadn't planned to revive the Hemi name, which is a Chrysler trademark, but Mr. Lee's comment sent its marketing department hurtling down that path. Focus groups and other research suggested the name meant nothing to younger car buyers. But interviews with people who owned the older Hemi-powered Dodge Chargers and Plymouth Barracudas showed the name had a positive image. It stood for power and reminded consumers of an era when American cars were the coolest things on wheels.
Chrysler's older Hemi-powered muscle cars weren't big sellers. Only 11,000 were built in that era. But for fans of racing and big American cars, that only added to the mystique.
George Murphy, a marketing specialist hired from Ford in 2001, was charged with making the Hemi engine as familiar to drivers as Intel Corp.'s chips are to PC users. In the 1990, Intel had pioneered the idea of turning a computer part into a consumer brand name with its "Intel Inside" ad campaign.
Before working at Ford, Mr. Murphy had spent years at General Electric Co. and Coca-Cola Co. His approach marked a departure from standard automotive marketing, which focuses on the car and its name, not the engine. A typical pickup ad, for example, would show the vehicle hauling a big boat or bouncing up rugged terrain.
In its marketing for the redesigned RAM pickup, which debuted the new Hemi in 2002, Chrysler depicted the engine as powerful but also as something people dream of owning. TV commercials showed two stereotyped hicks -- Mr. Zetsche refers to them as "Dumb and Dumber" -- ogling a RAM truck and asking, "That thing got a Hemi?" They were a hit.
The RAM pickup delivered more horsepower than the competing 6-liter V8 offered by GM at the time. In the truck's first year, sales jumped 13%. Chrysler tried the Hemi in a big SUV, the Dodge Durango, and its sales rose, too.
More importantly, to Chrysler's surprise, the brand took on a life of its own. "That thing got a Hemi?" became a popular catchphrase. Prices soared for restored original Hemi cars, such as the Plymouth 'Cuda, as the Barracuda came to be known. In May a lime green 1971 model sold for $735,000, almost twice the price of a few years ago, according to the seller, Mecum Auctioneers of Marengo, Ill.
When Chrysler launched a redesigned Jeep Grand Cherokee last summer, it offered the Hemi as an option but didn't put a badge on the outside, thinking Jeep owners wouldn't care. But customers began calling Chrysler's parts division to buy Hemi badges. In response, Chrysler started putting them on at the factory and recently increased badge sizes for all Hemi vehicles.
Joel Storm, a 57-year-old orthodontist from Freehold, N.J., says neighbors, friends and sometimes strangers have asked him to start his new Magnum R/T and pop the hood. "The draw is to look at the Hemi," he laughs.
The Hemi started to boost Chrysler's bottom line last year with the launch of its 300 sedan, a car that stands out for its sleek windows, bold grille and rear-wheel drive. What puts the car in a class by itself is the Hemi. American car makers stopped putting powerful V8 engines in most non-luxury sedans years ago. Japanese manufacturers also stick to smaller V6 engines for models such as the Toyota Camry.
The 300 arrived just as some consumers were tiring of SUVs. The Hemi-powered version offered an alternative. Thanks to Mr. Lee's cylinder-deactivation system, the car does 25 miles per gallon on the highway compared with 19 for a big SUV like Chevrolet's Suburban, according to the Environmental Protection Agency.
Hemi-powered models are now attracting the kind of big-spending customers who previously wouldn't have considered Chrysler. Art Strahan, a former National Football League defensive end, bought a Hemi-powered 300 for his wife in January and loaded it with options including videogame consoles for his grandchildren. The total price: more than $40,000. An equivalent Cadillac STS sedan, made by GM, with a 320-horsepower V8 engine, has a sticker price as high as $60,000.
Chrysler is now shipping the new Dodge Charger to dealerships. One in Pinckney, Mich., has two models on its lot. Woody Henrikson, a salesman, says when it comes to prices, there's not much room for negotiation. "It's pretty cut and dry," he says. "Chrysler's not discounting them."
#2
06-18-2005, 02:24 AM
#5
06-18-2005, 02:33 PM
RE: We're Bailing Out DCX
Don't care if my RT has a Hemi, I just love driving it.
As long as the motor makes lots of horsepower, I don't care what type of engine the car has.
This is my first Hemi and I love it, just wish it was a 426.
I used to own a 63' Plymouth with the 426 Max Wedge, my RT is so much better, not as fast, but fast enough.
Bob
As long as the motor makes lots of horsepower, I don't care what type of engine the car has.
This is my first Hemi and I love it, just wish it was a 426.
I used to own a 63' Plymouth with the 426 Max Wedge, my RT is so much better, not as fast, but fast enough.
Bob