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Friday, November 10, 2006

As Pressure Mounts At Chysler, Quality Issues Dog Detroit

Stocks: (DCX)(TM)(HMC)(GM)

The recalls of Toyota's have not dented the auto giant's reputation for quality. In the latest annual Consumer Reports survey of vehicle reliability, Toyota did remarkably well again.

Of the 47 vehicles singled out for the best reliability, 38 were Japanese and 21 were from Toyota. Honda was next with 11. Only six were built by US manufaturers.

Of the 45 least reliable cars, half were from US-based companies. Twelve came from GM.

Is anyone surprised that inventories at the Big Three are at troubling levels.

The news about both inventories and quality come at a particularly bad time for Chrysler. While Daimler's Mercedes units does well, the parent company's results are dragged down by its US unit.

The head of Chrysler, Tom LaSorda, may have to go. Slow sales and high inventories lead to an operating loss at the unit in Q3. And, Q4 could bring the same. Structural changes that might help costs cannot be put in place until next year. Mr. LaSorda could be blammed for not having made the expense savings earlier.

Firing management will probably not help the Detroit car companies. It may make boards feel better, but until the quality of the products improves that "feel good" glow is just temporary.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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