When DaimlerChrysler (NYSE:DCX) recently rolled out U.S. sales data for May, the results for its new Chrysler 300 were remarkable. But the car's success carries the danger of becoming a Pyrrhic victory for the automaker.
Sales of the new model reached an eye-popping 13,079 units last month. Chrysler Group Senior Vice President of Sales Gary Dilts said, "The last time a Chrysler passenger car sold more than 10,000 retail units in one month was September 1986." What's more, the breakout volume came on top of sales of 9,543 units in April, the first full month of the car's availability.
In many ways, the look of the 300 is reminiscent of the elegant yet tank-like styling of many Mercedes models of yesteryear. Which makes me wonder: Could the 300 cannibalize sales of entry-level Mercedes cars? (DaimlerChrysler also owns the Mercedes brand, of course.)
A review of May numbers shows that sales of the Mercedes C-Class, the cheapest Mercedes sedans, are holding up well as the 300 rolls out. Priced as little as $22,000, the 300 can be had for much less than Mercedes' offerings. Fully loaded, though, the Chrysler vehicle may cost as much as $38,000, which runs right into the same range as several C-Class models. An article in The Wall Street Journal today notes that Chrysler itself is seeing some buyers trading in more expensive European cars for the 300.
The 300 is also being marketed to traditional Mercedes customers. A recent episode of the NBC television show ER, for example, prominently featured the car as one resident's new toy. It's not a stretch to say that the Chrysler model's low-end luxury image could, over the long term, spell trouble for the C-Class.
Ultimately, though, this represents a potential problem for the Mercedes brand, not Chrysler. Flagging sales at Mercedes are DaimlerChrysler's latest predicament. Indeed, the automaker is starting to resemble the proverbial Dutch boy, who, as soon as he plugged up one leak in the dyke, another one sprang up. With its long-troubled Chrysler unit finally showing signs of a turnaround, Mercedes is now struggling.
That being said, DaimlerChrysler should be given its due for pulling Chrysler back from the abyss. The company also has finally put the brakes on its disastrous relationship with Mitsubishi, and its upcoming release of the highly efficient yet powerful diesel Jeep Liberty bears watching. Having demonstrated some progress in cleaning up messes, DaimlerChrysler may have won investors' confidence that it can now revitalize Mercedes. The company's stock carries a premium price tag, but there could be reason for optimism.
Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.
