ANALYSIS - Marchionne may start Chrysler reign cutting models

Fiat CEO Sergio Marchionne addresses the audience in Lausanne in this May 22, 2008 file photo.

MILAN (Reuters) - Chief Executive Sergio Marchionne's immediate product plans for Chrysler could be limited to weeding out weaker models and tweaking prices as he gears up to launch new designs in about two years' time.

Marchionne, who also heads Fiat, took the wheel at the struggling U.S. car maker in June after sealing a deal for the Italian company to take a 20 percent stake in return for getting Chrysler back to health with the help of its technology.

He said on Friday he hoped to have "at least a roadmap from a product standpoint" in 14 days, and on Wednesday said he wanted to decide what to do with Chrysler's Dodge and Fiat's Alfa Romeo brands by the end of this month.

"Marchionne might have to make some very tough decisions about which models to kill" in the short-term, said Adam Jonas, autos analyst at Morgan Stanley. "He should talk to his surviving dealers.

For Chrysler, America is its most important market, with only 12 percent of sales this year expected to come from outside the U.S., Mexico and Canada.

Its Chrysler, Dodge and Jeep brands are well-known but well-worn and it acknowledged in its February restructuring plan that it had to improve quality and fuel efficiency for vehicles as well as "establish a more customer-relevant portfolio."

"Chrysler models are old and they have little appeal on the market," said Giuseppe Berta, professor of contemporary history at Milan's Bocconi University.

"Marchionne has to work out over the summer a bridge solution which will allow him to get to 2011," he said.

Analysts say new models for Chrysler will take at least two years to be ready for the market.

Models which could go in the short-term include the Chrysler Sebring and PT Cruiser, the Jeep Compass and Patriot, while the Dodge Caliber could be either scrapped or re-engineered.

Chrysler is likely to sell under 1 million vehicles in the United States this year, Berta said, compared with just over 2 million in 2007, before the global credit crunch really put the brakes on demand.

Its efforts to rustle up buyers are hampered by an old line-up and its own financial problems which triggered a cutback in its distribution outlets and damaged confidence.

"As Chrysler is at the moment, it's completely at a standstill. It needs a push," said Berta.

CINQUECENTO VS MINI

Fiat, for its part, expects to produce its Cinquecento city car -- a rival to the Mini -- in the United States from 2011, and use Chrysler's dealer network to sell the car. It could also sell its Alfa Romeo MiTo model and a new Milano model which will be unveiled next March.

It hopes to rival Mini sales in U.S. cities such as New York and on the east and west coasts. Mini sold about 54,000 vehicles in the U.S. last year and analysts said with a much larger dealer network and a cheaper price, Fiat could be targeting up to 80,000.

Longer-term, Marchionne needs to introduce new models for Chrysler and analysts said a possible recovery in the U.S. car market and restructuring could deliver him the breathing space he needs.

"You've resized your business to be profitable at 10 million (total U.S. annual car sales) ... and all of a sudden your market is at 13 million, then you make money," said Philippe Houchois at UBS.

Jonas said going through bankruptcy with cuts to dealer networks and revised labour agreements meant "there's the potential for Chrysler and GM to come out of this very aggressively, luring the best engineers, best managers."

A Reuters poll of analysts found a median expectation for U.S. auto sales of 9.81 million vehicles on an annualised basis far below the 13.7 million rate in June 2008.

In addition, around 12-13 million cars are being scrapped in the United States a year -- effectively reducing cars on the road.

Houchois said Chrysler was also likely to find support from the U.S. administration and therefore "this business is nowhere near running out of cash."

On Wednesday, Marchionne said that Chrysler was "still burning cash, but it's slowed down by far," adding that his priority was to "stop the bleeding."

MODELS INSTEAD OF BRANDS?

Two years hence, Marchionne is unlikely to have scrapped an entire brand, analysts say -- although he could push marketing of models instead of weaker brands like Chrysler, much as the Cinquecento has shed its Fiat tag.

The Jeep brand, for example, has great recognition and image but its products, apart from the flagship Wrangler and Cherokee models, are considered by analysts as lacking appeal.

"Jeep is one of these under-utilised assets where the brand has phenomenal recognition but the product is average ... it would be a shame not to try to do a better job with the brand," Houchois said.

Fiat could boost the Jeep brand's overseas sales through its dealership networks, especially in South America and other emerging markets.

Chrysler itself had planned a new Jeep Grand Cherokee and a new Chrysler 300 for 2010.