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CNBC ON DIGG

Chrysler Makes Smart Call Staying Unplugged—For Now

Published: Tuesday, 10 Nov 2009 | 9:36 AM ET

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By: Phil LeBeau
CNBC Correspondent

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Ever since Chrysler CEO Sergio Marchionne and his management team unveiled their plan for reviving Chrysler last week, much has been made about what the plan is and is not built around: A heavy emphasis on four cylinder engines and very little mention of hybrids and electric cars.

While that may disappoint environmentalists, it is absolutely the right call, right now for Chrysler.

Sure, I was there when former Chrysler CEO Bob Nardelli climbed into an electric car prototype and told me, "We will be ready to build electric cars in the near future." As I reported then, and as many have reported since then, Chrysler was and is nowhere close to being ready to join the electric car race in earnest. It may be there some day. But right now, these guys have their hands full just doing the basic "blocking and tackling" that goes with trying to revive a struggling automaker.

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Which is why Sergio Marchionne is smart to emphasize 4 cylinder engines in Chryslers future model plans. The automaker is assuming gas prices will eventually rise to $4 a gallon, and if that happens smaller, fuel-efficient cars will swing back into favor. That's when the Fiat 500 and other future models with 4 cylinder engines will be in demand. Fiat can do 4 cylinders; it cannot yet do electric. That's not its expertise right now. And right now Marchionne has to play to his strengths.

Also, for all the hype about electric cars coming, they will be here in limited numbers at first. A combination of limited capacity to supply batteries and components along with the usual slow uptake on new technology will limit electric car sales when they first roll out. Heck, look at gas-electric hybrids. After almost a decade of being sold, they still make up less than 3 % of auto sales.

With that in mind, and with Chrysler operating under a tight budget, this is not the time for Marchionne to spend billions of dollars and an enormous amount of manpower diving into an electric car platform that may not pay-off for many, many years.

Yes, 4 cylinder engines are not as sexy as the cutting edge technology behind electric cars. But right now Chrysler needs to get its act together before it starts swinging for the fences with an electric car.