A Lesson For GM (GM) And Ford (F): Chrysler Cuts Its Throat

Like some many unsuccessful companies before it, Chrysler wants to cut its way to profitability. The privately-held company, run by Home Depot (NYSE: HD) exile Robert Nardelli, will probably chop its number of brands 50% and dealerships by a third.

According to The Wall Street Journal "over the next three years or so, the now closely held auto maker plans to drop as many as half of the approximately 30 vehicles it now produces, a move likely to cut sales at least for a while." A while may be forever.

It is not believable to think that Toyota (NYSE: TM), Honda (NSYE: HMC), and, to a lesser extent, GM (NYSE: GM) will not market vehicles directly into the niches which Chrysler gives up. Toyota especially has the dealer network and broad brand line-up to do this.

Chrysler, which has about 12% of the domestic market will try to do with much less than that, perhaps 8%. But, it cannot source its production overseas to support lower revenue like Honda, Nissan, and BWM do.

A car company willing to purposefully cut its market share in an environment where it has at least a dozen legitimate competitors is a company risking its sales will not find a sustainable bottom.

With its current trouble, Ford (NYSE: F) may be looking at similar plans.

Don’t do it.

Douglas A. McIntyre