In January, minivan sales at the Chrysler group sank 36.6 percent compared to a year ago.
Then, in February, they dropped 35.1 percent from the year-ago month.
It's too early to panic, but the skid is a critical problem at DaimlerChrysler AG. The company is struggling to stop red ink and break even in 2002. It relies heavily on minivans for profits, which are declining as the U.S. minivan market moves past its prime.
'If they take a hit in the minivan segment, that (recovery) timetable could be in jeopardy,' said Daron Gifford, director of the automotive practice for Deloitte Consulting in Detroit. 'Their profitability is very contingent on the minivan. It is a huge problem for them.'
Chrysler executives acknowledge the problem and are preparing a minivan comeback plan. (See related story, Page 1). But other automakers are rushing to market attractive alternatives to the minivan, such as the redesigned Ford Explorer and Chevrolet TrailBlazer, both with seating for seven.
'Our ability to make large profits on minivans won't be as good as it has been in the past just because there is so much competition,' said Ralph Sarotte, general product manager for Chrysler's minivan operations. 'As a segment, minivans continue to be 7.5 percent to 8 percent of industry volume in the United States. We don't see that falling off. The number of people buying the vehicle continues to be steady.'
General Motors and Ford Motor Co., which long have envied Chrysler's huge minivan lead, take a darker view of the minivan's future.
The minivan share of the U.S. light-vehicle market will decline this year and continue to fall in the next five years, according to GM and Ford forecasts. 'Minivans have gone about as far as they can go,' said George Pipas, Ford spokesman.
Minivans face two problems. First, sport-utilities that handle like cars and have up to eight seat belts are invading minivan turf. Second, baby boomers who fueled the minivan craze are moving beyond the carpool years.
In 2000, minivans earned 7.9 percent of the light-vehicle industry, comparable to their performance in 1999 and 1998.
But in 2001, GM expects minivans to account for barely 7 percent of the light-vehicle market, said Paul Ballew, GM general director for market and industry analysis.
In contrast, Chrysler predicts the minivan share of the U.S. market will remain stable for the next three to five years.
As the market leader, the Chrysler group has the most to lose. Last year, minivans accounted for 17.7 percent of its 2.7 million U.S. light-vehicle sales.
Chrysler's variable profit on minivans averaged between $6,500 and $7,500 per unit during the mid- and late 1990s, said Scott Merlis, analyst with Dresdner Kleinwort Wasserstein. Variable profit is profit on every incremental unit after fixed costs are covered.
'Recently, that has collapsed because of incentives and higher costs,' Merlis said. 'We estimate it is a few thousand dollars less.'
Ballew said: 'The mid-van market is a pretty tough place to do business. It is a segment that has matured and has become very price sensitive.'
Minivans are selling with rebates up to $1,500 per unit. Incentive spending was greater a year ago, as Chrysler cleared out stock before the introduction of redesigned models.
The profit squeeze hits minivans as the Chrysler group tries to regain its financial footing.
The group is cutting 26,500 jobs, closing plants and pushing for a 15 percent reduction in procurement costs after posting a fourth quarter loss of $1.29 billion.
The goal: break even or eke out a slight operating profit in 2002 and achieve an operating profit of at least $2 billion in 2003.
The problem with the minivan market isn't the minivans themselves. It is the transformation of sport-utilities into vehicles boasting increased cabin space, three rows of seats and car-like ride and handling.
For the last three years, sport-utilities have held more than 17 percent of the U.S. light-vehicle market, while minivans have garnered just below 8 percent.
'Now, sport-utilities are not just truck-based pickups with canopies over the back,' Pipas said. 'There are alternative vehicles such as the Toyota Highlander and the new Ford Explorer with three rows of seats and independent rear suspension.'
Consumers are discovering the functionality of a minivan coupled with other features, such as off-road capability or sporty styling, in the new crop of sport-utilities, said Ballew.
'The No. 1 reason for the purchase of a mid-van is its functional usefulness,' Ballew said. 'When you get other products that increasingly possess those characteristics, they make good substitutes.'
Seven-seat redesigns of GM's mid-sized sport-utilities, the Chevrolet TrailBlazer, GMC Envoy and Oldsmobile Bravada, started rolling into showrooms in February.
Sport wagons, such as the Honda CR-V, Ford Escape and Acura MDX, are also growing more popular.
Sport-utilities are not saddled with the minivan's stereotype as the vehicle of choice for suburban soccer moms, said Deloitte's Gifford. 'Sport-utilities are perceived as more youthful and sporty,' he said.
At the same time, demographic changes are undermining minivans, Pipas said.
'Generation X is substantially smaller than the baby boomer generation. So the number of people going out of minivans is greater than the number coming in,' Pipas said.
Chrysler's Sarotte disputes that contention. 'We are gaining less at the bottom (of the market), but we are losing less at the top,' he said.
Chrysler says a generation of baby boomers chauffeuring parents and young grandchildren still wants the practicality of a minivan. 'Over 40 percent of minivans are sold to people without kids,' Sarotte said.
The average minivan owner is about 46 years old, he said.
Defending its market
Chrysler will counter pressure on its prized product by offering a breadth of models and by differentiating minivans from sport-utilities.
Minivan shoppers will sustain the market share because of the tradeoffs made in switching to a sport-utility, Sarotte said. 'Either you get a more car-like ride and a smaller vehicle, or you get a big sport-utility off of a truck chassis,' he said.
In addition, shoppers considering luxury sport-utilities are attracted to the new generation of the Chrysler Town & Country, said Tom Marinelli, vice president of Chrysler-Jeep's global brand center. Town & Country sales climbed 26.8 percent in February compared to a year ago.
The company will maintain its minivan strength by having 'the biggest breadth of choice,' Sarotte said. 'Whether you spend under $20,000 or more than $37,000, we have got a minivan for you.' Chrysler offers 17 models.