Chrysler Pulls Out All Stops in 2008

Special Report

2008 Year in Review

From its aggressive exploration of OEM alliances to its overhaul of supply-chain dynamics to a dramatic exit from the leasing business that sparked a domino reaction from competitors, Chrysler LLC marched to the beat of its own drummer in 2008.

Yet as the year draws to a close, the auto maker is dangerously out of step with a shrinking U.S. market.

In testimony last month before the Senate Committee on Banking, Housing and Urban Affairs, Chrysler Chairman and CEO Robert Nardelli, architect of the auto maker’s out-of-the-box business approach, warned the iconic company was mere weeks from meltdown. Only a last-minute reprieve from the Bush Admin. – in the form of a $4 billion loan from the Troubled Assets Relief Program – spared the auto maker.

Chrysler CEO and Chairman Robert Nardelli.

Nardelli’s startling admission comes less than four months after Chrysler, in a desperate bid to boost consumer confidence, breaks the stony silence associated with privately held companies and discloses its financial performance. Through first-half 2008, Chrysler generated a pre-tax profit of $1.1 billion and accumulated $11.7 billion in cash and marketable securities, according to Vice Chairman and President Jim Press.

The numbers reflect “the strength of the organization and the fact that the things that we’re doing are really beginning to gain traction,” Press says during a news conference Aug. 1.

The same day, one of those “things” goes into effect. The auto maker’s lending arm, Chrysler Financial, ends its leasing business in favor of increased support for buying customers.

The dramatic move, later mimicked by cash-conscious competitors such as General Motors Corp., was prompted by Chrysler’s efforts to refinance about $30 billion in debt backed by auto loans and leases, Nardelli tells Ward’s in a recent interview.

“We started seeing the financial institutions start to tighten up,” Nardelli says.

Ultimately, the auto maker was successful in acquiring $24 billion to boost its cause, but not without restrictions.

“One of those restrictions, quite honestly, was in the lease area because we started to see defaults and repossessions rise,” Nardelli says. “And so there was a definite cap on the amount that you could put out there on lease.”

While surprising in itself, it is less surprising that Chrysler would take such action. A survey of headline-grabbing developments shows the auto maker garnered more than its share of ink in 2008.

Just days into the New Year, at the North American International Auto Show, the auto maker stages a vehicle unveiling that is branded in the memories of journalists from around the world. In an unprecedented stunt to introduce the rugged, redesigned-for-’09 Dodge Ram pickup, Chrysler hires a posse of cowboys on horseback to herd longhorn cattle down through downtown Detroit.

The all-new Ram is available for the first time as a conventional crew cab, as opposed to the oversized “Mega Cab” package that axed from the nameplate’s ’09 light-duty offerings. The redesigned Ram also affords unique storage solutions such as dry, lockable compartments concealed in the bed walls and a beefed-up, new-generation 5.7L Hemi V-8 making 390 hp.

But, like a harbinger of events to come, the storage wells, dubbed Rambox, are unavailable following the July production launch because the lead plant in Warren, MI, is not tooled up to accommodate the feature.

To the chagrin of dealers, the Rambox arrives weeks later with the startup of Warren’s sister plant in St. Louis.

More ominous is the Hemi engine, a key competitive advantage exclusive to Chrysler, becomes a bargaining chip in a bid to generate much-needed revenue.

The revelation follows the startling announcement in April that Chrysler has struck a deal that will see the Ram shoulder the next-generation Nissan Titan pickup. And Chrysler will build the truck for Nissan Motor Co. Ltd. in Saltillo, Mexico, starting in 2011.

Meanwhile, Chrysler executives confirm the iconic Hemi is “on the table” as it finalizes product and assembly details with Nissan.

News of Chrysler’s agreement to share its flagship truck platform comes hard on the heels of an announcement Nissan will build small cars for Chrysler by 2010. But Chrysler maintains the Nissan contract does not conflict with a similar arrangement reached previously with Chery Automobile Co. Ltd.

Chery, Ward’s reveals, is supposed to supply Chrysler with 12 vehicles spanning three segments over the life of the agreement. But Chrysler admits Chery’s vehicle development is on a slow road to improvement as the low-cost, China-based auto maker struggles to meet the quality expectations of North American consumers.

By December, the auto makers agree to go their separate ays, citing external market pressures and their respective internal restructuring efforts.

Chrysler’s alliances are the handiwork of Vice Chairman and President Tom LaSorda, who is charged with seeking out alliances that will fill the product pipeline gaps left by the auto maker’s break with former parent, DaimlerChrysler AG, now Daimler AG. New York-based private-equity firm Cerberus Capital Management LP controls the auto maker by virtue of the 80% stake it acquired in mid-2007.

By year’s end, there are shadowy reports Chrysler has engaged in talks with Fiat Automobiles SpA, Hyundai Motor Co. Ltd. and GM. The latter proves the most tumultuous, prompting speculation Chrysler would be absorbed by the cash-strapped auto maker and disappear from the automotive landscape.

But GM, after reporting a massive third-quarter loss, says the talks are on hold as the auto maker seeks first to get its own house in order.

Nardelli is frank about Chrysler’s aggressive pursuit of partnerships.

“We’ve been exploring all alternatives on how we might get product, how we might reduce costs, how we might share technology,” he says, likening the approach to Chrysler’s ongoing participation in a hybrid powertrain development program with GM, Daimler and BMW AG.

“I don’t suffer from the ‘not-invented-here syndrome,’” Nardelli adds.

Similarly, Chrysler reinvents its supplier-relationship dynamics under the leadership of John Campi, a procurement specialist with whom Nardelli worked during his tenure as Home Depot CEO.

In February, Chrysler tears up its contract with Plastech Engineered Products Inc. after the auto maker reportedly flags the supplier more than 400 times for substandard performance.

As Chrysler attempts to recover its tooling from Plastech, the supplier responds by filing Chapter 11 and halts shipping. The move immediately freezes five Chrysler plants and sends a chill through the auto maker’s crosstown competitors, GM and Ford Motor Co., both of which source numerous parts from Plastech.

A truce eventually is reached and shipping resumes as Plastech begins to sell off its operations, piece by piece. But the die is cast for Chrysler’s future supplier relationships: the auto maker will do whatever it considers necessary to ensure its profitability.

Dodge Durango Hybrid lasted less than five months.

Within days of the Plastech dispute, Chrysler confirms it will, starting in 2010, source Jeep Wrangler seats from a supplier in India. The move severs longstanding ties with a Johnson Controls Inc. operation that established a site in Toledo, OH, to accommodate nearby Wrangler assembly operations.

In May, Campi unveils a plan to extract a 25% cost reduction from Chrysler suppliers by promising to stabilize the auto maker’s production schedules, thereby eliminating unexpected – and expensive – engineering changes.

Chrysler then will calculate the savings realized through its improved efficiency, value the moves in terms of component price and reduce that price by 50% of the amount saved.

The overall impact of these reductions is expected to equal 25% of the auto maker’s supplier commitment.

Success of the plan hinges on Chrysler’s ability to lock in its production schedule 30 days in advance for three consecutive months. If the auto maker fails to reach this goal, it will pay the supplier a penalty that could result in a reversion to the original piece price.

But less than seven months later, Campi steps down for health reasons. He is replaced by Scott Garberding.

Meanwhile, the auto maker reintroduces a milestone nameplate, adds another and announces plans to eliminate three others.

After an absence that spans 34 years, the Challenger returns to Dodge showrooms as an ’09 muscle coupe. Dodge also gets its first cross/utility vehicle in the ’09 Journey.

But the auto maker pulls the plug on its Dodge Durango and Chrysler Aspen fullsize SUVs, including their hybrid versions. And performance enthusiasts get misty-eyed as the revenue-hungry auto maker discloses it is entertaining offers for the Dodge Viper line.

Against this backdrop, the personnel and personalities are prime topics of discussion.

The Canadian Auto Workers union reaches an agreement with Chrysler in unprecedented fashion – four months before the existing deal expires. The deal freezes wages and CAW members surrender vacation time in return for promises of new production.

But Chrysler’s overall employment picture is bleak. As the bottom falls out of the U.S. market, two plants are closed: the Aspen/Durango plant in Newark, DE, and a minivan plant in St. Louis.

The auto maker eliminates 32,000 names from its payroll. Several names raise eyebrows, including:

Arguably, the biggest name to exit Chrysler in 2008 is Trevor Creed. Chrysler’s longtime design chief passes the torch to Ralph Gilles, who is credited with penning the acclaimed Chrysler 300 sedan.

In keeping with the auto maker’s push to find partners, Gilles tells Ward’s Chrysler is shopping around a pair of concept vehicles – the Dodge Demon roadster, a favorite of Creed’s, and the Jeep JT, a sport truck close to Gilles’ heart.

“I’m hoping in my (new) position I can maybe nudge that one along a little bit,” he says of the Jeep. “Internally, it’s the favorite of all the engineers.”

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