Chrysler hangs onto its profitable GEM

bwernle@crain.com

When Daimler and Chrysler divorced last summer, Chrysler kept a small but significant subsidiary.

With gasoline prices soaring and no relief in sight, Chrysler's Global Electric Motorcars could come in handy as appetites grow for alternative-power vehicles. GEM, a wholly owned Chrysler subsidiary in Fargo, N.D., makes low-speed neighborhood electric vehicles, powered by lead acid batteries.

“Gasoline is approaching $4 a gallon,” says GEM President Rick Kasper. “When we started this venture, it was $1.25.”

Neighborhood electric vehicles are electric vehicles restricted to 25 mph. Federal law permits them to travel on any road with a speed limit up to 35 mph. They do not have airbags and do not have to be crash-tested. GEM vehicles range from $6,795 for a two-seater to $12,500 for a six-seater.

Unlike auto sales at Chrysler's three brands, GEM sales have been growing, by about 15 percent annually for the past five years. GEM sales have averaged 4,000 vehicles a year, the company says. Since it made its first vehicle in 1998, GEM has sold about 37,000.

The company declined to give more details about sales or financial results, although Kasper says GEM is profitable.

GEM sells its vehicles through about 150 dealerships nationwide, about 125 of which are Chrysler, Dodge or Jeep stores.

“We're constantly looking for new dealers in the right market,” says Kasper. The vehicles are delivered to customers and are usually serviced by one of GEM's mobile service vehicles. GEM also is expanding internationally, particularly in western Europe.

Major markets

GEM has two primary markets: gated residential communities and fleets, which include government, military, commercial, industrial, hospital and university use, says GEM CEO Larry Oswald. Oswald says sales to gated communities have fallen, while sales to fleets are up.

Oswald reports to Lou Rhodes, president of ENVI, Chrysler's in-house unit responsible for electric vehicles and vehicles with alternative propulsion systems. GEM does not do its own battery research, but the company would benefit from anything ENVI develops for Chrys-ler.

Chrysler showed three ENVI-developed alternative-powertrain concept vehicles at the 2008 Detroit auto show. One of those, the Dodge Zeo, is powered by a lithium ion battery pack and has a claimed range of 250 miles.

Bruce Belzowski, an analyst at the University of Michigan's Office for the Study of Automotive Transportation, says GEM won't be anything but a “sideline” business for Chrysler until it engages in primary battery research.

“If they're not really doing extended development on these vehicles and selling them as they are, they're not learning much from that,” he says.

New class of vehicles?

Since Cerberus Capital Management LP took majority ownership of Chrysler last August, CEO Bob Nar-delli has been trying to sell what he calls nonperforming assets. With GEM making green vehicles at a profit, Chrysler hasn't put the subsidiary on the block.

Customers are asking for faster, more sophisticated vehicles, and that's where GEM's long-term future lies, Oswald says.

“There definitely is a demand for an inexpensive electric vehicle in the $12,000-15,000 range that can go up to 100 miles on a charge and do 55 miles per hour,” says Oswald.

“Our customers ask us, "Can't you make the vehicle go faster?' We can't do it with this car, but maybe we could do it with another car.”

Oswald says there are grass-roots efforts, particularly in some Western states, to lobby the National Highway Traffic Safety Administration to set standards for intermediate-speed electric vehicles. It's an effort GEM hasn't joined but may soon.

Such vehicles would have to pass crash tests, which would mean adding safety features such as airbags. c

You can reach Bradford Wernle at bwernle@autonews.com
Tags: Automakers

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