These are heady days for Chrysler Corp. It earned more money in the first nine months of this year - $2.68 billion - than in all of 1995: $2 billion. Chairman Robert J. Eaton & Co. are on track to top 1994's record profit of $3.7 million, which generated an average profit-sharing payout of $8,000 per worker

Chrysler has grabbed 1.6 percentage points of combined car and light-truck market share in the U.S. At 16.2%, its largest slice of the pie since the early '50s Eisenhower Administration, Chrysler's $1,955 profit-per-vehicle is the fattest margin in the industry.

Heading into 1997 Mr. Eaton's toughest challenge is to make sure Chrysler maintains the edge that transformed a once dowdy roster of products into the styling and profit@ margin leaders of the industry.

There's still room for improvement, especially on the passenger car side, where Chrysler like most of its competitors, is resorting to hefty incentives and battling to establish a market identity for new names such as Chrysler Cirrus, Dodge Stratus and Plymouth Breeze.

Although Chryslers more cooperative approach to suppliers continues to reap huge savings - about $1 billion this year alone - both Mr. Eaton and his top purchasing executive, Thomas T. Stallkamp, aren't convinced that ongoing consolidation among major Tier 1 suppliers is a positive trend for the final assemblers of cars and trucks.

Mr. Eaton sat down recently with Editor-in-chief David C. Smith and Senior Editor Greg Gardner in his Auburn Hills, MI, office to discuss his outlook for 1997 and Chrysler's game plan to become a major global player buy the turn of the century.

Imagine yourself sitting in Chrysler Corp.'s new 15-story headquarters tower in Auburn Hills, MI, gazing westward out of the giant glass Pentastar, knowing that you've neutralized a Las Vegas billionaire's takeover attempt, captured 1.6 points of U.S. market share in the last year and told analysts and reporters that you can stay profitable through the next recession.

Most executives in North America would the to be in Chrysler Chairman Robert J. Eaton's shoes these days. Coming in the next 12 months are a new Dodge Durango sport/utility vehicle (SUV) spun off the all-new Dakota compact pickup, a completely redesigned set of LH sedans and, of course, that purple-pavement-eater-of-a-roadster, the Plymouth Prowler. Chrysler was the first of the Big Three to sew up labor agreements with both the United Auto Workers (UAW) and the Canadian Auto Workers (CAW). After all, there are Grand Cherokees, Dakotas, Rams and minivans to build. Most hourly workers are salivating over rumors that this year's profit-sharing checks could approach or exceed 1994's average of $8,000 per person.

Through it all, Mr. Eaton finds reason to worry. He defends Chrysler's quality, especially on its minivans, SUVs and pickups, but acknowledges that it must get better. Warranty costs are down from last year, but like a mother bear guarding her cubs, he won't divulge any details.

"Look at the J.D. Power data," he says. "This last time around we beat some of the best people in trucks and came close to some of the best on cars."

Chrysler execs frequently cite a survey by San Diego-based Strategic Vision Inc. conducted last February and March. Buyers were asked if their new vehicle was made by the same manufacturer as the one they traded in or sold. General Motors Corp. scored highest, with of its buyers replacing another GM vehicle. Chrysler was second at 63%. Ford Motor Co., Toyota Motor Corp. and Honda Motor Co. Ltd. registered scores of 58%, 52% and 50%, respectively.

Having just completed his second round of negotiations with the UAW and CAW as Chrysler's CEO, Mr. Eaton is both surprised at how smoothly it went and worried that he gave more ground than he should have.

"In both cases, it was at the top end of what we could live with on economics," he says. "It's going to increase our labor costs 4% to 5% per year (including pension contributions and cost-of-living-adjustments). That's clearly more than inflation. That means we're going to have to get substantial productivity growth to pay for it."

Meanwhile, Chrysler's chummy supplier relations continue to pay dividends. Its Supplier Cost Reduction Effort (SCORE) ferreted out $1 billion in cost-cutting ideas this year through cooperation rather than coercion. Yet only 40% of Chrysler's 373 Tier 1 suppliers are participating in the program, and just 1 in 7 are reducing their costs by SCORE's 5% annual target.

"Over time, if suppliers don't participate, we'll get new suppliers. It's not something that's a passing program with us," says Mr. Eaton.

While Chrysler's supplier relations remain healthier than most of its competitors, the No. 3 automaker is not thrilled with the ongoing merger and acquisition wave that is giving mega-suppliers like Lear Corp., Johnson Controls Inc. and Magna International Inc. the capability to make entire chunks, or modules, of a vehicle.

"Things have been written out there that suggest that we want fully integrated suppliers, somebody to be able to do a full interior for us or a full chassis, and that's simply not true," Mr. Eaton says.

As suppliers become more integrated, Chrysler and other automakers could lose control over arts of the development process. While the evolution hasn't reached that point yet, there's obviously some tension.

"Potentially we could (lose control)," Mr. Eaton says. "But remember we're the guys who get to sign the contracts. There will always be a huge competitive market of suppliers. We'll never get down to where somebody has a monopoly on interiors or whatever."

So, if Lear Corp. Chairman Ken Way came to Chrysler with a fully assembled interior, he and Mr. Stallkamp would say politely, "No thanks, we'd rather buy it piecemeal."?

"Oh, no. We'd like to have the flexibility of doing that, Mr. Eaton says. "We're not saying how we're going to buy. We're going to buy what is best for the Chrysler Corp. and our long-term suppliers."

And those long-term suppliers will need global production reach. Chrysler will sell 250,000 vehicles outside North America this year, generating $4.8 billion in sales. Mr. Eaton wants to double those figures by the turn of the century. That's a lofty target.

Earlier this year he declared that the U.S. is now the lowest-cost country for producing cars and trucks, and his stated preference is to build in North America and export.

Yet, Chrysler's exports from North America are down 31% through the first eight months of this year. Ironically, the company's exports from Mexico (Neons and Chrysler Sebrings), most of which are shipments to the U.S., are running 155% ahead of last year through September.

Trade laws in most emerging markets virtually mandate local production to escape oppressive tariffs. So Chrysler is willing to play by those rules, he says.

A new Argentinian plant will begin producing Jeep Cherokees and Grand Cherokees next spring. Chrysler is constructing a Brazilian plant for assembling Dodge Dakota pickups, powered by Detroit Diesel Corp. engines that also will be built in Brazil.

Then at the Paris Auto Show in October, Chrysler and BMW AG announced plans to build up to 400,000 1.4L and 1.6L 4-cyl. engines annually in either Brazil or Argentina beginning in 1999.

"The reason we're doing what we're doing in Brazil and Argentina is to be able to get content in those countries so that duties come down and we become competitive in the marketplace," Mr. Eaton says.

Complete knock-down kits of the Neon are assembled in Venezuela.

In Asia, Beijing Jeep's production is running about even with last year despite a slowdown in government purchasing. Arbitrary environmental regulations have hurt sales in the capital. A joint venture in Thailand is producing right-hand-drive Jeep Cherokees.

Like his former boss, General Motors Corp. Chairman John F. (Jack) Smith Jr., Mr. Eaton sees no recession in the U.S. next year. "We're looking for total sales in the 15-million to 15.5-million-unit range," he says, adding that he's slightly more bearish than his counterparts beyond 1997.

"All the data suggests (the recession) won't come this decade, but I'll bet you we have one before then," he says. For now, the $7.5 billion war chest is still adequate. "As we grow, that will have to get bigger," Mr. Eaton says.

But this doesn't look like a company that is battening down the hatches. Next year alone Chrysler is planning to add capacity to build an additional 190,000 vehicles, mainly by adding third shifts in St. Louis North (Ram pickups), Warren, MI (Dakota pickups), Newark, DE (the '98 Dodge Durango SUV) and Graz, Austria (minivans and Jeep Grand Cherokees).

Eventually, Chrysler will build a new greenfield assembly plant within 50 miles (80 km) of its rickety 86-year-old Toledo, OH, factory to absorb the Jeep Cherokee and Wrangler production.

Such measures should boost Chrysler's annual North American capacity from 3.2 million today to nearly 3.8 million by the year 2000. Recession? What recession?

Now that Las Vegas Billionaire Kirk Kerkorian is just another happy shareholder, the closest Mr. Eaton has come to managing a crisis this year is the ongoing dispute with the State of California over charges that the company sold defective cars it repurchased from the original owners without informing the new buyers of the past problems. The state's Department of Motor Vehicles wants to ban all shipments of Chrysler products to California dealers for days.

Chrysler has appealed, contending that it did notify everyone who purchased one of the troubled vehicles at auction. The next ruling is expected sometime next year.

"It's going to have no effect," Mr. Eaton says. "It's very clear we told the people that bought those vehicles that they had been re-purchased. And we attached documentation to it. Ultimately when some of those were sold, they did not tell the next purchaser. We were not involved in that sale. We're 100% innocent."

It's Tough to Stay on Top

Clearly, Chrysler's biggest challenge is to maintain the sense of urgency that propelled it to the lofty heights it now enjoys. WAW explores that subject with Chairman Bob Eaton.

Q - With all the success you've had, how do you stay on top?

A - I wouldn't suggest we're on top (but) it's harder to stay on top than it is to get there. I've worked three places in my life that were clearly the benchmark at one time (General Motors Corp., General Motors Europe and Chrysler) and two of them definitely are not today. I have first-hand experience about how a company can go from the top (to) substantially down the ladder, if not the bottom.

Q - So there's no reason to celebrate?

A - I prefer to look at us as the most vulnerable company because, for the first time in our history, we've got people shoting at us, which is a position that we've not been in before.

Q - But with all that cash, how do you say "No" when your people ask to fund their projects?

A - As a management team we look at ourselves as the most vulnerable company, and we're trying to make sure we react accordingly. We fully understand the situation, and I think we've reacted quite well. We know what we want to be and we're focused on getting there. We're very good at saying "No."

Q - But you sometimes say "Yes," like the Prowler project?

A - That's an extremely valuable program, worth far more than the investment. We've already gotten more out of Prowler than it cost us.

Q - Who's nipping the most at your heels?

A - Our biggest long-term strongest competitors are Toyota and General Motors. I think Toyota will continue to be extremely strong and GM will become stronger. You have to look at the slope of their (GM's) improvements and say that it looks like they're going to get it back together. Toyota never got it apart.