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Jeep, Chrysler have a lot riding on Cherokee

To see how Chrysler's new Italian management plans to bring the company back from its near-death experience, keep an eye on the 2011 Jeep Grand Cherokee.
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The 2011 Jeep Grand Cherokee, which goes on sale in June, needs to prove Chrysler has made strides in quality.STAN HONDA / AFP/Getty Images
/ Source: The Associated Press

To see how Chrysler's new Italian management plans to bring the company back from its near-death experience, keep an eye on the 2011 Jeep Grand Cherokee.

The new version of one of Chrysler's top sellers, which goes on sale in June, has a lot riding on it. As the first vehicle launched since Fiat took over Chrysler's management last summer, the Grand Cherokee needs to prove Chrysler has made strides repairing its poor quality and mediocre fuel economy. It needs to appeal to Jeep's mud-splattered roots as well as suburban commuters.

Mostly, it needs to sell. Chrysler Group CEO Sergio Marchionne, who is expected to announce Chrysler's first-quarter financial results in Italy on Wednesday, has said the company's sales won't turn around until the Grand Cherokee hits showrooms. The vehicle is critical as Chrysler tries to repair the four-year sales slide that forced it to take government aid and reorganize under government-funded bankruptcy protection last year.

It will be a tough job. In 2009, Jeep sold 50,000 Grand Cherokees, a fraction of the 300,000 sold at the vehicle's peak in 1999, according to Ward's AutoInfoBank. Sales of mid-size SUVs have been slow.

"It would be an understatement to say that the SUV segment isn't a growth segment anymore. It has migrated to a more sensible, calmer personality, and that in itself is the real trouble for Jeep," said Erich Merkle, president of the consulting company in Grand Rapids, Mich.

Loyal customers
Jeep brand President and CEO Mike Manley insists he's not nervous. Jeep customers are among the most loyal in the market, he says, and Jeep sales rose 5 percent worldwide in the first quarter compared with a 2 percent drop for the company as a whole.

"I'm not concerned about it at all," Mike Manley told The Associated Press in a recent interview. "Having lived with this vehicle, now, as the head of Jeep for almost a year, we have a winner. Absolutely."

Unlike other Chrysler brands undergoing Fiat-led image makeovers — Chrysler as a luxury brand, Dodge as a muscular car brand, Ram as a separate truck brand — Jeep's rugged, adventurous image is one of its greatest strengths. The Jeep dates to World War II, although Chrysler didn't buy the brand until the late 1980s.

Jeep's trouble, Manley says, is how to broaden its appeal without alienating Jeep's core off-roaders. The 2011 Grand Cherokee will do that with an air suspension system that raises or lowers the vehicle by four inches. Off-roaders can raise the vehicle to climb over rocks, while commuters can lower it for better handling and fuel economy.

Manley said the death of the SUV has long been forecast, but he said he believes people will keep buying SUVs for their convenience as long as they have fuel-efficient technology that doesn't make them so expensive to own. Access to Fiat engine technology will improve the efficiency of Jeep's fleet, he said. Manley wouldn't reveal the new Jeep's fuel economy, but said it will be better than the 2010 Jeep Grand Cherokee, which gets 20 miles per gallon on the highway with four-wheel-drive and a V-6 engine.

Quality assessment
The 2011 Grand Cherokee was in development long before Fiat came on board, so there aren't any physical changes from the Fiat partnership, Manley said. The biggest difference is the adoption of a Fiat program that methodically assesses quality. Jeep, along with other Chrysler brands, has gotten perennially low quality rankings from J.D. Power and Consumer Reports.

"The focus on quality in the organization is very significant, as it should be," Manley said. In a speech last month, Marchionne said he would delay the Grand Cherokee's launch if the quality wasn't "flawless."

Marchionne has said Chrysler will be profitable on an operating basis this year. Its long-term plan depends, in part, on a forecast for Jeep to sell more than 800,000 vehicles worldwide by 2014. The company sold less than 500,000 Jeeps last year, although it was selling 600,000 per year worldwide as recently as 2005.

Manley said Jeep will get there with new products, including a new, smaller SUV that will sell well in Europe.

But some analysts have doubts. In a note sent last week to investors, Bernstein Securities analyst Max Warburton said it's difficult to assess Chrysler's financial situation. That's because the company hasn't released earnings since it was purchased by its former owner, private equity group Cerberus Capital Management, in 2007. But he doesn't believe Chrysler has enough good products to beat out growing competition and meet its sales targets.

Manley wouldn't discuss Chrysler's financial results. But he said Fiat has given the company the morale boost it needed.

"When you've been given a second chance, you're not going to squander it," he said.