By LULADEY B. TADESSE / The News Journal
06/12/2005If DaimlerChrysler should decide to build a luxury SUV, auto experts are convinced the Newark plant would be its logical home.

The sport utility vehicle, which is being referred to as the Aspen, would be based on the Dodge Durango assembled in Newark and share most of its components, several analysts said. It would be built under the Chrysler brand, rather than Dodge, and would be the company's first full-size luxury SUV, they said.

The vehicles would share key features, including its overall size and seating for seven, but is expected to have a different front end and head- and taillights.

Analysts say it makes economic sense for DaimlerChrysler to build the vehicle in Delaware, where its plant is capable of building more than one model. The plant is running below capacity because of lackluster Durango sales.

Two years ago, DaimlerChrysler invested $180 million to retool the Newark plant for the redesigned Durango. The plant, which employs about 2,300, would not require extensive investment to start producing the Aspen by next summer, analysts said.

Sen. Tom Carper, D-Del, who met with Chrysler's president and chief executive, Dieter Zetsche, last week, said the company already has begun talks with the Newark plant's management and union to discuss the possibility of building the Aspen there.

"We are one of the plants they are seriously considering for building this vehicle," Carper said. "They are now talking with the union and management at our own plant to discuss different aspects of what-if questions: 'What if we decided to build at the Newark plant?' "

Company officials will neither confirm nor deny that it has plans to build the Aspen, let alone say where it might be built.

Jim Wolfe, former Newark plant manager and current president of the Delaware State Chamber of Commerce, said it has not always been easy to convince Chrysler to add vehicles to the Newark plant. Building cars on the East Coast is costlier than in the Midwest, where there is easier access to supplies. But, he said, the experienced work force in Newark and its familiarity with the Durango will be an asset.

Analysts are confident that Chrysler, which has been toying with the idea for at least a year, is too far along to scratch its plans for a luxury SUV. They also said there is a slim chance it will not be built here.

"The product, if it happens, is without a doubt heading down to the Delaware plant," said Guido Vildozo, automotive market analyst at Global Insight in Lexington, Mass. "It doesn't make any sense to build it anywhere else."

It's not clear how significant an economic impact the Aspen will have on the plant and Delaware. It's not expected to be a high-volume vehicle, with only about 30,000 produced annually, according to Global Insight. The base price will be at least $2,000 more than the Durango's, which is about $29,000.

Sales of the Durango have been falling short of Chrysler's expectations. Sales in May were down 36 percent compared with the same month a year ago. The plant has been shut down for more than a month this year because of faltering demand. About 40,000 Durangos sat in inventory as of May. That translates to 79 days of inventory.

Last year, the Newark plant produced 161,000 Durangos, but analysts are forecasting a drop of as much as 30,000 this year due to a slump in demand. Another SUV would help the plant increase its capacity from about 65 percent to 80 to 85 percent.

"As far as utilization, it will help the plant a lot," said Joe Langley, market analyst at CSM Worldwide. "Having another vehicle in the plant will keep them running."

Keeping the Newark plant busy is important for state officials. The plant contributes nearly $8 million annually in state taxes to Delaware. It also uses about 57 local suppliers. The state has contributed more than $6.1 million in training funds to the plant since 1993 to keep its workers well-trained and keep those high-paying manufacturing jobs in the state.

Judy McKinney-Cherry, director of the Delaware Economic Development Office, said she knew of no plan to build the luxury SUV in Newark. She said the state is willing to work with the company to keep the plant competitive.

"We can certainly expect to be assisting them as we have in the past with offsetting some of their training costs," she said.

Bill Powers, an assembly line worker at Newark for more than 25 years, isn't so sure a luxury SUV based on the Durango will translate to more sales or make the plant more competitive. He said the 30,000 additional vehicles will most likely not mean more than a month's worth of work.

"We need another vehicle," said Powers, who is more optimistic about a hybrid version of the Durango that is expected to be built in late 2007 or early 2008.

Still, there is a business case for the Chrysler brand to have an SUV, and especially one that will penetrate the luxury market. Almost all of its competitors have a full-size SUV and a luxury line. Luxury SUVs have performed better than other utility vehicles hurt by hikes in gas prices. Consumers planning to spend $30,000 to $50,000 on a vehicle aren't expected to be overly sensitive to gas prices.

While overall SUV sales have shrunk nearly 7 percent since 2000, from 2.97 million vehicles to 2.78 million last year, the full-size luxury SUV segment has grown 75 percent, from 92,385 to 161,661 vehicles during that period, according to WardsAuto.com.

There are, however, several key factors Chrysler is expected to consider before deciding whether to build the Aspen.

Analysts agree that if gas prices reach $3 or more it will have a negative impact on their decision to build another SUV, even a luxury version.

"If there is any challenge to it, the one challenge could be if there are issues with gas prices next year," said Jeff Brodoski, auto analyst at J.D. Power and Associates.

Also, there is bound to be more competition from the revamped versions of GM and Ford's luxury SUVs coming out in the next year.

Because Chrysler doesn't have an SUV, it may be a challenge to lure customers away from competitors whose brands already are associated with luxury, such as Infiniti and Lexus, Global Insight's Vildozo said. And, even if the Aspen may be cheaper than an Infiniti, there is no guarantee consumers looking for the glamour of a luxury SUV will buy a Chrysler.

But analysts said they expect all manufacturers to continue banking on the luxury segment. Chrysler is no exception.

"They are finally ready to get into that segment and get something out there as far as a luxury model," said Langley of CSM Worldwide. "They want a piece of the pie."



-Matt-