Chrysler the Car Maker

What a difference a year makes. Last year at this time, the Chrysler Group was awash in red ink and pink slips. The outlook was bleak, morale was low and the turnaround task ahead was daunting.

At the midway mark in the 3-year turnaround plan, President and CEO Dieter Zetsche envisions a future where annual sales are up by 1 million units worldwide (in an 18 million market), a hike of about 30% driven by his company's status as the benchmark for product leadership. Included in that growth is a renewed commitment to car making for a manufacturer with 70% of its lineup in light trucks.

It's a future where Chrysler, a decade from now, is the equal of Toyota Motor Corp., Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. in the other key areas of operational excellence (speed to market and low-cost manufacturing), as well as customer service and satisfaction.

Zetsche envisions Chrysler achieving manufacturing flexibility akin to Honda's ability to build products from different platforms in the same body shop. To that end, Chrysler currently is running pilots with different parts through the same body shop, with an encouraging degree of success, says Zetsche.

The top executive outlines his vision with the confidence that comes from strong second-quarter results. The Chrysler Group earned $777 million in the second quarter — in stark contrast to like-2001's $146 million loss, and posts $900,000 in operating profit halfway into a year that was forecast to break even.

The figures reflect accelerated cost-cutting efforts fashioned for a 15 million to 16 million-unit market and revenue shortfalls in the economic uncertainty following the Sept. 11 terrorist attacks.

Parent DaimlerChrysler AG posts second-quarter earnings of $1.09 billion and, with the Chrysler Group expected to keep up the good work and end the year in the black, DC Chairman Juergen Schrempp has boosted overall financial targets. He now expects operating profits to be triple (it used to be only double) the $1.33 billion earned in 2001.

It's a long way from the morass Chrysler found itself in when it announced the turnaround plan in February 2001.

“At first it (the plan) was to guarantee the survival of the company and a return to reasonable profitability, stabilize our position in the marketplace and work on quality and efficiency,” says Zetsche. While such a strategy was needed, he says it certainly was not satisfying.

He is much more animated as he outlines the long-term strategy designed to demarcate a clear, defined position for the Chrysler Group brands in the industry, while becoming a formidable force in it.

Looking out 10 years, Zetsche says the goal is to increase sales by 1 million units to 4 million total, increasing both volume and market share, with slightly less robust revenue gains.

As 92% of the Chrysler Group's current business is in North America, much of the growth will occur here. And the focus will be on growing the 30% of the mix that is cars.

Of the 10 new and 11 refreshed vehicles planned for the next three years, 14 will be car-based, Zetsche says.

He says he recognizes that the only way to increase car market share is to challenge the imports that are succeeding in the segment.

It won't be easy. The South Korean car makers continue to make inroads at the bottom end of the market; the Europeans are stealing from the top; and the Japanese “are taking us on full-fledged in the core of the marketplace based on their reliability and quality,” admits Zetsche.

David J. Andrea, director-forecasting group for the Center for Automotive Research in Ann Arbor, MI, says it will be hard to break through. “What keeps you from getting there is that Toyota and Honda are not about to let their passenger car base go.” On the other hand, Ford Motor Co., “is not stable at present.” If there are inroads to be made, says Andrea, it is because “it appears Ford will help open the door.”

Chrysler sees growth potential in marketing to Generation Y or the “Millennials,” a pool of 78 million potential buyers aged six to 25. Their direct bottom-line impact will be limited for some time until they are old enough to drive, and they have limited purchasing power initially.

But Zetsche says they are worth the effort for two reasons. They have a lot of influence over their parents, “so if you are cool with them, you have a better ‘in’ with the Baby Boomers (82 million people now aged 38-57) and Generation X (37 million people aged 26-37). And we want the ‘in’ to benefit 10 and 20 years down the road like Toyota did 20 years ago, and they are popular with the Baby Boomers now.”

The strategy is to position brands, Jeep in particular, to appeal to the distinct values and beliefs of the Millennials.

To that end, the Jeep Compass and Dodge M80 pickup concepts are among 20 new projects that the Product Strategy Team will eventually add to the product portfolio. They will get the green light “when we decide they meet the brand definition, have a business case, and when we have the money to invest (in them),” says Zetsche.

The 20 projects are over and above the 21 products coming in the next three years. Chrysler plans to spend $30.5 billion on product over the next five years, or $6 billion annually.

Andrea says it will be important for DC to rationalize and organize the platforms, product development cycles and plants of the Chrysler Group, Mercedes-Benz, Mitsubishi Motors Corp. and Freightliner Corp. Then Chrysler can determine the number of derivatives it can produce to get to its desired market space. “Then it's a legitimate goal,” Andrea says of the additional million units and renewed focus on cars.

Managing overlap for Chrysler passenger cars — between Mitsubishi products at the low end and Mercedes at the upper end, is key, Andrea warns.

Chrysler also must ensure car lines generate enough volume to support a dealership network and back-shop support.

Chrysler also continues its scrutiny of components to find ways to commonize use among brands. Replacing 25 designs of fuel pumps with six, for example, will yield a savings of $30 million annually while improving quality, Zetsche says.

But there are no plans to de-content products, Zetsche insists. “As a general principle, I don't think we should turn our cars into empty cans. We want people to be pleased with their ownership experience five years later.”

Offering a 7-year, 70,000-mile (110.000-km) powertrain warranty is drawing customer attention to the quality improvements Chrysler says it has made. “It tells customers we know our quality is better and we'll take the risks,” says Zetsche.

On the manufacturing end, dismal productivity results in the Harbour Report show there is much room for improvement, says Zetsche. But remedial action is under way. “We have a clear plan, and it is being measured month by month.”

Productivity improved 2.7% last year and has increased a further 7.6% in the first half of 2002 with capacity better adjusted to demand. The target is 8.5% improvement. And new products are being engineered for more efficient assembly, an initiative that will be reflected as they come to market.

Zetsche says the current management is determined to transform Chrysler into a company that is as successful in trying times as it was in past, heady days, so that it is sustainable.

To that end, “you must differentiate yourself from the crowd,” he says.

One inherent way Chrysler can do so, is to take advantage of the German engineering and global scale of parent DaimlerChrysler AG, a uniqueness Zetsche sees as a competitive advantage even General Motors Corp. cannot match.

It's a turnaround effort Ford likely is watching closely, in the hopes its own reversal of fortune is as swift.

Chrysler could pull it off, says Andrea, as the vision is externally driven and goal oriented.

It appears German can be spoken here.