Countdown to Comeback

The scramble is on to restructure DaimlerChrysler back to profitability It's not that there weren't any Americans who could lead DaimlerChrysler Corp. out of its current morass, it's just that there were a pair of German executives with the right skill set for this particular mission, says DaimlerChrysler AG Chairman Juergen Schrempp.

New DCC President Dieter Zetsche and Chief Operating Officer Wolfgang Bernhard arrived on North American soil in mid-November and curried acceptance with surprising speed. Leading up to the Feb. 26 deadline to reveal painful restructuring plans, they have managed to generate a degree of optimism many did not think possible. Consider:

* They arrived on the heels of comments by Mr. Schrempp in a Financial Times interview that DaimlerChrysler was never meant to be a merger of equals: The former Chrysler Corp. was destined, from the outset, to be reduced to a division. The remarks spawned a flurry of lawsuits from investors charging they were duped.

* The newcomers succeed a series of popular former Chrysler executives who were unceremoniously let go.

* The expectation was the appointees were yes-men dispatched from Stuttgart to decimate the Chrysler Group by cutting jobs, killing future products, closing plants and maybe even preparing to sell off the Chrysler division completely.

But a funny thing happened on the way to the Feb. 26 announcement.

Auburn Hills is warming to two men who are proving to be accessible, straightforward car guys with perhaps the right combination of autonomy and Stuttgart support.

Mr. Zetsche says he spends as much time in the styling studios as he does in his office. Richard Schaum, senior vice president-platform engineering, describes him as an enthusiast and astute critic whose tastes resonate with his own. Mr. Schaum does not fear that the cost-cutting projects in the works will decimate the current or future product line.

Mr. Schrempp, in a January address to a Detroit audience, confirms DC will invest $43 billion in its operations over the next three years, introduce 60 new vehicles over the next four, and revamp 80% of the total company's product range within five years.

The Chrysler Group replaced one third of its volume in 2000 with new minivans, coupes, sedans and convertibles hitting the market while at the same time preparing to launch the new Jeep Liberty sport/utility vehicle (SUV) and Dodge Ram fullsize pickup, bringing the renewal rate to 80% to 85% of volume, says Mr. Schaum.

The Chrysler Group can expect to spend about $36 billion on future products, says Mr. Schaum, a more realistic figure than the $48 billion once touted, and in keeping with the industry norm of reinvesting 6% of revenue back into capital expenditure.

"We got very realistic in the fourth quarter about what we could spend," says Mr. Schaum. "When you look at what you can do with $36 billion, with a few exceptions, we can do everything we want."

Among the exceptions: "We're not going to be in the monster SUV business. That we chose to put off." In hindsight, DCC may have missed the market. Looking ahead, "it remains to be seen whether it is still an important segment," says Mr. Schaum. Mr. Zetsche agrees, saying the forecast is for 10% growth in the compact SUV segment, but no growth is forecast for large SUVs.

Talk of cutting marginal selling products such as Neon are countered by repeated assertions there are platform-sharing opportunities with Asian partners Mitsubishi Motors Corp. and Hyundai Motor Co. Ltd.

None of that negates the fact that DCC is building about 3 million vehicles for a North American market that can only stomach 2.5 million. It is putting a "burden on our bottom line and on our fiscal success," says Mr. Zetsche. The necessary adjustment will include everything from reducing overtime and the short-term fix of rotating plant shutdowns to cutting shifts and closing facilities.

The company must, for now, shrink. It has halted construction of an expansion that would have tripled the Pillette Road Truck Assembly plant in Windsor, Ont. "We built the shell of the paint shop, but the inside of the construction has been stopped until we find out what we are going to do in the future," says Mr. Bernhard.

There is speculation it will be mothballed until needed for future models, perhaps the new '04 Durango. The Newark, DE, plant is rumored to be on the endangered list, as well as the old Toledo, OH, facility - which ceases to produce Jeep Cherokee this summer - and Belvidere, IL (Neon).

Existing labor agreements make it difficult to close plants. Mr. Bernhard will not comment on opening agreements, but says the company "will not be breaching, unilaterally, any of our existing contracts."

One product that needs more capacity is PT Cruiser. At press time, the company was poised to reveal the results of feasibility studies involving a number of facilities in an attempt to boost production to 300,000 units annually.

One scenario was to launch PT production in Graz, Austria, this summer on three shifts instead of two, and devote the Austrian facility to exclusive PT production by shifting minivan assembly from Graz to the Windsor Assembly Plant in Canada, which is underutilized.

There are supplier, customs and distribution issues. Duty would have to be paid on imported vehicles. Suppliers would need to be tooled for additional PT volume in Europe while minivan suppliers in North America would need to tool to meet European specifications. And shipping finished vehicles across the ocean adds three months to the customer's waiting time, says Mr. Bernhard.

Another option is investing in Belvidere, including the need to raise the roof of the paint shop to accommodate the Cruiser, which is 7 ins. (18 cm) taller than a Neon and 2 ins. (5 cm) shy of fitting.

Capacity will only be expanded if a business case can be made for the investment, says Mr. Zetsche.

The turnaround of the Chrysler Group is expected to take three years, says Mr. Schrempp. He says he is committed to its success. "I will not rest until the company, this American icon, is back where it belongs at the top of the industry."

He has faith in the waves of cost-cutting teams currently tearing apart vehicles part by part, looking for ways to accomplish more with less.

Mr. Bernhard has reassigned 1,500 of 9,000 engineers to this task in a bid to take cost out through redesign, in conjunction with suppliers. They are concentrating on the vehicles that have the longest life span ahead of them, such as the new Jeep Liberty SUV, which goes into production this spring.

The two-year project began before Christmas, with 15 commodities comprising roughly 40 suppliers. The second wave starts in March and the third wave in May, with new groups of commodities added every eight weeks. "By the end of this year, we will have covered all our suppliers, all commodities and all material costs," says Mr. Bernhard.

The company also will relaunch the minivan and is considering adding a stripped-down version to better compete against the Honda Odyssey, says Mr. Zetsche.

"We are right now kind of relaunching the vehicle to let the world and our loyal customers know what a great vehicle is out there."

And by month's end, the game plan to relaunch the company will be public, letting the world and loyal customers know there's still a great carmaker out there.