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Chrysler cuts could be costly

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Kai Ryssdal: Detroit has spent the last couple of years discovering that smaller really is better. Not necessarily in car size, but in company scope.

Both Ford and General Motors have made peace with falling market share. They’re just trying to get back in the black.

Now Chrysler’s joined the club. Last year at this time it was known as DaimlerChrysler, an international auto conglomerate. Cerberus Capital took the fading Chrysler off Daimler’s hands last spring.

They took a while to think things over, but today we got a glimpse of what a privately-held car company can do. Marketplace’s Jeff Tyler has the details.

Jeff Tyler: The carmaker will reduce the number of models sold under its Chrysler, Jeep and Dodge brands from 30 to around 20.

Bernard Swiecki is with the Center for Automotive Research.

Bernard Swiecki: For its size, it makes sense to sell more copies of a smaller number of products as opposed to have a wide range of products and only sell a few of each.

And as it makes fewer vehicles, Chrysler would like to have fewer dealers. Swiecki says the cuts will be costly:

Swiecki: In a lot of cases, these are family-owned institutions that have been in their communities for a very long time, so reducing dealership count is painful from that perspective. It also requires a company to spend large amounts of money.

Chrysler is expected to buy-out some dealers and it’s encouraging others to merge. It’s all about making each retail car lot more profitable, says Jack Nerad, market analyst with Kelley Blue Book:

Jack Nerad: If your dealers aren’t profitable with the brands you have as a manufacturer, they will look elsewhere. For example, if they being very profitable selling Dodge vehicles, they might look to sell Nissans or Mazdas.

Ford and GM have also been reducing their dealerships, but since Chrysler is now a private company, Nerad says it can make changes faster and on a larger scale.

He sees these latest moves as evidence that Cerberus Capital Management, which owns Chrysler, is in it for the long-term.

Other observers may be less enthusiastic about the cuts. The news comes on the eve of the National Auto Dealers convention.

I’m Jeff Tyler for Marketplace.

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