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Detroit News: Big Changes Loom for New Chrysler

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This article citing input by AutoPacific’s George Peterson appeared on Thursday, August 2, 2007 in The Detroit News
Big changes loom for new Chrysler
Bill Vlasic and Christine Tierney / The Detroit News

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While CEO Tom LaSorda, left center, will continue to lead Chrysler’s executive team, analysts expect Wolfgang Bernhard, Chrysler’s former COO, right center, to drive most of the changes on the product side. This photo was taken at the signing of the Chrysler/VW minivan deal. © bilde 2007
AUBURN HILLS — The concept car had been shown publicly and critiqued internally. Business plans had been written, and Chrysler Group executives had debated for months whether to build the flagship luxury sedan.
But it would be up to Wolfgang Bernhard to ultimately approve or kill the Chrysler Imperial.
In mid-July, the incoming chairman of Chrysler made his call in dramatic fashion at a final product review, according to people familiar with the event.
“That car,” Bernhard said, “will never see the light of day.” [VehicleVoice Comment: Thank you. Thank you. Thank you for preventing another blight – the Aztek-ugly Chrysler Imperial – on the American roads]
His swift decision is a preview of how Chrysler will operate under Cerberus Capital Management, the secretive private-equity giant that will soon complete its $7.4 billion buyout of the No. 3 U.S. automaker.
With Cerberus exec Bernhard as its hands-on chairman, Chrysler is expected to move quickly and forcefully to turn around its sagging domestic operations and grow its international business.
Cerberus is expected to close on its acquisition of Chrysler from DaimlerChrysler AG as soon as Friday, according to people close to the process.
It’s the deal of the decade in the global auto industry and the beginning of a new era for Chrysler, the smallest of Detroit’s struggling Big Three automakers.
Big changes are in store for the new Chrysler, including the possibility of an expanded alliance with Korean automaker Hyundai Motor Co. and a deal to build cars in Russia, The Detroit News has learned.
But overseas projects and U.S. product moves are only part of the transformation awaiting Chrysler, which lost $680 million in 2006.
After nine years as a division of a domineering German parent company, Chrysler will get a much-needed fresh start as the prized possession of Cerberus.
‘We bring a fresh set of eyes’
Led by its hard-driving founder Stephen Feinberg, the New York-based private-equity firm owns more than 50 companies and applies cutting-edge business techniques to its corporate turnarounds.
“We are a lot more than a financing company,” said John Snow, Cerberus chairman and a former U.S. Treasury Secretary. “We bring a fresh set of eyes that looks at a company’s problems from another vantage point.”
Since agreeing to buy Chrysler in May, Cerberus has sent squads of financial and management experts to Auburn Hills to assess the company’s strengths and weaknesses.
Bernhard, Chrysler’s chief operating officer from 2000-04, has swept through the organization like a whirlwind — poring over product plans, brainstorming with executives, checking on even routine events like press previews for the minivan launch.
The level of oversight by Cerberus might surprise outsiders who expect the firm to stay in the background at Chrysler, said one private-equity expert.
“A lot of people think private equity is just all about financing, and it’s not,” said David Brophy, director of the Office for the Study of Private Equity at the University of Michigan.
Brophy said the bulk of Cerberus’ attention will focus on Chrysler’s core activities — purchasing, manufacturing, product development and sales and marketing.
Sources close to the situation said Cerberus insisted that detailed performance goals for Chrysler and its executives be written into the buyout deal.
“The trademark of private equity is to set high goals for a company where it’s not doing well,” Brophy said. “With Chrysler, you’ve got to turn your attention to making cars that customers want.”
Chrysler slipped behind Toyota Motor Corp. to fourth place in U.S. sales last year, and seems stuck at a 13 percent share of the market.
This year, Chrysler’s U.S. sales are down about 2 percent through July.
A new minivan model this fall should boost sales, but Chrysler’s longer-term challenge is to differentiate its products and brands from rivals General Motors Corp. and Ford Motor Co.
“They need to really decide who they want to be, and make sure the product line supports that,” said Wes Brown, a California-based automotive brand consultant.
Chrysler insiders said the flashy Imperial concept clearly didn’t fit the brand’s “premium” image, and Bernhard was correct to dump it.
People close to Chrysler also said the retro-styled PT Cruiser will go out of production when its current model ends in 2009.
The resurgence of Chrysler’s lineup will depend on the success of restyled versions of bellwether models such as the 300C sedan and Ram pickup, as well as all-new products, such as the Dodge Challenger muscle car and a crossover vehicle slated for production in Mexico.
“They need to recapture their spark,” said George Peterson, president of the consulting firm AutoPacific in Tustin, Calif.
“They need to pay more attention to the interiors of their vehicles, and just do a lot of the product stuff better.”

While CEO Tom LaSorda will continue to lead Chrysler’s executive team, analysts expect Bernhard to drive most of the changes on the product side.
A charismatic leader with experience at Mercedes-Benz, Chrysler and Volkswagen, Bernhard is known as both a champion of edgy designs and a disciplinarian on costs.
“Wolfgang will be good for the product because that’s his skill,” said Dennis Pawley, who headed Chrysler’s manufacturing operations in the 1990s. “If they can successfully execute the right products, they’ve got a chance.”
Chrysler looks abroad
Under Cerberus, Chrysler will also be pushing harder to build its international presence.
The automaker is committed to launching eight new vehicles outside of North America this year, but other moves appear to be in the works.
People close to the company said Chrysler is in discussions with Hyundai to expand ties beyond their three-way alliance to build engines with Mitsubishi Motors Corp.
A Hyundai source said “the door is always open to new talks on new proposals,” but declined to specify potential areas of cooperation with Chrysler.
Chrysler already has cut a deal to purchase Chinese-made small cars for sale in the U.S., and is working on a partnership with a Russian automaker, according to a person familiar with the plans.
Extending its global reach is critical for a company that sells about 90 percent of its overall volume in North America.
“You can’t gain the scale you need just from a regional perspective,” said a consultant to Chrysler, who spoke on condition of anonymity. “You need to look outside North America.”
Chrysler is also gearing up to purchase more components in low-wage nations in Asia. The effort began before DaimlerChrysler put the U.S. automaker up for sale in February, but has intensified since Cerberus agreed to acquire it.
In fact, Chrysler insiders said the Cerberus deal has been like a shot of adrenaline throughout the entire organization. “Things are moving very, very fast here,” one Chrysler official said.
Cerberus has kept its specific plans for Chrysler close to the vest. Feinberg declines all interview requests, and Cerberus officials speak only in the most general terms when discussing their corporate holdings.
“Our job is to ask the difficult questions and to create an environment where management teams can succeed,” Snow said in an interview in Detroit last month.
The tone is set, however, by Feinberg, the reclusive financier who masterminded the buyout.
‘They need to deliver’
Operating out of a suite of offices on the 22nd floor of a Park Avenue skyscraper, Feinberg runs a lean organization with fewer than 200 full-time executives.
“There’s very little bureaucracy at Cerberus,” said one former executive of the company, who asked not to be identified. “Things go right to the top at Cerberus, and Steve is known for making decisions on the spot.”
Executives at Cerberus-owned companies are given performance targets, and are said to have an unusual amount of autonomy to achieve the goals.
“He gives each management team a chance to deliver the goods,” said the former Cerberus executive. “But they need to deliver.”
People close to Chrysler said LaSorda has made several trips to Cerberus’s New York offices in recent weeks. Chrysler insiders said Feinberg already has a deep understanding of the company’s inner workings.
“This is a guy who never asks a question he doesn’t already seem to know the answer to,” said one Chrysler official. “He really does his homework.”
People familiar with the Cerberus buyout said that LaSorda and other senior Chrysler executives stand to earn huge cash bonuses if they achieve performance targets.
Unlike a publicly traded company, Chrysler will not have to disclose its compensation plans.
“The newspapers were full of pictures of the big smile on Tom LaSorda’s face after the deal, and that’s because there’s a big payoff if Chrysler succeeds,” said Brophy of U-M.
But with Cerberus looking at perhaps a five-year time frame to return profits to its own investors, Chrysler can’t afford to get off to a slow start.
“The key to private-equity deals is to get a return on the investment in a relatively short period of time,” Brophy said. “If the limit is five years, well, there’s not a lot of room for mistakes.”


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Cerberus Takes Chrysler Off Daimler's Hands

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Private equity firm Cerberus is in the process of taking Chrysler Group out of the hands of the automaker formerly known as DaimlerChrysler AG (DCX). What will soon become Daimler AG will continue to own 19.9% of the new company – Chrysler Holdings LLC – with Cerberus owning the remainder. This is the end of the Jurgen Schrempp dream for Daimler-Benz to create a global auto colossus made up of Mercedes-Benz, Freightliner, Chrysler, Mitsubishi and Hyundai.
Daimler-Benz took over (no merger – ever) Chrysler Corporation in November 1998 for $36 billion. Nine years later, DCX agreed to sell 80% of what is now Chrysler Group to Cerberus Capital for $7.4 billion. Clearly Schrempp’s plan did not work.
Impact on Opinion of Chrysler –
In late March, a VehicleVoice survey indicated that the opinion of Chrysler Group had deteriorated drastically from a year earlier. Our respondents variously said: “Daimler bought ’em, raped ’em and threw them away,” “Why would I buy a car from a company that’s parent company is trying to sell it?” Perhaps the purchase by Cerberus will serve to offset some of this deterioration, but time will tell.

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Cerberus Has Auto Industry Heavyweights Involved
Cerberus is the mythological three-headed dog that guards the gates of hell. Cerberus Capital is an interesting firm in its own right. Secretive to a fault, at least three auto industry heavyweights are on its letterhead (if they had one): David Thursfield, former Vice Chairman of Ford and an aggressive cost cutter; Wolfgang Bernhard, former COO of Chrysler Group (with Zetsche) and then head of Volkswagen in Germany prior to his Cerberus gig; and Robert Rewey, former head of Sales at Ford. Rewey could sell anything any day of the week. While Cerberus says they will keep the present Chrysler Group management team in place, it is only a matter of time that “adjustments” begin being made.
Remember the character in Pretty Woman played by Richard Gere? He was a private equity magnate that wanted to buy a shipbuilder, break it up and sell the pieces for a profit. A private equity firm like Cerberus isn’t too much different and the jury is still out on how Cerberus will handle its investment in Chrysler Group.
Cerberus has an interesting portfolio – a large stake in Delphi, 51% of GMAC – General Motors’ financing arm, Tower Automotive, Guilford Mills, Albertson’s, Sav-On, and others. The fact that Cerberus now controls Chrysler Financial and over half of GMAC gives it substantial clout in the automotive financial services market.
So, now, Chrysler Holdings can stay below the radar as a privately held company. Unfettered of its requirements to be transparent financially the company will largely be able to restructure itself outside the glare of the media and Wall Street. What will emerge after three, five or seven years is unknown, but the story will be fascinating to watch as is unfolds.


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VehicleVoice Panelists' Opinion of Manufacturers

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During the last week of March 2007, 1,254 VehicleVoice panelists responded to an Internet survey concerning their opinion of major automakers in the USA. VehicleVoice asked these questions because the opinion of buyers and their attitudes towards various aspects of a manufacturer’s image are critically important. Managing image and opinion plus understanding what is driving that opinion can influence whether a person will positively consider or reject a brand next time they are in the market.
The key question in the VehicleVoice survey was whether the respondent’s opinion of a manufacturer had changed since this time last year. If their opinion had changed, the panel member was given the chance to explain why their opinion had changed. We received over 5,000 comments concerning these manufacturers. Some were as short one word. Some were as long as a page of 10-point type. Folks really had a lot to say and their comments were fascinating.

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Discussion for each of the brands is below the fold.


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It's Finally Here: Satellite TV for the Car

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Having Trouble Getting Your Couch Potato in the Car? Chrysler and SIRIUS Offer a Solution
As you may have noticed from our Detroit auto show coverage, Chrysler’s latest minivans, the Town and Country and Dodge Caravan (click for story and podcast), arrive this fall with several new features for making life on the road more pleasant and easier for the whole family. Today, Chrysler announced the latest development for family-friendly road trips: SIRIUS Backseat TV. Chrysler’s George Murphy and Frank Klegon announced the new feature in New York, with a helping hand from SpongeBob SquarePants and some local kids. At first, SIRIUS Backseat TV will offer three channels, well chosen for families and include Nickelodeon, the Disney Channel, and the Cartoon Network. (One more channel is needed: ESPN, for Dads to watch while waiting for the beloved family to just get done shopping already! Or even better, for tailgating before the big game.)

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SIRIUS Backseat TV uses an in-vehicle satellite video receiver and two roof-mounted antennas, and will complement the upcoming minivans dual-DVD rear-entertainment package nicely. It’s already set up so that second and third rows can watch different media, and the addition of TV to the mix only increases options.
SIRIUS Backseat TV will be a $470 option and requires opting for the rear-seat entertainment package and SIRIUS satellite radio. That $470 includes the first year’s subscription, but requires a subscription to SIRIUS satellite radio. Based on pricing for the single-DVD rear-entertainment systems for the 2008 Dodge Avenger and 2007MY minivans, it looks as though buyers might be able to get the SIRIUS Backseat TV and dual-DVD system for well under $2000. After the first year, SIRIUS Backseat TV costs $7 a month (after the first year) on top of the SIRIUS radio’s $12.95 month fee.
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Who Else Gets SIRIUS TV?
Initially, this system will only be available on Chrysler Group products, but the minivans won’t be the only ones having the fun. The 2008MY Chrysler 300, Jeep Commander and Grand Cherokee, and Dodge Charger and Magnum will also offer the feature. What hasn’t been indicated yet, though, is when SIRIUS will add TV stations, nor when TiVo or other DVR will be added to the whole shebang.


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Chrysler Restructuring – Valentine's Day Massacre 2007

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DaimlerChrysler announced a massive restructuring of Chrysler Group on Valentine’s Day – February 14, 2007. Wags in the press have taken to calling this the “Valentine’s Day Massacre” of 2007.

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Chrysler Joins General Motors and Ford in Restructuring
Following years long restructuring by its crosstown rivals General Motors and Ford, Chrysler Group completes the Domestic Three in their attempts to restructure.
Still saddled with tremendous unsold inventory and a mis-match between capacity for traditional SUVs and big pickups and demand, Chrysler announced the closing of one SUV plant (Delaware) and reducing shifts on others.
The inevitable headcount reduction will total 13,000 hourly and salaried workers bringing the combined headcount reductions by the Domestic Three into the range of 100,000 workers. While operations all around the USA will be affected, selling a house in Southeastern Michigan will be a long and probably expensive task with a huge inventory of unsold homes offered at prices that can only come down.
DaimlerChrysler May Cease to Exist
You remember the “merger” back in 1998 that combined Daimler-Benz and Chrysler Corporation. Characterized as a merger that was indeed a take-over, the synergies anticipated from the match have not been realized. Sure there are the outstanding Chrysler 300, Dodge Magnum and Dodge Charger cars that use the IRS from a previous generation Mercedes, but that is a rare example.
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In statements surrounding the restructuring, DaimlerChrysler head Dieter Zetsche admitted that all alternatives were on the table including spinning off Chrysler Group. Rumors immediately arose that DCX was in talks with General Motors about GM absorbing Chrysler Group. Rumors.
So, this puts all three domestic auto makers in restructuring mode just as Toyota and Honda are beginning to get their second wind. It’s going to be a tough few years around Detroit.


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Chery Lands Joint Venture with Chrysler

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It has been known for some time that Chrysler Group and Chery Automobile Company of Wuhu, China were negotiating for Chery to build a B-Segment car for Chrysler. It appears that the companies have now reached an agreement and all that is left is the approval by the various Chinese governmental bodies and the DaimlerChrysler Board.
Chery is the Real Deal – Chrysler Acquires Low Cost Manufacturing
Having visited the Chery facilities in Wuhu with Malcolm Bricklin’s Visionary Vehicles team in Spring 2005, I can confirm that Chery has the capability to build B-Segment cars for Chrysler. At the time, Chery factories, design facilities and engineering offices were rising in an industrial sector of Wuhu. All was world class. The most modern equipment offset by higher than normal direct labor possible through China’s advantage of low wage rates.
Bricklin’s relationship with Chery has ended and, anyway, was independent of anything Chery was negotiating with Chrysler.
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Likely Product – Dodge Hornet B-Car?
Chery and Chrysler have not confirmed that the product to be produced is the Dodge Hornet concept shown during the 2005 auto show season. It is reasonable that the Hornet would be the entry and would be sold in North America, Europe and other markets.
Chery Can Produce to Chrysler’s Blueprints
Chery is a very young car company and has been growing at a very rapid pace. One of the stated reasons Bricklin and Chery split was that Chery’s present products that would have to be modified to be imported into the USA did not meet the five-star safety standards Bricklin demanded without major, major changes that would have delayed the products. Assuming Chery will be manufacturing a Chrysler design, these challenges can be handled by the Chrysler design team and implemented by Chery’s manufacturing. Given the right set of blueprints, Chery should be able to produce a very competitive B-Car for Chrysler.


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MyGIG: Chrysler Puts a Hard Drive in the 2007 Sebring

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Chrysler launches an all-new Sebring this fall and among the new options is a hard-drive navigation system. Other all-new cars with similar systems this fall include Mitsubishi Outlander (see image) and Lexus LS460/460L. Using a hard-drive navigation system, versus DVD or the old CD systems, gets faster navigation recalculation and better graphics and interfaces. But these systems bring an even more fun feature: The ability to store and play audio files from the hard drive. It’s like having a permanent iPod in your car; being a relative newcomer to the iPod world, I’m still enamored of almost all things iPod. All three vehicles arrive in dealers in October and November 2006. MyGIG gets a late introduction, but Chrysler expects availability by the end of 2006.
On behalf of VehicleVoice and AutoPacific, I was among the journalists and analysts with the opportunity to participate in a backgrounder and first-drive opportunity for Sebring (more later this month on the driving impressions). MyGIG first goes in Sebring, followed by Jeep Wrangler and Dodge Nitro. Availability will spread to other Chrysler, Dodge, and Jeep models as they are updated and this is the future of Chrysler’s navigation/audio systems.

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The beauty of MyGIG is its integration of features offered independently on other models. MyGIG integrates Sirius radio, UConnect Bluetooth capability, the navigation system, the 20GB hard drive, a USB 2.0 port, and an auxiliary jack for MP3 players. Operation is by voice controls or touch screen. It offers real-time traffic information and can re-route a destination based on that information, depending on preferences set by the driver. Chrysler is not first on the scene with these features, but MyGIG integration takes a significant step forward in performance and affordability. It also pulls Chrysler out of the also-rans into the lead in this department, as their prior GPS navigation was weak at best.
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SRT4 Raises Dodge Caliber to Another Level

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Caliber Gets 125HP per Liter
Introduced with the help of Dodge NASCAR driver Kasey Kahne at the 2006 Chicago Auto Show, about the time standard models began arriving at dealerships, the SRT Group introduced its take on the Caliber, and your faithful VehicleVoice and AutoPacific correspondents were on hand for the introduction.

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Along with developing the current Viper RT/10 coupe and convertible, SRT has been hard at work since it was formally created in 2002, adding horsepower, suspension, braking, and interior/exterior styling cues for top-line takes on models including the old Neon, Crossfire, 300C, Magnum, Charger, Grand Cherokee, Ram, and now Caliber. SRT is made up of a group that is passionate about what they do, and it shows in the lineup.
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While the standard Caliber tops out at 172HP, the Caliber gets a turbocharged version of the 2.4L DOHC 16v four-cylinder engine tuned to 300HP and 260 lb-ft of torque. SRT promises a sub-six-second 0-to-60-mph time. The engine is mated to a standard six-speed manual transmission, but the package is offered only in front-drive form. Pricing has not been announced, but executives told us that this decision to go front-drive only is in part to keep the Caliber’s price reasonable. Among the goals of SRT is to bring their benchmark performance models to market at the lowest possible price, and adding the AWD system would drive the Caliber SRT4 price too close to that of entries like Subaru WRX STi and Mitsubishi Lancer Evo IX. Both of those cars require an investment of $32,000 or more.


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Dodge Nitro Gets Windy City Introduction

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A Year After the Concept, Production Nitro Introduced in Chicago
Dodge heads into the 2007MY competing in two new segments with two all-new entries. Along with the just-launched Caliber that we recently drove and reviewed, the Nitro arrives later in the year. Nitro is a traditional, four-door, five-passenger SUV with styling aimed at guys more than women. While the Chrysler Group’s Jeep Liberty, with which the Dodge Nitro shares production space, appeals more to women, the Nitro’s more aggressive attitude is expected to pull in more men. Its official introduction is this week at the 2006 Chicago Auto Show, the same venue that hosted the concept car a year ago.
Among the difficulties with joining a full segment will be getting through the clutter. At least on paper, the Nitro is a strong entry. But the small and mid-size SUV segments include as many as twenty-five entries, depending on definitions, and that means a lot of competition for attention. With its optional 255HP V6, Nitro is near the top in terms of horsepower, and its relationship to Jeep’s Liberty should give it decent off-road capability. Dodge has also given it the ability to tow as much as 5000 pounds, properly equipped. The Nitro also looks to further support Dodge’s performance slant, with an on-road performance-tuned suspension optional for some models.

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The Perfect Gen Y Car – A Used Car?

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The horrific parade of cars “designed to meet the youthful needs of Generation Y” seems to have taken its proper course. I pray the trend is dead. (No, Dan, as VehicleVoice correspondent and AutoPacific president George Peterson found at a recent Dodge Caliber press event, cars targeted at GenY are alive and well. At least Dodge admitted they would not be embarrassed when the Caliber sells to older folks.)
I remember watching Trevor Creed, head of Chrysler Group design, unveil the Dodge Razor designed for “millenials” at the 2002 Detroit Auto Show. The typical Chrysler todo included boom boxes and kids on Razors, those small-wheeled scooters that pre-adolescents use for terrorizing shopping mall parking lots. “What are they thinking?” was my first thought. “Did Trevor get into a terrible Razor accident?”

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Used 2004 Civic Coupe – Perfect GenY Car


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