Jeep Cherokee

Stalled Jeep Cherokee will be key to Chrysler's fate

October 21, 2013: 12:49 PM ET

Chrysler has built more than 12,000 Cherokees but can't release them for sale until glitches with its transmission are resolved.

By Doron Levin

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FORTUNE -- That noise you hear is the sound of grinding molars. It's coming from Chrysler's headquarters in Auburn Hills, Mich. and the offices of Jeep retail dealers across the U.S., who are champing at the bit to start selling the new Jeep Cherokee.

The new Cherokee compact sport utility vehicle is a critically important model for Chrysler, which is recuperating from its 2009 bankruptcy filing. Chrysler has built more than 12,000 Cherokees at its Toledo, Ohio Jeep plant but can't release them for sale until glitches with its transmission are resolved.

According to Chrysler, engineers are refining the nine-speed automatic transmission featured on the vehicle, the first of its kind on any Chrysler vehicle. Once the refinements are complete, the electronics of existing transmissions must be reprogrammed.

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Jeep is Chrysler's most valuable brand, among Dodge, Chrysler, Fiat, and Ram Truck. The Liberty had previously served as Jeep's compact SUV offering, which includes competitors like the hot-selling Honda CR-V (HMC), Ford (F) Escape, and Toyota (TM) RAV4. Over two generations of Liberty, sales peaked in 2002 at 171,212; they fell to a trough of 43,503 in 2009.

Chrysler's Toledo assembly plant was shut down last fall for retooling, in anticipation of the spring startup of production. The automaker displayed the new Cherokee at the New York auto show in late March. Press drives of the car were postponed to September from August due to difficulties with the transmission, which is based on a design by the German manufacturer ZF and built at a Chrysler plant in Indiana.

"At this point, it's more of a feel issue than any big problems" with the transmission, says Stephanie Brinley, an analyst with IHS Global Insight in Troy, Mich. "Without a vehicle to sell in that category, every week of delay feels like a month."

But, as Brinley points out, "It's much more important to make sure the vehicle is right than to rush it out and have problems."

Still, Chrysler remains in an awkward spot among global automakers. Moderately profitable, its alliance with Fiat only gives it two-thirds of the worldwide sales it needs to generate adequate cash flow to pay for new models and invest in tooling and technology. Sergio Marchionne, chief executive of both automakers, wants to merge the two companies but remains hung up over a squabble with the United Auto Workers health care trust, which owns a big stake of Chrysler.

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The Jeep brand needs Cherokee to be a hit, as much as Chrysler needs every additional vehicle sale it can muster. The U.S. is host to a post-recession, recovering automotive market, fueled by consumers who are replacing their flivvers after an extended delay -- sales will be much more grudging once this upswing has run its course.

Unless Chrysler runs into more troubles with Cherokee, the delay shouldn't continue for more than another week or two. If it does, the anguish of dealers will grow louder and further doubts may arise about how well the enterprise is operating.

No doubt about it: Chrysler, an automaker that's been rescued twice by the U.S. government, has to prove that the world still needs it. A wildly popular Cherokee, its praises sung by happy owners, would certainly aid that goal.

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