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Exhaust Note #9: Kerkorian is Back

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Tracinda Corporation Buying Into Ford Motor Company
Kirk Kerkorian, the incredibly wealthy 90-year-old investor and businessman, has long been well known among auto-industry watchers. He was first involved with Chrysler, back in the days when Lee Iacocca was turning things around. Later, his takeover attempt also sparked the notion of merging the company with another, which ultimately led to the creation of DaimlerChrysler. There are few today, other some who retired well off the deal, who would say that was a merger that was beneficial for either company, equals or not.
After eventually getting out of the Chrysler business, Tracinda bought enough of General Motors to get a seat on the board. Company man Jerry York held that seat and pushed for a GM-Renault-Nissan tie-up. Bound by duty to stockholders to explore the option instead of dismissing it outright, Rick Wagoner and GM staff worked with Renault-Nissan for a few months to prove what we all seemed to know in the first place: A Renault-GM tie-up didn’t make much sense. Kerkorian’s Tracinda sold off its GM stake and went home. The end of that story, right?

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Well, yes and no. Whether by the “third time’s a charm” or “try, try again” schools of thought, Tracinda has been accumulating shares of Ford Motor Company since April 2, 2008, and offered today to buy more. And by more we mean enough to give Tracinda 5.6% of FoMoCo. But what does Tracinda really want? Does the company want take over a Detroit car company, no matter which? It does seem that Kerkorian is obsessed with making a major, direct impact on the automotive industry. His efforts so far have succeeded in shaking things up, often when it can be most disruptive, but not in improving the business overall.


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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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Chrysler Sale to Cerberus Closes

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Ah, yes. It began with such high hopes but without enough due diligence. Little did what was then Daimler-Benz AG know it was “merging” with Chrysler Corporation wearing an empty suit. The “merger of equals” was anything but. It was a take over. Not a hostile take over, but a take over nonetheless. On the surface, Daimler-Benz got a high volume American manufacturer with some critically acclaimed models and the Jeep brand. They also got thousands of Chrysler-Plymouth, Dodge and Jeep dealers. What they did not get was a solid cycle plan with investment levels sufficient to guarantee competitiveness.
LX Cars Greatest Result of Tie-Up with Daimler-Benz
Perhaps the greatest accomplishment during the brief existence of DaimlerChrysler (name to be changed at a extraordinary shareholder’s meeting on October 4, 2007) was the development of the LX platform. Sharing components with a previous generation Mercedes E-Class (primarily independent rear suspension) the big rear wheel drive sedan – the Chrysler 300 – and wagon – the Dodge Magnum – and later the Dodge Charger sedan – could have set the tone for Chrysler Group going forward. Add the HEMI V8 to the mix and WOW!
LX Cars Were One Trick Pony – No Follow-Up on Design Theme
But Chrysler never followed up on the LXs. On the car side of the business the Chrysler Crossfire was an absolute flop. The Dodge Caliber, Dodge Avenger and Chrysler Sebring have become the darlings of rental fleets. The Jeep Compass the butt of jokes. The LX-Based and almost approved Imperial was thankfully killed before it could go into production. Where is the DNA that could have been passed down from the LX cars? A lineup rich in LX DNA could have been an extremely strong lineup instead of a group of weak sisters.
Sounds Like BMW Rover
Maybe the large German car companies are not destined to own foreign companies. BMW was not able to turn around Britain’s Rover and Rover eventually folded. Was “The Chrysler Problem” the fault of Daimler-Benz? Was there a talent drain at Chrysler with the departure of product guru Bob Lutz and design leader Tom Gale? Did Chrysler cut costs too drastically? Did adopting Daimler-Benz processes create operating problems? But those issues are part of the case study the Harvard Business School is undoubtedly writing right now.
Will Chrysler Prosper Under Cerberus?
The more intriguing question of the moment is “How will Chrysler respond to its new ownership? Will it prosper? Will it struggle even more? Will Chrysler once again develop and sell cars and trucks we covet? Time will tell

• • • • •


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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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Sterling Bullet – AKA Dodge Ram 4500 and 5500

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We must have been asleep at the switch. Not paying as close attention to the medium truck market as we do to the light truck market, AutoPacific and VehicleVoice staffers were tipped to the Sterling Bullet by our colleague Bill Senefsky of Automotive West Group. Actually Sterling went public with the Bullet on March 6. Public introduction is in late Fall, 2007.
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Apparently Dodge dealers are a bit “miffed” by Sterling getting this hardcore work truck. The question has to be asked, however, what will be the future of the Sterling Bullet when Chrysler Group is spun away from DaimlerChrysler? Will there be a clause in the deal maintaining the product or will it be still-born?
The Sterling Bullet is a mild derivative of the heavy duty Dodge Ram. Part of DaimlerChrysler’s Freightliner universe, Sterling got its mitts on the 6.7L Cummins turbo diesel Ram and put its own front fenders lights and grille on the body in white. Their website shows two cabstyles – regular cab and quad cab – unlike Dodge, there is no Mega Cab. There is also no “pickup” version but several commercial versions – “Wrecker”, “Flatbed”, “Dump”, “Crane”, “Contractor”, “Box”, “Tow”, “Service”. The Bullet is available in 4×2 and 4×4 versions with either cabstyle.
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The press release for the Bullet is below the fold.


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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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2007 AUTOMOBILE MAGAZINE AWARDS

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Primedia’s AUTOMOBILE MAGAZINE, not to be left behind in the automotive awards category by its Motor Trend stablemate (you remember, Car of the Year, Truck of the Year, SUV of the Year), has announced its winners of Automobile of the Year, Design of the Year, Technology of the Year and Man of the Year Awards. Automobile calls itself “America’s leading automotive lifestyle publicaion.” Sounds very similar to Motor Trend’s claim. Oh, well lets see who won what (note that these are “Editors’ Awards with no consumer input) and register the VehicleVoice reaction …
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2007 Automobile of the Year: Volkswagen GTI – seems like there would have been other more worthy selections. The GTi is a fine car; fun to drive, attractive, easy to live with. How about some other candidates? I’d definitely consider the Lincoln MKZ mid-size sedan or Lincoln MKX crossover SUV. I’d have the Ford Edge on the list. Hmmmmm. Maybe they really mean “automobile” and trucks, SUVs and crossover SUVs don’t count. So, lets limit it to cars. So, we’ll leave in the MKZ. Howabout the Infiniti G35 sedan? The all new Nissan Altima. Why didn’t they agree with Motor Trend on the Toyota Camry as Car of the Year? Well, the list can go on forever. GTi is nice, but certainly ain’t the only game in town.
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2007 Design of the Year: Aston Martin V8 Vantage – AUTOMOBILE is right on selecting the V8 Vantage. Absolutely drop dead gorgeous, the V8 Vantage takes Aston’s iconic shape to the next level and puts it in a more “affordable” package.
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Roger Penske (Left) with DaimlerChrysler CEO Dieter Zetsche (Right) and smart cars

2007 Man of the Year: Roger Penske – Can’t really argue with Penske’s selection, but we’d include in their rationale his intention to import the smart from Europe. Penske has accomplished a tremendous amount in his career – racer, race team owner, owner of truck rental agency, owner of Detroit Diesel, owner of tremendously successful chain of automobile dealerships, etc. The smart may be his next great accomplishment.
2007 Technology of the Year: Electronic Stability Control – Old news.
Automobile’s Press Release for these Awards can be found below the fold.


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New 2006 Chrysler 300C "Heritage Edition" Debuts at the Los Angeles Auto Show

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VehicleVoice [(http://www.vehiclevoice.com) & (http:/.vehiclevoice.com)] is an admirer of the Chrysler 300 and 300C. Chrysler will debut its new Heritage Edition 300C at the Los Angeles Auto Show and we’ll be there to cover its unveiling. In the meantime, here is a teaser press release from Chrysler.

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• New “Heritage Edition” model pays homage to the 1957 Chrysler 300C which was described as the “Beautiful Brute”
• 2006 Chrysler 300C Heritage Edition offers luxurious performance, exclusive features and unique heritage badging
• New model is the first Chrysler brand vehicle with SmartBeamTM headlamp technology
Auburn Hills, Mich. – Paying homage to the great Chrysler 300s of the late 1950s, the Chrysler Group announced today the new 2006 Chrysler 300C “Heritage Edition,” debuting January 4 at the 2006 Los Angeles Auto Show.
Available in dealerships this spring, the limited-production Heritage Edition is a performance specialty vehicle offering the power of the award-winning 5.7-liter HEMI® engine with the fuel-saving Multiple Displacement System (MDS), high-performance styling cues of the popular SRT line-up and exclusive features, including the first-time use of SmartBeamTM headlamp technology in a Chrysler vehicle. And, to contemporize its illustrious past, the Heritage Edition has a chromed bodyside molding with a distinctive tri-color 300C badge that is modeled after the badge on the 1957 Chrysler 300C, a vehicle described in its day as the “Beautiful Brute.”
“The Chrysler 300C Heritage Edition honors the long line of beautiful Chrysler 300 vehicles by combining power and fuel-economy in a sporty, stylish package,” said Jeff Bell, Vice President — Chrysler.
Production of the 2006 Chrysler 300C Heritage Edition will begin this spring at the Brampton (Ontario) Assembly Plant.


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