Feature
How About That Chrysler?
"How about that Chrysler?" people would ask only months ago in a tone similar to the way they refer to the Detroit Tigers, who went from nearly the worst record in baseball history to now being playoff bound. Indeed, for the last couple of years, Chrysler was the exception to the rule as the only one of the Big Three automakers to be thriving.
Then Chrysler President and CEO Tom LaSorda dropped the bombshell: After 12 consecutive quarters of profits, the automaker would lose $1.5 billion in the third quarter that ended September 30, more than the $600 million predicted earlier. And, possibly foreshadowing further losses, LaSorda added, Chrysler Group "strives to achieve positive results in the fourth quarter."
Analysts, in the meantime, had expected Chrysler to break even and maybe improve profitability next year. But the bigger-than-expected loss prompted credit rating agencies to lower their outlook for all of DaimlerChrysler.
So what happened?
Though overshadowed by news on struggling General Motors and ailing Ford, Chrysler shares many of the same problems. Chrysler, too, suffers from high so-called legacy costs — those associated with retired workers collecting pensions. It, too, is strangled by skyrocketing health care costs. Chrysler's annual health care tab for employees and retirees is $2.3 billion and climbing. (Ironically, the United Auto Workers union refused to cut Chrysler a break on health care costs, as it did for GM and Ford, because of Chrysler's good financial health.) Like all manufacturing firms, Chrysler's raw material costs, including fuel, have soared.
Plus, Chrysler has the added disadvantage of being the most heavily reliant of the Big Three on truck-type vehicles — pickups, sport-utility vehicles and minivans. More than 70 percent of Chrysler's U.S. sales are in those categories. The quick U-turn in the market away from such vehicles to more fuel-efficient ones found Chrysler with its cupboard bare of what the public wanted and its lots overloaded with what it didn't want. Dealers, subsequently, ordered fewer vehicles than predicted.
Indeed, bloated inventories of light-truck vehicles which, in turn, prompted dealers to slow their orders for new vehicles, are largely to blame for putting Chrysler deeper in the red than expected for the quarter. The $100 million Dr. Z advertising campaign, starring former Chrysler Group CEO Dieter Zetsche, and expensive employee-pricing incentives that cut into Chrysler profits, failed to reduce those inventories substantially.
In contrast to most executives who lay blame everywhere but on their own doorsteps, Chrysler's LaSorda was quick to take responsibility. "I moved too slowly to take inventory down," he admitted.
As might be expected, LaSorda, an affable Canadian who recently became an American citizen, expressed optimism about Chrysler's future, when he recently spoke to the Automotive Press Association in Detroit. His speech had been scheduled long before the announcement of the quarterly loss, as an assessment of his first year in the job.
"We may have hit a bump in the road," LaSorda told reporters, "but we're on the right road, and we've got the right road map."
LaSorda cites as pluses a record number of new products, new levels of productivity and quality, new flexible manufacturing operations that allow quicker adjustments in product mixes to address market shifts, and an aggressive push on overseas sales.
In terms of new products, Chrysler has boasted it would introduce a record 10 new models in the U.S. this year, most of which are just now hitting the market or will in the fourth quarter. Chrysler kicked off the year with the introduction of the Jeep Grand Cherokee SRT-8 followed by the Dodge Caliber, which is selling well — the plant that produces it runs on three shifts to keep up with demand. The Jeep Compass, based on the Caliber, came on line at the same plant this summer; the Dodge Nitro, also built there, will arrive by year's end. Right now, the Chrysler Sebring along with the two- and four-door Jeep Wranglers, are hitting the market. Still to come, in addition to the Nitro, are the Dodge Durango-based Chrysler Aspen, the Jeep Patriot and the Dodge Ram Chassis Cab.
What Chrysler lacks, however, is a small car in the vein of the Honda Fit, Nissan Versa and Toyota Yaris. Chrysler's smallest car is the Caliber, considered a C-segment car by international standards whereas the import contenders are B cars, also among the most popular size of cars internationally.
LaSorda said he hopes to announce by year end a partner with whom Chrysler can build such a small car, something like the Dodge Hornet shown in Geneva last spring. Without a partner, Chrysler cannot profitably produce a small car, he said. Rumored partners most recently include China's Chery, which is eyeing the U.S. market through Malcolm Bricklin. LaSorda wouldn't confirm Chery as a possibility but said he wouldn't rule out a Chinese partner and was emphatic that such a move would not have to be cleared by the UAW, a previous sticking point that likely is gone due to the UAW's refusal to negotiate health care.
In addition, Chrysler is "looking at a wide variety of options — some of them structural in nature," LaSorda said. That typically translates to plant closings and job losses, though LaSorda wasn't specific.
Whatever course Chrysler takes, it is likely to be bumpy going into 2007.
Then Chrysler President and CEO Tom LaSorda dropped the bombshell: After 12 consecutive quarters of profits, the automaker would lose $1.5 billion in the third quarter that ended September 30, more than the $600 million predicted earlier. And, possibly foreshadowing further losses, LaSorda added, Chrysler Group "strives to achieve positive results in the fourth quarter."
Analysts, in the meantime, had expected Chrysler to break even and maybe improve profitability next year. But the bigger-than-expected loss prompted credit rating agencies to lower their outlook for all of DaimlerChrysler.
So what happened?
Though overshadowed by news on struggling General Motors and ailing Ford, Chrysler shares many of the same problems. Chrysler, too, suffers from high so-called legacy costs — those associated with retired workers collecting pensions. It, too, is strangled by skyrocketing health care costs. Chrysler's annual health care tab for employees and retirees is $2.3 billion and climbing. (Ironically, the United Auto Workers union refused to cut Chrysler a break on health care costs, as it did for GM and Ford, because of Chrysler's good financial health.) Like all manufacturing firms, Chrysler's raw material costs, including fuel, have soared.
Plus, Chrysler has the added disadvantage of being the most heavily reliant of the Big Three on truck-type vehicles — pickups, sport-utility vehicles and minivans. More than 70 percent of Chrysler's U.S. sales are in those categories. The quick U-turn in the market away from such vehicles to more fuel-efficient ones found Chrysler with its cupboard bare of what the public wanted and its lots overloaded with what it didn't want. Dealers, subsequently, ordered fewer vehicles than predicted.
Indeed, bloated inventories of light-truck vehicles which, in turn, prompted dealers to slow their orders for new vehicles, are largely to blame for putting Chrysler deeper in the red than expected for the quarter. The $100 million Dr. Z advertising campaign, starring former Chrysler Group CEO Dieter Zetsche, and expensive employee-pricing incentives that cut into Chrysler profits, failed to reduce those inventories substantially.
In contrast to most executives who lay blame everywhere but on their own doorsteps, Chrysler's LaSorda was quick to take responsibility. "I moved too slowly to take inventory down," he admitted.
As might be expected, LaSorda, an affable Canadian who recently became an American citizen, expressed optimism about Chrysler's future, when he recently spoke to the Automotive Press Association in Detroit. His speech had been scheduled long before the announcement of the quarterly loss, as an assessment of his first year in the job.
"We may have hit a bump in the road," LaSorda told reporters, "but we're on the right road, and we've got the right road map."
LaSorda cites as pluses a record number of new products, new levels of productivity and quality, new flexible manufacturing operations that allow quicker adjustments in product mixes to address market shifts, and an aggressive push on overseas sales.
In terms of new products, Chrysler has boasted it would introduce a record 10 new models in the U.S. this year, most of which are just now hitting the market or will in the fourth quarter. Chrysler kicked off the year with the introduction of the Jeep Grand Cherokee SRT-8 followed by the Dodge Caliber, which is selling well — the plant that produces it runs on three shifts to keep up with demand. The Jeep Compass, based on the Caliber, came on line at the same plant this summer; the Dodge Nitro, also built there, will arrive by year's end. Right now, the Chrysler Sebring along with the two- and four-door Jeep Wranglers, are hitting the market. Still to come, in addition to the Nitro, are the Dodge Durango-based Chrysler Aspen, the Jeep Patriot and the Dodge Ram Chassis Cab.
What Chrysler lacks, however, is a small car in the vein of the Honda Fit, Nissan Versa and Toyota Yaris. Chrysler's smallest car is the Caliber, considered a C-segment car by international standards whereas the import contenders are B cars, also among the most popular size of cars internationally.
LaSorda said he hopes to announce by year end a partner with whom Chrysler can build such a small car, something like the Dodge Hornet shown in Geneva last spring. Without a partner, Chrysler cannot profitably produce a small car, he said. Rumored partners most recently include China's Chery, which is eyeing the U.S. market through Malcolm Bricklin. LaSorda wouldn't confirm Chery as a possibility but said he wouldn't rule out a Chinese partner and was emphatic that such a move would not have to be cleared by the UAW, a previous sticking point that likely is gone due to the UAW's refusal to negotiate health care.
In addition, Chrysler is "looking at a wide variety of options — some of them structural in nature," LaSorda said. That typically translates to plant closings and job losses, though LaSorda wasn't specific.
Whatever course Chrysler takes, it is likely to be bumpy going into 2007.
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