Payoff Time

In this latest game of Chutes and Ladders, Chrysler Group appears to be regaining control of the board.

Two years into a 3-year turnaround plan, the auto maker is past the crisis stage and proving to be true to its word.

The skeptics outnumbered the believers in early 2001 when Chrysler announced the details of the plan. The milestones were met at the end of year one, and still the skeptics held court.

As the end of year two approaches, third-quarter results showed Chrysler Group to be the shining star of DaimlerChrysler AG, posting operating profits of $301 million during the quarter compared with a $264 million loss in like-2001. Overall sales volumes were up 8% with the continued success of the Jeep Liberty, Dodge Ram pickup and PT Cruiser.

The expectation is Chrysler will achieve positive operating earnings for the fourth quarter, with full-year earnings significantly higher than the break-even originally projected.

“Certainly our key intention is to accomplish our targets next year as well,” says Dieter Zetsche, Chrysler Group president and CEO, of the 2003 goal to earn $2 billion.

The auto maker continues to roll the dice and avoid the chutes that dot the board as it moves toward each successive milestone of the turnaround plan. Confidence is growing with each quarterly report. Once the Chrysler house is in order, the plan is to increase sales by a million units over the next decade.

Chrysler hopes to climb a few ladders as it prepares for a period of expansion and growth. Zetsche is planning a product onslaught and increased capacity to build it all. The plan calls for manufacturing efficiency and flexibility comparable with the benchmark Japanese. But Zetsche expects to go one better: Offering killer designs the competition can't match and consumers won't be able to resist.

The Chrysler brand is being re-energized with incremental sales coming from two new vehicles in the first half of 2003, part of a plan to increase Chrysler product sales 40% in the next two years.

The Crossfire will be the new halo vehicle for Chrysler. This rear-drive sports coupe, being assembled in Germany by niche-vehicle builder Wilhelm Karmann GmbH, also marks a change in attitude as to how much Mercedes componentry can migrate to a Chrysler-brand vehicle. The Crossfire boasts almost 40% Mercedes parts, including the highly regarded 3.2L 18-valve V-6 engine.

On North American soil, the minivan plant in Windsor, Ont., Canada, is running prototypes of the new Chrysler Pacifica all-wheel-drive sports tourer. Production begins Jan. 27 of the premium tall wagon that will be classified as a light truck.

Chrysler is calling it the next segment buster — along the lines of the minivan it invented in 1983 or the PT Cruiser. Ford Motor Co. will give Pacifica a competitor with the Freestyle, but not until 2004, by which time Chrysler likely will have added a more affordable 4-seat Pacifica with front-wheel drive. General Motors Corp. also gets in the tall wagon crossover game in 2004 with the Malibu Maxx, but it lacks all-wheel drive and third-row seating.

A precarious ladder involves the next-generation large-car family which makes the leap to rear-wheel drive. Four all-new models, with a fifth in the wings, are planned for the LX large car platform to be assembled at the Bramalea assembly plant in Brampton, Ont., Canada, Ward's has learned.

The plant will go down Sept. 26, 2003, for eight weeks of retooling, followed by nine weeks of ramp-up to Job One, slated for Jan. 19, 2004, sources say. The new vehicles will be designated as '04-1/2 models.

The auto maker will continue to build '04 models of the current LH FWD fullsize sedan platform that includes the Dodge Intrepid, Chrysler 300M, Concorde and the Concorde Limited (which replaced the LHS in the lineup beginning in model year '02).

Ward's is told the new LX rear-drive family will be comprised of the LX (replacing Intrepid); the LXi (replacing Concorde) and the 300N (replacing the 300M). A newcomer is a sport wagon with Dodge styling and SUV attributes.

And, when capital becomes available, plans to produce the Dodge Charger are expected to be dusted off. Sources say the initial plan contained funding to expand the Bramalea plant's footprint, making room for a second platform that was to include the Chrysler 300 Hemi C and the Dodge Charger, concepts shown at the Detroit auto show in 2000 and 1999, respectively.

The Hemi C is a 4-passenger RWD convertible powered by a Hemi V-8 engine. The Charger is a 4-door V-8, RWD sedan with coupe styling. While the concept had a supercharged, compressed natural gas 4.7L V-8, the production model was slated to receive a Hemi engine as well.

When Chrysler plummeted down the financial chute a few years ago, the convertible was dropped from the lineup. But Ward's is told the Charger “is still on the books for when the money is available.”

The underpinnings will be redesigned to come from LX architecture for assembly at Bramalea a few years after the initial four products bow.

Initial volumes are expected to remain about the same — annual capacity is slightly more than 250,000 units. The expectation is the new products will generate enough demand (from export markets as well) to restore the plant's third shift that was dropped as part of the corporate turnaround plan.

The rebirth of the Hemi engine adds an exclamation point to the overall product lineup. The smooth and powerful 5.7L Hemi Magnum V-8 debuted in the new Dodge Ram heavy-duty pickup and will be added to light-duties in the new year.

The plant in Saltillo, Mexico, has the capacity for 440,000 Hemi engines annually, and the expectation is the trademark powertrain will be slotted into a growing list of future products, particularly those currently powered by the older 5.9L Magnum V-8.

And after a cost-cutting effort that included layoffs and plant closings, Chrysler Group sees capacity expansion in the future.

“Certainly we do not want to add unutilized capacity,” says Zetsche. “On the other hand, when we talk about our striving for future growth, obviously we need the products to do so and we need the places to provide for those.”

This fall's negotiations with the Canadian Auto Workers union for a new 3-year national contract yielded an unexpected announcement: plans for a greenfield plant in Windsor. It will begin production of an all-new vehicle by the fourth quarter of 2005 — if the auto maker can secure its desired list of partners to make it viable and help steady this particular ladder.

It's an innovative plan that calls for suppliers to build, own and operate two-thirds of the plant (about 1,500 jobs) — everything but the 1,000 final-assembly jobs. Zetsche says select Tier 1 suppliers were first approached about four months ago about providing the body and paint shops, and the interest is there.

“We have asked three or four (suppliers) for every task,” Zetsche says. “It seems that we can come up with one or two in each category (willing to) provide the conditions we are asking for. We are in discussion with them and we see a lot of willingness. Some of them can play this different role. So we haven't signed any contracts, but we are in advanced discussions.” Tier 2 suppliers would locate onsite in a supplier park.

The roughly 1,000 Chrysler workers would complete the vehicle on the trim and final car line, “where all the rubber meets the road,” says Thomas LaSorda, executive vice president-manufacturing.

The CAW is a partner. The union has agreed to the new hires being paid 75% of full wages for 36 months, a commitment valued at about $50 million.

The third key player is the Canadian government, from which the auto maker seeks a financial contribution. While the Canadian government has resisted direct subsidy to the automotive industry in the past, there are indications it will pony up.

The government suffered much criticism for not offering financial incentives to lure the Freightliner/Dodge Sprinter commercial van to Windsor (the $750 million plant is expected to be built in Pooler, GA, which offered $320 million).

Zetsche will not confirm the new product for the Windsor plant is the Dodge M80 pickup, a concept shown in Detroit in January, which has had its business case fast-tracked.

The platform is expected to yield variants, likely an SUV. It also could provide the architecture for the next-generation Jeep Wrangler.

Zetsche also tells Ward's plans for a new “world engine” include a greenfield engine assembly plant.

DC, Hyundai Motor Co. Ltd. and Mitsubishi Motors Corp. formed Global Engine Alliance L.L.C. in May, a joint venture to design, develop and engineer a new family of 4-cyl. gasoline engines for use by all three auto makers. Hyundai engine production is expected to begin by March 2004, with Chrysler and Mitsubishi production to follow in 2005.

U.S. sites still are being scouted. “First we have to understand where we could do it. And we are not there,” Zetsche says. “I would say there would be a decision within the next year.”

While playing with renewed confidence, Chrysler knows there still are as many chutes as ladders in this game. Fear of sliding back or repeating past mistakes demands that the auto maker not let up on its cost-cutting efforts.

That includes the continued quest for synergies with Mercedes, as well as Mitsubishi (of which DC owns 37.3%) and Hyundai (of which DC owns 10%). Chrysler and Mitsubishi are combining forces to develop the next generation small and midsize cars.

And Hyundai has agreed to jointly develop and buy $13 billion in auto parts with DC and Mitsubishi, starting in June 2003. “We certainly will develop this source of supply over time,” says Zetsche. “We already have signed contracts with Korean suppliers. We will have more in the future.”

The game is far from over. But having successfully maneuvered thus far, come-from-behind Chrysler appears poised to make a move for the win. Competitive players might be wise to take note.