DETROIT (Reuters) - Chrysler Group has scrapped plans for a luxury sedan that would have represented a bigger, heavier and less-fuel-efficient version of its Chrysler 300C, citing high gasoline prices and tougher fuel economy standards.
Chrysler said on Wednesday that it was dropping production plans for the Imperial, a high-riding luxury sedan that prompted comparisons with the Rolls-Royce Phantom.
The decision to scrap the Chrysler Imperial marked the first step in a sweeping review of future rear-wheel drive vehicles as Cerberus Capital Management prepares to take over the loss-making automaker, two people familiar with the process said.
Chrysler had introduced a concept version of the Imperial with a splashy display featuring actress Eva Longoria at the 2006 Detroit auto show, reviving a nameplate that had represented the top of the automaker's line for decades.
The Canadian Auto Workers union had been told that the Imperial was slated to go into production at Chrysler's Brampton, Ontario, plant in 2009 for release in 2010.
Earlier this month, union officials in Canada were briefed on the company's decision to drop the plan, a Chrysler spokesman said.
"It would have been irresponsible for us to move forward with the business plan for the Imperial," Chrysler spokesman Dave Elshoff said.
Cerberus is acquiring 80.1 percent of Chrysler from its German parent DaimlerChrysler AG (DCXGn.DE: Quote, Profile, Research) in a $7.4-billion deal expected to close as soon as this month.
The Imperial would have been built on a rear-wheel-drive platform shared with Daimler's Mercedes. It would also have added a gas-guzzling sedan to Chrysler's line-up at a time when it is looking to respond to consumer demands for improved fuel efficiency and facing tougher U.S. government regulations.
In preparation for taking over at Chrysler, Cerberus has begun lobbying against the higher fleet-wide fuel economy standards passed by the U.S. Senate.
Cerberus Chairman John Snow told an audience in Detroit last week that Senate legislation to require new autos to average 35 miles per gallon by 2020 would risk the survival of the U.S. auto industry. Snow also said Cerberus would be reviewing Chrysler's business plans on an ongoing basis.
"There's going to be a continuing exchange of ideas and looking at what can be done better, what can be improved," he said.
As part of that process, development work on future rear-wheel drive sedans for 2010 and beyond is expected to be suspended for several months while the plans are reviewed with Cerberus representatives, including former Chrysler executive Wolfgang Bernhard, two people familiar with the matter said.
"This is exactly what Daimler did when they took over Chrysler, and Cerberus is going to do the same," a person briefed on the Imperial decision said.
Chrysler spokesman Elshoff said he could not comment, but he said the company has committed to improving fuel economy across its line-up.
Erich Merkle, an analyst at IRN Inc., said he expects that Chrysler under Cerberus will opt to retain rear-wheel drive vehicles, a performance-ready configuration shared by the 300C and upcoming Dodge Challenger.
But he said the new Chrysler could press to incorporate technologies such as cylinder deactivation and direct injection to boost fuel economy of future models. "You don't have to kill rear-wheel drive in order to keep fuel efficiency," he said.
Chrysler, now the fourth-largest automaker in the U.S. market, relies on sales of trucks and SUVs, such as the Dodge Durango SUV and RAM pickup truck, for almost 70 percent of its total sales at a time when U.S. consumers are increasingly demanding lighter and more fuel-efficient vehicles.
Chrysler, which does not expect to return to profitability before 2008, is investing $3 billion in new plants in Wisconsin, Michigan, Indiana and Mexico intended to produce a family of more fuel-efficient V-6 engines and components.
