Chrysler: Not Dead Yet

“Bring out your dead,” the cart master's English accent rings out in a scene from the movie Monty Python and the Holy Grail.

“I'm not dead,” is the feeble but persistent cry from an old man not ready to be tossed onto the cart. “I'm getting better.”

“You're not fooling anyone, you know,” says the cart master, reluctant to move on. In the eyes of the onlookers, his fate has been sealed and no amount of protesting can change that.

For a real-life comparison, look no further than DaimlerChrysler AG, and more particularly the Chrysler Group, which spent the first year of its turnaround plan shooing the cart master.

With sales and market share on a downward slide through most of fiscal 2001, critics and analysts refused to believe repeated protestations the plan is on track, the milestones are being met, and the lofty synergistic goals of the merger are not dead.

The Chrysler Group's losses for the year remain staggering, but they are exactly what President and CEO Dieter Zetsche said they would be when he laid out his turnaround plan in February 2001.

Overachieving on the cost-cutting side compensated for underachieving on the revenue improvement side. In the end, when the parent company released its 2001 financial results in Stuttgart, the Chrysler Group continued to call out, a little stronger this time, that it's not dead yet.

“Our target for year one was to come in with a $2 million to $2.5 million loss,” says Zetsche. “We achieved $1.9 million, so clearly we are delivering on this target on year one.” And while he says he is “certainly not happy with a loss of this size,” he knows he delivered on his commitment and has every intention of doing so again in 2002.

Chrysler plans a similar strategy in year two to meet the 2002 target of breaking even, despite an environment of negative pricing, Zetsche says. It means disappointing revenue growth must continue to be offset by exceeding forecast cuts in fixed, manufacturing and material costs. Savings amounted to $3.3 billion in 2001 when the plan only called for $3.1 billion. That figure is expected to grow by another $2.3 billion in 2002 for total savings in the targeted range of $5.6 billion to $5.7 billion for 2002.

Some of it carries over to this year, making higher targets possible, says Wolfgang Bernhard, chief operating officer and cost-cutter. The results have emboldened the unit to pull some targets forward from 2003, on the material and plant side.

For example, the plan calls for the elimination of 26,000 workers, including 18,000 in the first year. Actual reduction in North America was 19,500 employees and another 1,100 contractual workers were let go. Zetsche says the head count will be reduced by another 3,500 this year.

Each cost-cutting goal is carefully defined, he explains. “I can assure you every dollar in this total target is addressed by an action and has a name attached to it to make it happen.” Non-product related spending has been reduced by 58%.

Nevertheless, the anticipated losses by the Chrysler Group, and higher-than-expected losses at Freightliner Corp., contributed to an adjusted operating profit of $1.197 billion for the parent company — far below the $4.8 billion to $5.6 billion target set a year ago by Chairman Juergen Schrempp. The German-based auto maker attained adjusted revenues of $136.1 billion, unchanged from 2000.

Schrempp calls this an achievement, given how much the world has changed. Assumptions in place a year ago no longer apply, he says, and trying to predict the world economy in this volatile and uncertain year is a “pointless exercise.” Nevertheless, he repeats his assertion that operating profit in 2002 will be more than double that of 2001, “by a large extent.”

One way DC is nursing itself back to health is its determination — arguably better late than never — to realize synergies between brands. While that includes Chrysler and Mercedes-Benz, it really centers on joint platforms with Mitsubishi Motors Corp., in which DC has a 37.3% stake.

Mitsubishi also is pursuing a turnaround plan that called for it to break even at the end of its fiscal year in March.

The three small car platforms being jointly developed by DC and Mitsubishi are expected to yield about 1.35 million vehicles annually, says Schrempp.

The common design base for a small car in the B segment, to be used in the development of a 4-seater for Smart and two variants of the Z car for Mitsubishi, has a scheduled volume of approximately 300,000 units annually.

In the compact or C segment the successors to Chrysler's Neon and the Mitsubishi Lancer are expected in the 2006-2007 time frame, Mitsubishi takes the engineering lead for a platform with an estimated production volume of more than 500,000 units per year.

The D segment successors to the Chrysler Sebring/Dodge Stratus and Mitsubishi Galant — Chrysler assumes lead responsibility on this one — has a scheduled total volume of 550,000 units per year.

The numbers represent current production levels for these segments, with some growth built in to reflect potential additional variants to provide incremental volume with limited investment, says Zetsche.

The sharing will not result in any further job cuts, Zetsche says. “We just split the work differently, and it enables us to take on more products than we originally planned,” he says, referring to the five models that have been added to the 5-year product plan. The Chrysler Group will introduce 11 new vehicles between now and 2004.

The transition team working to combine the separate ideas of Chrysler and Mitsubishi on the platforms already is yielding results.

Richard O. Schaum, Chrysler Group head of product development, quality and passenger car operations, says both Chrysler and Mitsubishi are running 4% to 6% savings in the C and D segments. Part of that is attributable to a process called “volume bundling” where the car makers go to the supply base for parts that are similar, but not identical. For example, the D segment products from Chrysler and Mitsubishi have about 600 parts. “We ask: ‘What can you do for us, in planning your own infrastructure?’” Schaum says, knowing a supplier's mold can make 500,000 parts and planning can be done as far as 12 years out for a die. “This way, both sides can plan and achieve economies of scale.” But when the vehicles come to market, “you'll be hard-pressed to see the common architecture.”

Common platforms, innovations and component sharing now fall under the leadership of the Executive Automotive Committee, formed a year ago, to concentrate on cross-divisional matters, says Schrempp.

The EAC has “developed into a core instrument of corporate integration,” says Schrempp. Products, powertrains and components are being analyzed systematically to look for commonality and prioritize projects, 45 of which were initiated last year; 19 are in the implementation phase.

Technology transfer within the group has been stepped up; it pays off faster if it can be used by other brands in large numbers. A technology calendar defines when a specific technology will be introduced in the appropriate market and for which product. The result is decisions such as the one to put a Mercedes automatic transmission in the next-generation Jeep Grand Cherokee.

Schrempp says 30% of all components can be shared without negatively infringing brand identity.

If synergy is the Holy Grail of this much-vaunted merger, Schrempp and his knights haven't given up the quest yet.

And he has a message for the cart master and the competition alike: Chrysler may have been the first to fall victim to slumping markets, but it still expects to be first out — very much alive.