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ONE ON ONE: What bailout? Chrysler Egypt sales surge in 2008 - Daily News Egypt

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ONE ON ONE: What bailout? Chrysler Egypt sales surge in 2008

Forget what you are hearing about the troubled Big Three US carmakers. Across the ocean, Chrysler is doing big business. In fact, sales in 2008 were 50 percent better than the year before. That probably won’t be making international headlines. The latest news to come out of the troubled US car market is a partnership …

Forget what you are hearing about the troubled Big Three US carmakers. Across the ocean, Chrysler is doing big business. In fact, sales in 2008 were 50 percent better than the year before.

That probably won’t be making international headlines. The latest news to come out of the troubled US car market is a partnership between Fiat and Chrysler LLC that will give the former a 35 percent stake – cash-free.

While that makes Chrysler seem desperate, analysts say the partnership is based on mutual interests and long-term benefits: Fiat will start producing its Alfa Romeo and Fiat cars in the US while Chrysler will gain access to Fiat’s distribution network.

The US car market has been on shaky ground for months: Chrysler saw a 30 percent decline in car sales for 2008, Ford sales fell 21 percent and General Motor’s declined 23 percent.

On our side of the world, however, the apple fell far from the tree. Chrysler Egypt executives are touting a 50 percent surge in retail sales, saying that 2008 was much better than 2007, and are quite “optimistic about the future.

As the Big Three receive a controversial bailout from the US government, cut back drastically on overhead costs and lay off thousands of employees, Chrysler Egypt executives affirmed that “no cutbacks or layoffs will take place in Egypt.

Edward Cummins, CEO of Chrysler Group Egypt, spoke to Daily News Egypt about the company’s performance amid the global economic crisis, his outlook for the growing local car market and the models consumers can expect to see in 2009.

But first, a look back at the company’s local history.

Tell us about Chrysler’s entry into Egypt?

We came to Egypt in 1977 and started selling a year later, then merged with American Motors in 1986. What made Egypt unique was that we have an assembly plant here where we build Jeep products at Arab American Vehicles (AAV). AAV is owned 49 percent by Chrysler LLC and 51 percent by AOI (Arab Organization for Industrialization), which is a state-owned enterprise.

At the plant, we build Jeep Cherokee and two multifunctionals as well as military application Jeep Wrangler long-wheel bases. We also do some contract assembly for other companies. Most of the Jeep products we make today are used in Egypt but we do export the J8.

Over time, we felt that the best thing to do was to leave AAV as the production, engineering and manufacturing; and separate it from the sales, service, marketing and distribution so they can concentrate on the core and we can concentrate on the sales. Around 1997, we moved the distribution function out of the production function.

A year later, the Daimler-Chrysler merger happened, but in August 2007, the parent corporation separated and Chrysler became Chrysler LLC. You had Daimler, a premium brand company that isn’t very volume oriented, and Chrysler, which, like the Fords and GMs of the world, is very volume oriented. As hard as it was to dissolve this marriage, both companies had very different cultures that tried to blend together.

Daimler retained 19.9 percent ownership in Chrysler and Cerabus, an equity firm that owns 81 percent of Chrysler, took it private.

In Egypt, a new company was formed for Chrysler in October 2007, which was capitalized and became active in March 2008.

Did that help you focus on marketing Chrysler cars locally?

Daimler-Chrysler did well together, but I do agree that once you separate, the Daimler people can focus on Mercedes-Benz and us on our Chrysler, Dodge and Jeep branded vehicles.

Our sales have improved, but not necessarily because of the separation. Our products have been very well accepted, especially the new Jeep Cherokee. It got re-skinned in 2008 and the Egyptian consumer has just fallen in love with it.

Retail sales in Egypt increased around 50 percent year-on-year. Of that business, 70 percent is our locally produced Jeep Cherokee – that’s where the biggest sales increase was.

How do you think Egypt’s car market will develop?

We’re very optimistic about the Egyptian automobile market. I know we’re in the middle of this global meltdown, but I’m optimistic that the Egyptian economy will come through this okay and the auto industry here will do well. There may be temporary speed bumps that may slow us down, but if consumer confidence is not hurt overall, I think the industry will continue to improve.

Do you have a strategy for combating a slowdown locally?

Right now – knock on wood – things are still fine. As I talk to my dealers, I’m very optimistic and I don’t foresee any major downturns. We usually plan three years out, and at this point in time we are following this plan. For the Jeep Cherokee, for instance, we’ve been running about three to four months in customer reservations. Right now we still have three months of customer reservation.

As I look into the first quarter of 2009 at the moment, I don’t see anything that could slow us down. Yet, as we saw in the US, these things can happen overnight so we have to be flexible to do what we have to in order to maintain momentum.

Is Chrysler Egypt affected by the performance of its US counterpart?

We are an affiliate of Chrysler LLC, but we run as a separate entity in Egypt. The good thing is that business here has been better in 2008 than in 2007; so from that aspect we are not feeling, at this point in time, what the parent company is feeling.

Regardless of the bailout, our parent company, our owner, Cerabus, has been helpful in educating Chrysler in what we need to do to go forward profitably. Chrysler has taken severe steps to bring overhead down by selling off assets and reducing managerial, administrative and engineering staff by 25 percent.

The main problem was liquidity. Banks in the US didn’t’ have the capital to lend to consumers. Auto loans were difficult to get, and that affected all car manufacturers. It was planned to be a 17 million unit [US] market [in 2008], but it came down to around 10 million. Now, our ownership is positioning us to become profitable at any given demand level, which hasn’t always been the case in the past.

The bridge loan that was approved by the federal government is for the US operation only, which represents the bulk of Chrysler LLC’s financial commitments and business.

In Egypt, we run as our own legal and financial entity. From an operational standpoint, with business remaining good for us, we are not dependant on the parent company to operate.

Our most popular products are assembled here in Egypt and there will be no change to that. As for the imported vehicles, we are still getting what we’ve requested so it hasn’t affected us at all.

Will there be any layoffs or cutbacks in Chrysler Egypt?

No cutbacks or layoffs will take place in Egypt. We are cautious with regard to any and all expenditures, but this is a general situation which impacts all companies internationally and locally,

What implications will the deal with Fiat have on Egypt operations?

The issue is still in the initial stages globally. However, the impact will mainly be on the macro level meaning that there will be product benefits – shared technologies, use of common resources such as engine plants, global suppliers, access to previously untapped markets, etc.

What are Chrysler’s plans for developing green cars?

We are going full-throttle forward in developing fuel- and energy-saving vehicles because we have seen the volatility of the oil industry and the costs that are involved. We’ve moved in the past couple of years to giving the consumer a choice between petrol and diesel, now we will have interwoven ethanol and some natural fuel additives to gas to give greener emissions and better fuel economy. We will set up new plants to develop new engines with technologies that will allow us to have smaller displacements.

What can consumers expect from Chrysler’s 2009 models?

The Egyptian market will have a second year of the Jeep Cherokee, and we’ve made changes to some of the fabrics and technical equipment, but nothing major. We also have the top-of-the-line in our portfolio: the Jeep Co
mmander and the more popular Jeep Grand Cherokee, both imports.

Then there’s the Jeep Cherokee, which is locally assembled. We’ve got the Dodge Durango, a large sports utility, and the Chrysler 300C for premium cars, the Chrysler Town & Country for business and people in larger families, as well as the Dodge Wrangler.

The Dodge Ram pick-up truck is very utilitarian. Besides regular use, it’s a rugged truck that can be used for commercial purposes.

We are looking at bringing in the Dodge Charger in 2009. It’s important to bring in some new products to keep the excitement alive.

Topics: FJP

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