Chrysler to make 7/70 powertrain warranty permanent

DETROIT, July 8 Reuters is reporting that borrowing from its past, DaimlerChrysler AG's Chrysler arm will make a seven-year or 70,000-mile powertrain warranty permanent, seeking to boost its image and sales as it did in the late 1980s.

The warranty, extending across Chrysler's lineup, is also intended to raise the profile of the automaker's corporate parent by touting the benefits of the 1998 merger between Chrysler Corp. and Daimler-Benz AG.

"We do believe we can gain credibility by telling the customer that Chrysler, which had a poor track record 10 years and more ago, is not the same Chrysler today ... because of the merger," Chrysler Chief Executive Dieter Zetsche told Reuters.

The move comes as Chrysler has been forced to match interest-free loan deals, cash rebates and other offers from General Motors Corp. and Ford Motor Co., which average more than $2,000 per vehicle.

While incentives have risen this year, Chrysler's sales have fallen 3.3 percent, as the industry as a whole has seen sales decrease 2.6 percent through June.

Zetsche has warned that the discounting was inflicting long-term damage on the industry, and Chrysler had tried to keep rebates lower since November by offering a seven-year or 100,000-mile powertrain warranty.

Zetsche's goals include moving Chrysler toward selling on demand rather than on deals, while increasing sales by 1 million vehicles in a decade.

"We are not a driving force in this incentive game," he said. "We want to put our product in the front ... and this warranty is a value rather than an incentive."

The "7/100" offer could not be transferred when an owner sold the vehicle, but the new offer can -- a move Zetsche said will provide consumers a better deal.

The change also lessens Chrysler's risk, since most U.S. car owners now drive an average of 15,000 miles a year.

"There are very few customers who really consider passing 70,000 miles within their ownership," he said. "The residual value is the one thing they are concerned about and they see that protected."

AN EXPENSIVE STAND

Quality has been one of Zetsche's top concerns, as Chrysler vehicles have suffered for decades from consumers' doubts about their durability and competition from a growing number of high-quality foreign models.

Research by J.D. Power and Associates shows about 20 percent of buyers reject Chrysler vehicles over reliability concerns, with 25 percent rejecting Dodge and Jeep vehicles.

It was then-Chrysler Corp. Chairman Lee Iacocca who launched a seven-year/70,000-mile powertrain warranty in February 1987. "Anybody can talk about quality, but the only quality that counts is the quality you're willing to stand behind," Iacocca said at the time.

His move successfully boosted sales, and forced GM, Ford and many other automakers to raise their warranties from the standard three-year/36,000-mile terms.

It wasn't only Detroit automakers who played the game: Toyota Motor Corp. boosted warranties on its new Lexus division in the early 1990s to help establish a reputation for quality.

But after a few years, Chrysler quietly began to cut back on the warranties, eventually eliminating them in 1994. Such guarantees can be expensive, especially if parts fail at higher rates than automakers predict.

Chrysler's quality chief said this year that the company had increased its warranty reserves to pay for "sins of the past." And in a filing with the U.S. Securities and Exchange Commission last month, DaimlerChrysler said its liabilities for warranty costs and price risks totaled 9.2 billion euros in 2001, a 19 percent increase over the prior year.

Zetsche said Chrysler's quality is improving according to inside and outside sources. Chrysler has spent $7.4 billion to revamp its engines and transmissions, and the plants that build them. Zetsche also said the company's 2002 model-year vehicles had reduced their warranty costs for the first eight months of service by 21 percent from 2001 models.

By tying quality to the merger, Zetsche said Chrysler will show "that we are an important part of DaimlerChrysler ... and that (DaimlerChyrsler) provides more resources than the Chrysler group on its own could afford."

Art Spinella, an industry analyst with CNW Marketing Research in Bandon, Oregon, said the warranty pledges had helped Chrysler receive consideration by more buyers, but was not luring huge numbers of new customers into showrooms.

"When you go back and ask people why they bought a Chrysler product, it's not one of the top two reasons," he said. "It's important, but it's not equivalent to or a substitute for a big incentive."