Chrysler: Hot Streak Cools, but Ballgame's Not Over

Bob Eaton winds up his fifth year as Chrysler chairman this month, leading the No. 3 automaker to a series of home runs. But by most measures, its hot steak has cooled.

Its market share dropped to 15.2% in the first 10 months from 16.3% a year ago, and sales trailed by 7.5%. Minivans, small cars and full-size pickups have weakened, forcing costly rebates. And third-quarter profits came in 35% under the strong same period in 1996, and trailed by 28% in the first nine months.

Then there's the $262.5 million judgment against Chrysler in a South Carolina liability suit (it is appealing) involving the death of a young boy allegedly caused by a faulty minivan tailgate latch.

So much for the bad news, largely discounted by Wall Street. Analysts see better days ahead: The all-new Chrysler Concorde and Dodge Intrepid full-size cars are hitting showrooms to universal raves from the automotive press, with LHS and 300M spinoffs coming in 1998. And the new midsize Dodge Durango sport/utility vehicle off the Dakota pickup, slightly bigger than a Ford Explorer and somewhat smaller than a Ford Expedition - an SUV niche not seen before.

Meanwhile, Chrysler's quality ratings, still not great, are moving up steadily. Thanks to parts reductions and myriad other campaigns, Chrysler's costs continue to fall. Suppliers alone have contributed cost-saving ideas worth about $1.2 billion this year.

To boost share values, Chrysler bought back $2 billion of stock, putting the buyback total at $5 billion since 1995. Another $2 billion is planned next year.

There are other pluses in the company's outlook. For one thing, heavy cash demands this year for new products and facilities will be "up north of $6 billion," says Mr. Eaton, including $2.1 billion alone for the new full-size cars. But that's a "peak," he says, and will ease in 1998.

After stock purchases and capital demands, Chrysler's cash and marketable securities now stand at about $6.5 billion, says Mr. Eaton, down from $7.5 billion a year ago. Still, he says that's ample regardless of what lies ahead.

In a wide-ranging interview with WAW Editor-in-Chief Dave Smith and Senior Editor Greg Gardner, Mr. Eaton checks out where Chrysler and the industry are heading in 1998.

Bob Eaton can be thankful for one thing: Unlike his two big rivals, General Motors Corp. and Ford Motor Co., Chrysler Corp. has only a small stake in economically chaotic Asian and South American markets.

He's naturally concerned about critical issues such as plummeting foreign currencies and global warming (see Q&A, p.50), but most of Chrysler's eggs are in North American and European baskets - so far relatively removed from what's happening in the fast-growing, maybe too fast, emerging markets.

At home, he sees another strong year in 1998: 15- to 15.5 million sales. And he's not overly concerned about Chrysler's slipping market share, which he attributes mainly to strike losses and new-product launches.

"We've had some strike effects and we didn't have as many new products," he explains. "We've just introduced $3.75 billion in new products." Despite their late-1997 arrival in showrooms, he predicts Chrysler will sell 200,000 of the all-new Chrysler Concorde and Dodge Intrepid full-size cars in model-year 1998.

He also remains optimistic about the minivan and SUV markets, Chrysler's strongest suits, even though they've softened recently against a backdrop of fiercer competition.

A good year in '98

Prices also have weakened. After raising prices just 2% during the last two years, Chrysler actually dropped prices on the '98s by 0.6%, he says. That, he adds, reflects low U.S. inflation and the weakening yen vs. the U.S. dollar, which has given Japanese automakers a price advantage. "There isn't any ability to price out there at all today," Mr. Eaton laments.

But steady prices also are helping to keep sales at a high plateau, and he figures the strong U.S. economy will continue for the foreseeable future.

"Nobody knows when the next downturn is coming, but we think we're going to have a good market next year - in the range of what we've had over the last four years. It's unprecedented, but it's also true that there can be a shock somewhere around the world at anytime so you've got to be ready."

Barring further economic calamities, Chrysler's prospects are buoyed by growing strength in international markets. This year it will assemble between 120,000 and 130,000 vehicles abroad, chiefly in Europe. Combined with exports from North America, its international sales will reach a healthy 250,000.

"Our target is still to grow at 20% a year (overseas) so, yes, that gets us to 500,000 (within five years)," he says. "We won't make 20% this year," he adds, mainly because of weakness in China where Chrysler, through its 1987 acquisition of American Motors Corp., builds Jeep Cherokees at Beijing Jeep Corp. "The (Chinese) market is in really bad shape," he observes, and that may stall Chrysler's aspirations for adding a new vehicle there.

Although Chrysler eventually wants to cash in on Asia/Pacific growth, Mr. Eaton says it actually began slowing down plans in that region about five months ago, "long before the currency devaluations. We've seen a number of devaluations and other economic problems, and we probably aren't done yet. We think this is temporary, and in another year it will be totally different," he says.

Buying outlets in Europe

Because it lacks major manufacturing and product development operations outside North America, Chrysler's choice is to either export U.S.-developed vehicles or assemble them abroad.

Until recently, however, it relied on local distributors. Now Chrysler is buying up distributors in Italy, France, Austria, Germany, Holland and Belgium, he says, and more are under way.

Things are tougher in Japan, where Chrysler recently terminated an agreement with Honda Motor Co. Ltd. to distribute Jeeps. "It was clearly hurting our ability to sign dealers," he says. "You can't just sign dealers; you've got to go through unbelievable amounts of paperwork and harassment for every vehicle you sell. That's the principal reason we've gotten total, complete control of our distribution."

Although Chrysler is jettisoning its Eagle brand - sales have dropped to about 16,000 per year - it will continue buying three vehicles from Mitsubishi Motors Corp., including what had been called the Eagle Talon, he says (the other two are the Chrysler Sebring and Dodge Avenger coupes). Chrysler also plans to continue buying Mitsubishi engines and selling the Japanese auto-maker engines and transmissions.

No interest in Rover

He firmly puts down the notion that Chrysler is interested in acquiring the Rover Group from BMW AG, speculation triggered by the joint Chrysler/BMW agreement to produce engines in Brazil and by the enticing prospect of getting Land Rover in the bargain to notch up Chrysler's strong SUV lineup.

"We've never thought about it, discussed it internally or had a meeting with anybody, and we don't plan to," he says.

Given Chrysler's heavy reliance on "trucks" like SUVs and minivans, which account for 67.1% of sales, isn't it more vulnerable if gas becomes more expensive or the Kyoto global warming conference prompts a crackdown on energy consumption?

"We have a major dilemma," Mr. Eaton says. What's going to come out of Kyoto? You tell me what the environment is, and I'll tell you what I'm going to spend. What I'm planning on is both ways. But if you want to get a company in trouble, try and go ahead of the market - to smaller vehicles and lower power, when the market is not there."

Still, he says, "I'm absolutely amazed at the number of sport/utilities and minivans on the highway. Nobody is making anybody buy those. They are more expensive, but this is a free market. If the government over a 15-year period wants to double the mileage and make you and everybody else out there want to buy (higher mileage) cars, I have no problem whatsoever."

Q: What's your view on global warming?

A: The science won't be persuasive for another 10 years; the scientists themselves are saying that. It's extremely difficult to model the climate. What I propose is that we put together a public/private worldwide research effort on basically all forms of energy we use.

Q: Wouldn't the U.S. Partnership for a New Generation Vehicle effort - 80-mile/gallon car - be a big step in reducing energy usage?

A: PNGV has been an extremely successful program, but we're not there yet on cost. We basically know how to get the fuel economy - and remember, this is a full-size vehicle, a family vehicle, we're talking about with performance and space. We can get everything except cost.

Q: Is it triple today's cost?

A: Yeah, probably, We are going to get close, if not get there. We're working on another hybrid ... but you won't see it at the Detroit Auto Show (next month).

Q: Back to Kyoto - what if the UN proposal wins acceptance?

A: If you want to put this country on an energy diet - and I'm talking about the developed world - overnight, you will have an absolute economic collapse. Three major independent studies show this. This really is an economic policy that will dramatically shift employment and everything else. If you want to hear a giant sucking sound, you're going to have to go (to exempt nations) with the plants. And I'm not talking about just auto plants; I'm talking about manufacturing in general.

Q: You argued five years ago for a 50-cent boost in the fuel tax. Is that still your view?

A: We've been consistent on that. Back then it was to reduce the balance of payments by cutting back (on the need for) imported oil. Now it's global warming. We don't disagree with that in any way, shape or form. We just want our customers to have an incentive (to buy fuel-efficient vehicles). That almost put this industry under in the '70s and early '80s, and it'll do it again if all of a sudden you tell us we've got to sell vehicles our customers don't want.