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Chrysler's Minivan Gamble
Tom Van Riper, 01.11.07, 6:00 AM ET

Who wants to drive a minivan?
There's a growing consensus that no one really wants to. Industry followers joke that the typical purchaser is someone who says "I really want something else, but I have kids, so…"

But even as evidence pours in that fewer consumers are turning to minivans for their practical needs, gravitating instead to more stylish "crossover" vehicles that mix attributes of cars, minivans and sport utilities, DaimlerChrysler is betting that expensive upgrades to their Dodge Caravan and Chrysler Town & Country models will keep enough suburban soccer moms and baseball dads driving minivans.

It's a risky strategy in the face of a shrinking minivan market, where the company currently gets about one-sixth of its annual sales. Chrysler is credited with essentially creating the minivan in the 1980s and has maintained market share leadership in the U.S. ever since. General Motors and Ford Motor, never particularly successful in minivan sales since following Chrysler's lead, have decided to go in the opposite direction. Both have announced they'll discontinue minivan production altogether after this year to concentrate on crossover vehicles like the Saturn Outlook, GMC Acadia and Ford Fairlane.

"Chrysler has more at stake, it's more of a core product for them," says J.D. Power & Associates analyst Tom Libby. That's especially true since the initial popularity of the company's 300C Hemi engine sedan, a big seller a couple of years ago, has cooled. The question now is whether upgrading the minivan line will stem the tide of falling popularity and sales. The combined sales of the Town & Country and Caravan dropped 9% last year from 2005, according to J.D. Power's Power Information Network.

At this week's North American International Auto Show in Detroit, the company has unveiled 2008 versions of both minivans that outdo their predecessors in both size and interior flexibility. The new models take a step further Chrysler's popular Stow & Go seating--the ability to fold middle and back row seats into the floorboard to create more cargo space. Owners will now also be able to swivel those seats 180 degrees, allowing second and third row passengers to face each other, with enough space to place a table in between. Nothing beats a comfortable card game or meal to pass the time on a long trip, the company figures. Chrysler is also upgrading the engine and adding four inches in width to the new models.

Upping the ante in minivans comes with potential pitfalls. After a surge in popularity during the mid-to-late 1990s, industry-wide sales have plummeted. According to Power Information Network, unit sales in the U.S. dropped 28% between 2000 and 2006, from 1.4 million vehicles to under a million. Market share, which stood at 8.2% a decade ago, dropped to 5.9% by the end of the past year. At the same time, crossover vehicles have snagged 13.5% of the market since debuting in 2000. Their U.S. sales of 2.2 million last year were more than double those of midsize minivans. Their appeal, when compared to minivans, lies in bringing a less stodgy look to seven-passenger seating, plus a smaller V-6 engine that hums more quietly.

"No one wants to be a soccer mom. Just get rid of the sliding glass door, and don't use the 'M' word," is how Burnham Securities auto analyst David Healy describes the shift in consumer tastes.

Because he sees the minivan market as shrinking but not collapsing, Healy figures Chrysler is doing the right thing by making a push toward maintaining its industry lead, especially with Ford and GM hitting the brakes on production. Still, there are plenty of reasons for Chrysler to worry.
Minivan sales would likely have fallen even more over the past couple of years had it not been for high fuel prices that scared consumers away from SUVs, which guzzle even more gas than minivans. Also, statistics from industry tracker ************ show that minivans were subjected to heavier discounting by manufacturers last year than any other type of vehicle--an average of $5,000 at Chrysler, $3,400 at Ford and nearly $2,000 at GM.

Why all the incentives? In addition to the general industry-wide downturn, domestic producers have also been fighting off the ever-increasing competition from a pair of Japanese models--the Toyota Sienna and Honda Odyssey. Those two combined for 37% of the U.S. market last year, about 10 times the level of 1996. At the same time, Chrysler's combined Town & Country and Caravan lines have dropped to 40% share from 53%.
The biggest factor in determining whether Chrysler can ride out the storm? Some experts think it's the industry's progress (or lack thereof) in developing a successful gas-electric SUV at an accessible price point, something only Toyota has had some modest success with so far.

While minivans can reasonably hold 5% of the market in the face of competition from crossovers, a plethora of more fuel efficient SUVs on the market would likely lure family types who would no longer face exorbitant gas bills in exchange for seven seats and lots of cargo space, believes ************ analyst Jesse Toprak.

"A large SUV with a hybrid would be a suitable replacement for that market," Toprak says.

Perhaps swivel seats and a few more inches will lure more buyers back to minivans. Then again, baseball dad and soccer mom may just rather go for second looks from their peers when they show up at the field in a sexier vehicle.

Forbes LINK:
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