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DCX cuts Hemi production

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2006-09-17

[ Article from The Detroit News ]

DCX cuts Hemi production
Chrysler curbs building the legendary engine as it pulls back on SUV and truck output as sales lag.

Josee Valcourt / The Detroit News

DaimlerChrysler AG's Chrysler Group has cut production of its legendary Hemi V-8 by nearly 20 percent as more consumers decide to trade power for fuel efficiency and the company prepares for lower light-truck sales through the year.

Chrysler recently lowered Hemi production to 1,300 a day from 1,600 at its Saltillo factory in Mexico, company officials said.

The reduction indicates the automaker has been forced to pull back production on its profitable Hemi -- along with its standard 4.7-liter V-8 engine -- as it whittles SUV and truck output in the third and fourth quarters due to sluggish sales.

The production cut to the popular engine comes as the company struggles with lagging SUV and truck sales, the vehicles which traditionally carry the powerful motor.

The Dodge Durango, a full-size SUV, has seen sales fall 41.1 percent for the year and the Dodge Ram pickups have been down 11.7 percent. Overall, light truck sales for Chrysler are down 12.9 percent for the January through August period, compared with 2005.

"At the beginning, when everything was going gangbuster for Chrysler, that engine was their most profitable engine by far," said Bill Visnic, an editor for Ward's Engine and Vehicle Technology Update. "That's how they were getting folks to upgrade vehicles. Now, if no one wants that engine -- bang! There goes a nice chunk of your incremental profit."

However, Chrysler officials downplayed the production cut.

"I don't think it's a precursor of what we might expect in 2007 but much more of a reaction of what we're seeing in the third and fourth quarter," said Chrysler spokesman Mike Aberlich.

The iconic powerplant, which comes in two sizes; a 5.7-liter V-8 and the 6.1-liter, 425-horsepower V-8, has been on a roll. Since its reintroduction in 2001, it helped push the Ram pickup to record sales of nearly 450,000 vehicles in 2003.

Chrysler has successfully offered the engine as an option for some of its cars such as the Chrysler 300C, Dodge Charger and the Dodge Magnum, reporting that 40 percent of those vehicles were upgraded with a Hemi.

"That means that the engine means something to consumers," said Chrysler spokesman Kevin McCormick. "It resonates with them, which means that 40 percent of the time they choose the (Hemi) engine."

But the power comes with a price, lower gas mileage. The perception remains that big engines are gas hogs even though the Hemi has cylinder-deactivation system to improve fuel-efficiency by 20 percent and gives some vehicles highway mileage in the mid-20s. However, other vehicles still cannot top 19 mpg on the highway.

"There's always concern about V-8 engines and how they're going to fare in the long run," said Paul Lacy, an engine analyst for Global Insight Inc. "But for the Hemi, I don't think you're going to see a whole lot of dipping for future production."

Global Insight is forecasting 516,000 Hemi engines to be built this year, which is the same as 2005. But production is projected to dip to 495,000 Hemi engines in 2007.

"This is a reflection of vehicle production," Lacy said. "This is not a reflection of them specifically having less demand for Hemi engines."

Many Chrysler dealers agree, saying the engine still wins over some customers.

"Consumers aren't really shying away from the Hemi," said Gordon Farhat, a general sales manager at Westborn Chrysler Jeep in Dearborn. "You say Hemi and a consumer's eyes get a little bigger. The Hemi sticks out in people's mind."

The engine accounts for 28 percent of vehicle sales at the Dearborn dealership.

However, consumers are more mindful of gas prices, said Anthony Pratt, an analyst with J.D. Power and Associates. But the swing from V-8 engines overall to six- and four-cylinder ones also has to do with an array of vehicle choices in segments such as SUV-like crossovers, Pratt said.

Farhat agrees that consumers are looking for different features in new cars and trucks. While he sees many customers' eyes light up when they hear that car's got a Hemi in it, they also have other concerns. "Now they're asking about miles per gallon."

You can reach Josee Valcourt at (313) 222-2300 or jmvalcourt@detnews.com.

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