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Chrysler to start using smaller engines

Automaker hopes that four-cyclinder options will attract buyers and boost declining sales.

Based on a Bloomberg News Report

Chrysler Group plans to offer more small-engine versions of its cars and trucks as its U.S. sales decline amid rising fuel prices, the unit's chief executive officer said Friday.

The automaker plans two new models with standard four-cylinder engines by the end of 2006, CEO Tom LaSorda said in an interview at the unit's headquarters in Auburn Hills. Chrysler has four such vehicles now. It also may add four-cylinder versions of models that now use only larger engines.

Chrysler's sales declines have let Toyota Motor Corp. move past it in the past two months for the No. 3 rank in the U.S.

Toyota has benefited from a consumer shift to cars from sport-utility vehicles, minivans and pickup trucks as average gasoline prices stay near $3 a gallon. Chrysler, like U.S rivals General Motors Corp. and Ford Motor Co., depends more on light-truck sales than Asia-based automakers.

"We've seen a shift, and the industry has seen, from trucks into cars, and we haven't been very good at talking about fuel economy," said LaSorda, 51.

The automaker may also add a subcompact to compete with new models such as Toyota's Yaris, LaSorda said. He didn't give details of which vehicles that now offer only six- or eight-cylinder engines may get four-cylinder versions.

Chrysler's U.S. sales fell 2.5 percent this year through May, after it was the only U.S.-based automaker to post annual increases in 2004 and 2005. It plans to introduce nine new models in this year's second half and began meetings this week with U.S. dealers to outline a new marketing strategy.

Offering more small-engine vehicles is part of Chrysler's efforts to boost sales without having to resort to more incentives such as rebates and discount loans.

LaSorda declined to give details of the new marketing strategy. It comes after Chrysler said this week that it would revamp its sales operations when Senior Vice President Gary Dilts and Vice President Raymond Fisher retire next month. Steven Landry, now head of DaimlerChrysler Canada, and Michael Manley will head the reorganized sales and field operations.

"We'll come out in early July and surprise the marketplace," LaSorda said. Asked if the strategy will include additional sales incentives, he said, "I wouldn't see any major shifts in incentives between now and the end of the year."

David Healy, a Burnham Securities analyst in Sierra Vista, Arizona, said he expects Chrysler to be the first to revive the employee-discount programs offered by U.S. automakers last year, or to provide no-interest financing on all cars and trucks.

"They may have to at least go with zero interest across the board," he said. "They've got a lot of vehicles that have been on dealer lots a long time and they have to move them."
Chrysler has used no-interest loans on some vehicles, as well as $1,000 cash for dealers on cars and trucks that have sat on their lots since before Dec. 31. The dealer program ends this month.

As much as 10 percent of the inventory on Chrysler, Jeep and Dodge dealers' lots may be vehicles they've had since the end of 2005, according to David Lucas, an analyst at Autodata Corp. in Woodcliff Lake, New Jersey.

Sales of the four-cylinder Dodge Caliber small car, introduced in late February, doubled to 12,422 in May from March, its first full month on the market.

Chrysler in the second half is slated to add the Jeep Compass and Jeep Patriot small SUVs. Both have Chrysler's new four-cylinder World Engine, made in a new joint-venture plant in Dundee that can make 840,000 engines a year.

Copyright © 2006 Bloomberg