Marchionne: Lesson Learned on Cherokee Launch

Chrysler won’t repeat the planning mistakes that resulted in a months-long delay in the launch of the all-new Jeep Cherokee and negatively impacted the automaker’s third-quarter cash flow, says CEO Sergio Marchionne.

“What we’ve learned, I guarantee you we will never repeat it,” he tells financial analysts and media in a call to discuss Q3 earnings results. “We’re never going to take a plant down for a year and be out of the market.”

Marchionne says the Toledo, OH, plant, where the new Cherokee is built, phased out production last year, and the automaker barely made it through the ’13 model year “in a relatively boring market” with its stockpiled inventory of outgoing Liberty models.

“So the likelihood of us repeating the courageous act of market absence is zero.”

The Cherokee was expected to roll out to dealers in the third quarter, but snafus with the all-new 9-speed ZF-designed transmission caused Chrysler to hold up shipments of the CUVs.

The Toledo facility now is producing fewer than 1,000 of the new Cherokees a day on the equivalent of two traditional shifts, six days a week, Marchionne says, and won’t reach “full-blast” levels until 2014.

Chrysler expects to have “adequate inventory” on dealer lots in mid-November.

Marchionne characterizes the Cherokee launch problems as a case of the automaker biting off more than it could chew.

“What made this unique and painful for all of us is that we were introducing a never-installed transmission,” He says. “We were naive in thinking it would be a seamless introduction.”

The new transmission is critical in Chrysler’s product-program planning, Marchionne says, because it has “all the elements we consider essential for building our front-wheel-drive/all-wheel-drive strategy for Chrysler on a global scale. It’s a relatively complex and innovative solution to powertrain.”

Once fully in production, Chrysler will be producing 2 million of the automatics annually at its Kokomo, IN, operation, which Marchionne says will be the largest single transmission manufacturing installation in the world.

“I feel really comfortable that after this pain that we lived through, we have learned now that perhaps the introduction of these things should be measured and be done in a way that allows you to continue to cover the market,” the CEO says.

Chrysler blames the rocky launch in part for the quarter’s $343 million in negative free cash flow.

“The only thing I’m unhappy about (in the Q3 results) is that we were not able to produce more cash,” Marchionne says.

That will change in the current quarter, he says, as product begins flowing to dealers. Chrysler says it expects to hit its financial targets for the year, but it is too early to tell whether it will finish closer to the low or high end of its operating-profit forecast of $3.3 billion-$3.8 billion for the year.

“The possibility of hitting $3.8 billion exists,” the CEO says.

The automaker says it earned $464 million in Q3, up 21.8% from year-ago’s $381 million. Revenue totaled $17.6 billion, up 13.5%.

The Cherokee launch puts the automaker on the verge of  completing its industrial revival following its 2009 bankruptcy. Marchionne points to the coming first-quarter rollout of a new Chrysler 200 at its Sterling Heights, MI, plant as the final piece in the puzzle.

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