Source: Bloomberg.com
Published: Tuesday, November 04, 2008

Chrysler LLC, the automaker considering a combination with General Motors Corp. to survive, has been forced to kill its only gasoline-electric model because of poor sales of its largest sport-utility vehicle.

The hybrid versions of the Dodge Durango and Chrysler Aspen SUVs, which went on sale this month, are produced at the Newark, Delaware, factory that Chrysler said last week will shut by Dec. 31. The plant also makes gasoline-only versions of those models. Todd Goyer, a Chrysler spokesman, confirmed the hybrid decision today.

``This vehicle would have done a lot better three or four years ago,'' when demand for SUVs was greater, Jim Hall, principal at 2953 Analytics in Birmingham, Michigan, said of the Chrysler gasoline-electric models.

Chrysler's decision leaves it without plans for any new hybrid models for at least a year. No other major automaker is more dependent on pickup trucks, SUVS and minivans, which have lost sales this year because of high gasoline price. Chrysler already is playing catch-up to competitors such as Toyota Motor Corp., which has sold hybrid models for more than a decade.

``It's not a sound decision to keep open the plant for the hybrid demand alone,'' Goyer said. The Auburn Hills, Michigan- based company has no plans to move the production or replace the SUVs in their current form, he said.

Ending production of the gasoline-electric models probably was an easy decision for Chrysler because of the cost of the hybrid system, which is made by General Motors Corp., Hall said. GM, the former DaimlerChrysler AG and Bayerische Motoren Werke AG jointly developed the system.

Gasoline Prices

Chrysler began touting the hybrids in the middle of this year, when the average U.S. retail gasoline price was reaching a record high $4.15 a gallon. Since the July 15 peak, the price tumbled 36 percent to $2.63 as of yesterday, according to motorist group AAA.

The automaker sought to position its gasoline-electric SUVs as a less expensive alternative to GM's hybrid Chevrolet Tahoe and GMC Yukon, which use a similar hybrid system and cost about $5,000 more. Chrysler's owner, Cerberus Capital Management LP, and GM are in talks about merging the two automakers, people familiar with the negotiations have said.

Chrysler began building its hybrids, which get 40 percent better fuel economy in city driving than gasoline-only versions, in August. They are now arriving on dealer lots, Goyer said.

The company has received orders from dealers for 3,000 of the hybrids. Chrysler isn't sure it will be able to fill all of the orders before the plant stops production, he said.

Early Closing

The Newark factory is closing a year early, as U.S. sales this year through September have fallen 54 percent for the Durango and 21 percent for the Aspen. Chrysler's total sales have slid 25 percent, almost twice the industry's 13 percent decline.

Chrysler has announced plans to put the hybrid system in a version of the 2010 Dodge Ram pickup. Those hybrids won't be available until 2010, even as some versions of that model-year truck will be available in 2009, Goyer said.

Company executives have said Chrysler intends to put hybrid systems in more of its vehicles. The automaker also has announced plans to sell at least one electric vehicle in 2010.

Honda Motor Co. was first to sell a hybrid in the U.S., when it added the Insight coupe in 1999, and was also first to discontinue one, when it pulled the slow-selling two-seat car in 2006. A revamped Insight goes on sale next year as five-door hatchback. Honda also scrapped its Accord Hybrid sedan last year.