Running with Scissors

A meeting of top Chrysler Group executives dissolves in a chorus of guffaws — forced laughter, perhaps — as they file out of a top-floor conference room.

One by one, the suits disappear into adjacent corridors here in Chrysler's sprawling headquarters until only Tom LaSorda remains.

Despite his 6-foot-plus frame, LaSorda is dwarfed by a pentastar-shaped skylight that looms over his shoulder. And the symbolism is crystal clear.

As president and CEO, LaSorda is charged with ensuring Chrysler's star burns brightly. But he is besieged by monstrous challenges, such as crippling employee health-care costs, elevated material prices and the lingering shadow of a summer that saw production run amok.

Insiders confirm LaSorda has said his job is on the line following Chrysler's $1.5 billion third-quarter loss, which broke a streak of 12 consecutive profitable quarters. The shortfall occurred largely because the auto maker had misjudged the market and accumulated 100,000 unsold vehicles — in addition to its reported inventory, Ward's revealed in October.

Soaring pump prices quashed demand for the auto maker's high-margin light trucks, yet it ran plants at full throttle, sometimes even paying overtime.

Says an assembler at Chrysler's minivan plant in Fenton, MO: “It was working overtime that was strange to us. Everyone was wondering, ‘What the hell is going on?’ They were parking vehicles all over the place.”

Industry observers were shocked as airports and shopping center parking lots were transformed into storage yards for new Chrysler SUVs and minivans.

“Never put a car in a sales bank,” says Thomas Stallkamp, industrial partner at Ripplewood Holdings LLC and former president of DaimlerChrysler Corp. “It's absolutely written in stone. (Chrysler) just went nuts on inventory build.”

Adds Earl Hesterberg, president and CEO of mega-dealer Group 1 Automotive Inc., “(Chrysler is) not one of the more attractive franchises at the moment due to the inventory issues and the lack of retail activity.”

Through November, Chrysler Group sales were down 7.7% vs. 2005.

In a very public September mea culpa before analysts, LaSorda took the heat for the auto maker's build-and-bank strategy. One month later, he did so again in private meetings with dealers.

“I walked through that; told them what had happened; and I took responsibility,” LaSorda says, vowing the sales bank will be empty by year's end.

Then a look of grim determination washes over the usually affable executive.

“We'll ride this thing down,” he says in a low, quiet voice. “I don't want to be debating on inventory and this or that. There's been so much written…that's something I'm not going to talk about.”

A recent victim of Chrysler's woes is Joe Eberhardt, who lost his job as Chrysler's top sales executive. Many dealers disliked him. (See Cliff Banks' column on page 12)

Clearly, LaSorda wants to move on. In a wide-ranging interview with Ward's, he reveals his checklist for 2007, which includes “slightly” fewer new-product introductions.

However, efficiency gains in North America are top of mind. Backed by a team of Mercedes Benz division executives, LaSorda and other top Chrysler leaders are chasing a per-vehicle manufacturing cost reduction of $1,000.

Extrapolated over a full year, the value of such an achievement is estimated at $2.8 billion, which would mark a significant step forward as LaSorda pursues his primary mandate of returning Chrysler to sustainable profitability.

Corporate parent DaimlerChrysler AG has said Chrysler could suffer a full-year loss of $1.28 billion, a $3.2 billion swing compared with 2005's $1.9 billion profit.

But obtaining the $1,000 per-vehicle cost reduction will require “a balancing act,” LaSorda says.

“If you have a vehicle that's only going to live for another year, the opportunity to get $1,000 out of the vehicle in a year vs. one that's just getting going is a little different.”

Gone in 2007 are niche products such as the Dodge Ram SRT-10 and the diesel-powered Jeep Liberty CRD. But Chrysler is mum about which other vehicles might be chopped from its lineup. The Chrysler Pacifica cross/utility vehicle appears near death, with suppliers being signaled that there won't be a next-generation model.

However, savings potential appears significant because a substantial share of the auto maker's '07 showroom is new. The all-new '07 Chrysler Sebring boosts the core brand's profile in the crucial midsize car segment; while Jeep redesigns the Wrangler to include a 4-door model, upgrades the Grand Cherokee with a diesel engine and adds two nameplates, the Patriot and Compass.

Meanwhile, Dodge boasts its first midsize SUV, the Nitro, plus a small car, the Caliber, which has racked up nearly 76,000 sales through October.

Trimming cost from the Caliber program is more challenging than cutting into a high-margin product such as the Dodge Durango SUV, LaSorda acknowledges.

So, how is Chrysler going about the task? Through more intelligent design, LaSorda says. That refers to an ongoing strategy of consolidating components, which streamlines assembly.

Right out of the gate, the bill for Caliber production was $300 million lower than the cost of building its predecessor, the Chrysler Neon.

“Part of the variable cost is transportation,” LaSorda adds.

This would seem to shine a spotlight on Chrysler's assembly site in Newark, DE.

Two hours from the eastern seaboard, Newark is home to the Durango fullsize SUV and its new-for-'07 platform-mate, the Chrysler Aspen. And slow demand for SUVs — Ward's data show total segment sales were down 13.3% through October — has Newark operating on one shift.

But LaSorda is mum on the likelihood of closing this or any other plant.

Analysts suggest his hands are tied. With Chrysler's current level of manufacturing flexibility, the auto maker would be hard-pressed to consolidate production at a comparable site, such as Warren (MI) Truck Assembly, home of Dodge Ram and Dakota pickups.

“There isn't the flexibility in other plants to integrate that product without (major) expense,” says David Cole, chairman of the Center for Automotive Research.

Negotiating a plant closing with the United Auto Workers union will be a challenge, Cole says, because Chrysler is a victim of its past success.

Due to its 12 straight profitable quarters, the “urgency” to move quickly has not trickled down to the plant floor the same way it did at GM and Ford, he explains.

Reeling from a string of multi-billion-dollar losses, Chrysler's crosstown rivals were able to negotiate cost relief, especially in the troublesome area of health care. But despite invoking the law of pattern agreements, Chrysler failed in a similar bid that would have reduced its per-vehicle health-care obligation from $1,400 to $600.

“(Chrysler was) not in the swamp with Ford and GM,” Cole says. “Now, they're in the swamp. They've got to work their way out of it. So it puts enormous pressure on LaSorda to do that.”

LaSorda, the son of a UAW leader, is resolute on this issue.

“The data suggests we need to push ahead to try to get the deal because of the competitive disadvantage,” he says. “We cannot sustain that.”

Meanwhile, he confirms Chrysler wants to bring a sub-compact to North America market.

And he barely can contain his excitement about Chrysler's next-generation minivan, expected in late 2007.

Chrysler defined the segment when it launched its “Magic Wagons” in 1983. Chrysler still leads, but segment sales are down and competition from the Toyota Sienna and Honda Odyssey is strong.

LaSorda dismisses the stigma against minivans with characteristic self-assurance.

“There's probably no better people-mover, or totally functional vehicle, than a minivan.

“Let's be honest, when somebody goes on vacation, how many people are taking minivans?”

Based on the task at hand, it's doubtful LaSorda will be on a leisurely vacation any time soon.
— with Tom Murphy