CSpec

Can Chrysler survive?

40 posts in this topic

Can Chrysler survive?

The frailest of Detroit's automakers has been in private hands for a year. CEO Bob Nardelli badly needs a hit if the company is to endure.

The Illness

When the U.S. economy catches a cold, Detroit gets pneumonia, or so the old saying used to go. These days it's double pneumonia, and the business is on life support.

Besides being caught in a cyclical downturn brought on by the subprime lending crisis, the U.S. auto industry is going through a secular transformation caused by the spike in oil prices. Goodbye, high-profit pickups and SUVs; hello, breakeven (or worse) small cars.

All of the old Big Three are suffering, but none like Chrysler. Chrysler has invested less than either Ford or GM in small cars and alternative fuels, and has no significant international operations to provide some relief.

For the past year Chrysler has been run as a private company under the ownership of Cerberus Capital Management, the private equity firm. Cerberus doesn't want to be in the auto business; it is in the money business, and the sooner it can transform the former into the latter, the happier it (and its investors) will be.

Cerberus brings quick reflexes (no directors to consult, no public disclosures to coordinate); a broad range of industrial management experience from its other portfolio companies; and an insistent focus on a single goal: earning a return for its investors. What it doesn't have are deep pockets; long relationships with Chrysler dealers, suppliers, or customers; and patience.

Still, Cerberus says it has a longer time horizon than traditional private equity firms -- most of its funds have expiration dates of a decade or more, and some have no liquidation dates at all. But last year Chrysler lost $1.6 billion before taxes, and it will lose money again this year-possibly a lot more. Its auto sales are down a stunning 22% so far this year.

At the intersection of Cerberus and the auto business stands CEO Bob Nardelli.

The Surgeon

A Jack Welch protege at General Electric who flamed out at Home Depot, Bob Nardelli is no car guy. He can't fine-tune new models by steering a prototype around a test track or discuss the virtues of cash rebates vs. cut-rate financing. He is learning about the complexities of investing $1 billion in a product that will take five years to reach the market.

Nardelli is a numbers guy, a skilled manager of large organizations who knows how to get inside them and tune them up, a wizard at operations.

Nardelli's critics complain that he doesn't have the sixth sense required for success in the complex auto business. One veteran industry executive, who does business with Chrysler and doesn't want to be identified, says, "Every new person who enters the U.S. auto business thinks he is the first smart guy and it must be pretty simple. I'll bet they have never seen cash fly out the door so quickly in any of their other businesses."

Of course, as Nardelli is too diplomatic to say in public, it was car guys who got Chrysler into this mess. And yes, he thinks he is the man to get the carmaker out of it.

The Prescription

At today's Chrysler there is an emphasis on working fast. Nardelli moved quickly to halt production of money-losing vehicles like the Dodge Magnum and Chrysler Pacifica, even though doing so meant factories ran out of work.

Along with co-presidents Jim Press and Tom LaSorda, Nardelli has spent hours at the test track ordering more than 400 changes to vehicles already in production. That's a process that can take months at other companies

There is a premium on not being bound by old practices. Chrysler was the first of the Detroit Three to pull back on leasing in the tight credit market. Cerberus is betting it can get the company back to the break-even point by fixing its operational problems and cutting costs.

Nardelli has taken a Recovery and Transformation Plan put together by Chrysler's previous management and amped it up by creating a war room and adding visual aids to identify and rank money-saving ideas.

Take material costs. Steel prices have risen steeply.

"This is the big chestnut," Nardelli says.

Nardelli's goal is to break even by 2009, though he adds, "If this thing keeps eroding under us, it will be challenging."

Plastic Surgery

Customers are clamoring for fuel-sipping vehicles, but Chrysler stopped the production of its best-known small car, the Neon, more than a year ago. Competitors laughed when a Chrysler executive said the company would introduce an electric vehicle in three to five years -- later than just about everybody else.

A more immediate priority is improving the quality of the cars Chrysler builds now, ranked by Consumer Reports as the worst among 15 automakers.

Last October, Chrysler recruited quality expert Doug Betts from Nissan, named him "chief customer officer," and told him to make better vehicles. Betts created 18 cross-functional teams to address problems with brakes, steering, ride, and handling.

Cost cutters during the Daimler era replaced ornamentation in some models with less expensive materials that looked cheap. Nardelli has given chief designer Trevor Creed the leeway to spend more money on higher-quality materials and precision assembly.

"We've got to raise our own expectations about what customers should receive," Creed says.

Where a modest freshening won't do, the new team is going for a total overhaul.

Although the midsized Sebring sedan has been on the market less than two years, management has created a team to perform a complete redesign.

By intensely studying customer preferences early, as the Japanese have long done, the team hopes to limit changes late in the design cycle.

Transplants

What it can't afford -- or doesn't have time-to make on its own -- Chrysler is buying overseas. Product-development boss Frank Klegon estimates that 1,000 of his 7,000 engineers are assigned to joint venture projects outside North America.

China's Chery Automobile Co. is developing a subcompact car that Chrysler is considering selling under its brand.

Chrysler is also swapping marketing rights to its Dodge Ram pickup with Nissan in exchange for a Japanese-built subcompact, so far unnamed, that will appeal to gas-price-conscious U.S. buyers. The arrangements benefit Chrysler's dealers because they get another car line to sell. But they will probably not provide much bounce to the bottom line.

In both cases Chrysler loses the markup that comes from manufacturing and will have to settle for the marketing margin, if there is one. It's not ideal, but Chrysler has to take what it can get.

"We're skinned on capital a little bit," Klegon concedes. "It is a challenge."

Painful Recovery

Cleaning up some of the messes left behind by Daimler is also keeping Nardelli busy. Under its ownership, Chrysler extended credit to marginal customers and built vehicles that dealers didn't want, didn't order, and couldn't sell. The result: a portfolio of dud loans and expensive inventory that quickly deteriorated.

Eight years of foreign ownership also left Chrysler stripped of traditional corporate functions: human resources, legal, and finance were all run from Germany.

"They got the house and the china," says a rueful Nardelli, "and we got the napkins."

The new owner, Cerberus, has been low-key but active, sending 20 to 30 employees to Detroit to tackle specific assignments. Since Cerberus has been investing in auto parts companies, for example, its analysts can help Chrysler identify financially troubled ones and adjust its sourcing; Chrysler recently pulled its business from a struggling plastics supplier and moved it to another one.

Cerberus also played a key role in creating Chrysler's $2.99 gas price promotion for new-car buyers. It structured the gas price futures that will limit Chrysler's exposure to future price increases, and it helped arrange the processing of the complex credit card transactions required for the program.

Paying the bill

Cerberus COO Mark Neporent, who serves on the Chrysler operating group, gets a daily report not only on the cash on hand but also on the number of cars sold to dealers and customers. The numbers have been awful. Still, Neporent says he is far from panicking.

"One obvious surprise is that the top line [revenue] has not been anywhere as high as we had hoped," he told Fortune in a rare interview. "Obviously, if this keeps up for another two years, we'll be concerned. But other than unit sales, we are ahead on every key metric," including earnings before interest, depreciation, and taxes, and capital expenditures

Cerberus says Chrysler finished 2007 with $9.5 billion in cash on hand-$1 billion more than it had planned. Fortune cannot report specifics, but the evidence presented at a meeting of company executives supports Neporent's optimism about Chrysler's cash management.

There's no question that's a good thing, and the sale of some nonearning assets, such as unused real estate near the Auburn Hills headquarters and two idled plants, will bolster Chrysler's cash position by another $1 billion.

But when it comes to turnarounds, money is not everything; cost cutting in and of itself does not bring prosperity. Ultimately, Chrysler has to demonstrate that it can make cars that sell at a profit.

Seeking Support

Chrysler's sales are down nearly a third more than any other major manufacturer's. Right now its lineup is totally unsuited to the realities of the marketplace. So has Cerberus, named after the three-headed hound that guarded Hades, bought a dog?

Not necessarily. One way forward would be to form a partnership or sell Chrysler's most valuable parts -- Jeep, Dodge Truck -- to another automaker, or to merge its finance arm with GMAC, which Cerberus also controls.

The likeliest buyer of Chrysler's pieces would be a foreign automaker that wants a larger presence in the U.S. Fiat's name has surfaced, but Nissan's name is heard the most.

The fast-rising Japanese automaker and its aggressive CEO, Carlos Ghosn, have long sought an American partner to diversify its currency risk, plug holes in its product lineup, and expand its distribution. With the yen strong, the dollar weak, and the market soft, Ghosn can afford to be patient. For his part, Nardelli says he is too.

"We talk to Carlos about product," he says. "If he wants to talk about something beyond that, he can talk to New York," where Cerberus is located.

Brave words, but the fact is that Chrysler could tumble into bankruptcy with just a couple of bad months. And Cerberus has its reputation, as well as its investors' money, at stake.

Prognosis for Recovery

"It would be a black eye for private equity if Cerberus doesn't succeed," says Jones Day lawyer Corinne Ball, who has helped restructure other auto companies, such as parts maker Dana. "It has to fix the product line, rebuild Chrysler's reputation with the American consumer, and repair the relationship with the United Auto Workers."

That's quite a list.

The problem is that the relentless focus on the numbers doesn't fix any of those issues. It is certainly possible for Chrysler to hit the financial marks tacked to the wall but still wreck the company down the line.

Cutting corners on a new engine today can push up warranty costs later. Stripping quality engineers from factories will trim the payroll but may further damage the reputation of Chrysler brands. Even if Nardelli can add another model to Chrysler's long list of hits, it wouldn't be in showrooms until the 2012 model year

The Daimler merger in 1999 meant the end of Chrysler as an independent publicly traded auto company. The acquisition by Cerberus could mean the beginning of the end of Chrysler as a recognizable automaking entity altogether.

0

Share this post


Link to post
Share on other sites

there is a couple things chrysler could do right now to help.

immediate interior gut and redo on the vans, as well as an exterior revision.

update the 300/charger interiors, and update the v6 and make it the primary powerplant (85-90% production) in those models, and drop the price, and get the fuel economy up. make AWD availabel in a greater percentage.

get a small car in the showroom now. rebadge another makers vehicle if that is the quickest path.

Edited by regfootball
0

Share this post


Link to post
Share on other sites
there is a couple things chrysler could do right now to help.

immediate interior gut and redo on the vans, as well as an exterior revision.

I'm sure the vans will be on the list, however the midsizers need it more. The exteriors are fine execpt the butt.

update the 300/charger interiors, and update the v6 and make it the primary powerplant (85-90% production) in those models, and drop the price, and get the fuel economy up. make AWD availabel in a greater percentage.
The LXs have the best interiors in the lineup right now, and nearly all reviews find them of good quality, and they just had an update. That's just wasting money. The 3.5L V6 already makes 250 hp, it doesn't need more, for comparison a 3.5 Charger is as fast as 4.6 Crown Vic and gets better fuel economy (they did a Police comparison a couple years ago, I think edmunds did it). The Challenger should get the 5-speed with the 3.5L. If they are going to keep the 2.7L they should hook the 5-speed up. The Phoenix series is on the way.

The V6 cars are already the volume models. They can adjust output of which cars have which engines based on demand anyway. AWD is available if you check off the option sheet. Reg, seriously, do you even pay attention sometimes?

If anything, they need to get the diesel from Europe over here, that gets 30mpg, and would solve the fuel economy concerns of the LX.

get a small car in the showroom now. rebadge another makers vehicle if that is the quickest path.

They are already working on that, it's rumored to debut next year.

--

Anyway, the key to survivial is product, product, product. Wev've been saying this for years for all 3 of the automakers. Build the good stuff and people will buy it, and pay a premium for it.

Edited by Dodgefan
0

Share this post


Link to post
Share on other sites

Yup, these ensless rumours and speculative articles mean very little...

The guys at Cerebus ain't stupid. It's like all the armchair quarterbacks read these articles and instantly KNOW what Chrysler (or ANY domestic manufacturer) is doing wrong, and they all know how to fix it!

:AH-HA_wink:

I say wait and see what develops instead of blindly reading this stuff. GM was on the verge of bankruptcy a month or so ago according to many internet forums, is GM bankrupt yet?

:rolleyes:

Ford just took a beating with their quarterly earnings report with HUGE losses. Internet forums had them merging/liquidating/downsizing all over.

Good thing the internet is the internet, and the real world is the real world.

ALL domestic manufacturers need to tighten their belts and rethink strategies, and get back to turning profits. SOMEHOW.

I hope they do. Chrysler, Ford and GM.

0

Share this post


Link to post
Share on other sites
Anyway, the key to survivial is product, product, product. Wev've been saying this for years for all 3 of the automakers. Build the good stuff and people will buy it, and pay a premium for it.

Yup.

I see things the same way.

:thumbsup:

0

Share this post


Link to post
Share on other sites

Agreed. Build it, and they will come.

0

Share this post


Link to post
Share on other sites

The LX cars could use a restyling and weight shaving, so as to get more fuel efficient and not become stale.

0

Share this post


Link to post
Share on other sites
The LX cars could use a restyling and weight shaving, so as to get more fuel efficient and not become stale.

They will be, as far as I know LY, the updated version of LX debuts in 2010 or 2011, although it may be delayed to focus on smaller cars.

0

Share this post


Link to post
Share on other sites

Did anyone read any of the actual article? Fortune isn't some car fan website, it's a real news source.

0

Share this post


Link to post
Share on other sites

I did, it makes alot of good points. It also shows how poorly Daimler treated Chrysler from takeover to sell off. Cerberus has a lot of work to do to fix it, and it appears that they are working towards that. The quick reactions no doubt help a lot as opposed to GM, where it takes forever for anything to get done.

The questions is can the deliver class leading rpoducts again, can they do it before it's too late, will the stick with Chrysler and not just sell it off instead of seeing it through.

As the article mentions, you can only cut costs so much, the actual product has to be excellent, and you can't skimp money on engineering and quality.

0

Share this post


Link to post
Share on other sites
Over the last year I think I have heard it ALL!!!!!!

:breakdance:

Even the one about my balls merging with a hooker's forehead?

0

Share this post


Link to post
Share on other sites

:lol:

That would be a tough one to explain to the surgen.

0

Share this post


Link to post
Share on other sites
The internet links and resulting stories are all over the map nowadys, it's almost ENTERTAINMENT as opposed to NEWS...

Ford merging with GM

GM merging with Chrysler

Ford and Chrysler merging...

Over the last year I think I have heard it ALL!!!!!!

:breakdance:

Thus is the media in general...

We get entertainment and panic as opposed to logical fact-based news.

Chrysler will not survive. And as soon as it dies, the media will begin working harder on the weakest of the two remaining automakers. As a 'journalist', it is embedded from a very young age to be anti-american and especially anti-Detroit, it's not a conscious decision except on the part of the people who began this mindset and still lead it.

0

Share this post


Link to post
Share on other sites
Thus is the media in general...

We get entertainment and panic as opposed to logical fact-based news.

Chrysler will not survive. And as soon as it dies, the media will begin working harder on the weakest of the two remaining automakers. As a 'journalist', it is embedded from a very young age to be anti-american and especially anti-Detroit, it's not a conscious decision except on the part of the people who began this mindset and still lead it.

Your imitating CARBIZ and enzl in that reality addict thing....

Chris

0

Share this post


Link to post
Share on other sites
Your imitating CARBIZ and enzl in that reality addict thing....

Chris

Heh-heh...my experience has been that dreamers and optimists tend to get stomped down by the cold, hard world..only the cynical pessimists and nihilists survive.. :)

As I like to say, there is no glass (is the glass half full or half empty)

0

Share this post


Link to post
Share on other sites
get a small car in the showroom now. rebadge another makers vehicle if that is the quickest path.

Since Chrysler needs a smaller, fuel efficient product in their showroom as soon as possible, maybe they could cut a deal with Nissan to build a slightly modified lefthand drive version of the JDM Nissan Bluebird Sylphy to import to the U.S. as a compact Chrysler Division sedan. It's not the most exciting design, but it is a nice looking, well executed design (and its taller dimensions would fit in with the current Sebring and 300) and would give the Chrysler Division a small, fuel efficient sedan to sell until something else could be developed. The only change needed to the exterior design would be to give it a Chrysler grille (the JDM version already has chrome trim around the windows, on the lower body sides, and on the decklid). The interior is roomy (supposedly almost as much interior room as the Camry; probably due to its tall design) and looks well built, but it would need a little brightwork added to fit in better with Chrysler's brand image (a little extra bling). The car is powered by an optional 2.0 liter 4 cylinder/CVT combo (which is the one I would choose to import to the U.S. as a Chrysler; I would leave the 1.5 liter base engine in Japan). I don't think it's a long term solution for a compact sedan for the Chrysler Division, but it would be a quick fix, stop-gap measure to provide the division with a product in this suddenly popular segment (besides the aging PT Cruiser). Maybe they could resurrect the "Cirrus" name for this stop-gap measure sedan (I wouldn't apply any truly legendary Chrysler monikers to this car).

Edited by cire
0

Share this post


Link to post
Share on other sites
Since Chrysler needs a smaller, fuel efficient product in their showroom as soon as possible, maybe they could cut a deal with Nissan to build a slightly modified lefthand drive version of the JDM Nissan Bluebird Sylphy to import to the U.S. as a compact Chrysler Division sedan. It's not the most exciting design, but it is a nice looking, well executed design (and its taller dimensions would fit in with the current Sebring and 300) and would give the Chrysler Division a small, fuel efficient sedan to sell until something else could be developed. The only change needed to the exterior design would be to give it a Chrysler grille (the JDM version already has chrome trim around the windows, on the lower body sides, and on the decklid). The interior is roomy (supposedly almost as much interior room as the Camry; probably due to its tall design) and looks well built, but it would need a little brightwork added to fit in better with Chrysler's brand image (a little extra bling). The car is powered by an optional 2.0 liter 4 cylinder/CVT combo (which is the one I would choose to import to the U.S. as a Chrysler; I would leave the 1.5 liter base engine in Japan). I don't think it's a long term solution for a compact sedan for the Chrysler Division, but it would be a quick fix, stop-gap measure to provide the division with a product in this suddenly popular segment (besides the aging PT Cruiser). Maybe they could resurrect the "Cirrus" name for this stop-gap measure sedan (I wouldn't apply any truly legendary Chrysler monikers to this car).

Well, they already have the Caliber for a compact...maybe a sedan version would satisfy the compact sedan shoppers. Or a rebadge of the Nissan Versa...seems like a decent B-segment car. The Avenger and Sebring were developed from a Mitsu platform (Lancer?), but the poor execution is what is killing them...

0

Share this post


Link to post
Share on other sites
Your imitating CARBIZ and enzl in that reality addict thing....

Chris

Should I be flattered or insulted?

I'm not getting it.

I didn't think the article was overly negative, given the topic.

The Challenger and Ram have gotten OK reviews, hell, even the Hybrids got a little positive press in the USA Today this week.

0

Share this post


Link to post
Share on other sites
Should I be flattered or insulted?

I'm not getting it.

I didn't think the article was overly negative, given the topic.

The Challenger and Ram have gotten OK reviews, hell, even the Hybrids got a little positive press in the USA Today this week.

I don't think I've seen a Ram review yet. The Challenger reviews have been very positive. The hybrid SUVs are alright, Autoblog reported getting I think 22 mpg out of their test vehicle.

0

Share this post


Link to post
Share on other sites

Am I the only one who would rather see Mopar captive import a car from a brand not in this market? Say Fiat or PSA, or if they have to work with Nissan, at least a Renault? Taking something from a Japanese brand not named Mitsubishi hurts more than helps IMO (as the consumers have shown they perceive Japanese-badged cars to be superior no matter what, even all things being equal)

0

Share this post


Link to post
Share on other sites
Am I the only one who would rather see Mopar captive import a car from a brand not in this market? Say Fiat or PSA, or if they have to work with Nissan, at least a Renault? Taking something from a Japanese brand not named Mitsubishi hurts more than helps IMO (as the consumers have shown they perceive Japanese-badged cars to be superior no matter what, even all things being equal)

I would rather not see them rebadge anything. To me, rebadging foreign market products would be a quick fix to give the company some small fuel efficient products to plug gaps in their lineups until more permanent solutions could be developed. I do think they need to leverage partnerships with other auto companies in an attempt to gain access to platforms to shed some development costs. I really don't think they are in an economic position to develop new products from the ground up (we have Daimler to thank for that!). I do think they could quickly create some great new products if they could share platforms and production with other companies. For example: I think they could develop a nice replacement for the Avenger if they could work with Nissan on developing a new midsize sedan and coupe on the Altima's D platform. The resulting car would maybe share the platform, engines, and some switchgear, but have a distinct exterior/interior design that would maintain Dodge's affordable, sporty brand identity. I think this kind of setup would be the wave of the future for Chrysler LLC as far as developing future car products. I think they could work with other companies as the engineering lead on truck/SUV products since they seem to be more adept at developing/engineering these types of vehicles.

As far as my suggestion concerning importing a modified version of the JDM Nissan Bluebird Sylphy to give the Chrysler Division a compact sedan, I only intended that to be a stop-gap measure for Chrysler, not a permanent fix or arrangement. I chose this car for several reasons. First, I think it is a product that Nissan/Renault would not think of bringing to this market under one of their brands because it would be direct internal competition with other Nissan/Infiniti products. Second, the car is considered somewhat of a luxury car in its home market and would fit in nicely as a fuel efficient, near luxury compact sedan in the Chrysler Division lineup (after some modifications; most of which would be to install a Chrysler grille to the front, replace the Nissan badge with a Chrysler badge on the decklid, and add some metallic finishes and brightwork to the interior). Third, since Nissan doesn't offer this product under the Nissan/Infiniti brands in the U.S., it would be less likely to be viewed as a rebadge by the general public (of course, enthusiasts would know better); this is why I see it as a better choice to rebadge than the Versa. I don't think the exterior design is so overtly Nissan that it would do a lot of damage to Chrysler's brand identity; in fact, the headlight design has a shape that is somewhat like a squared-off replica of the current Sebring's headlight design (the taillight design is even a little reminiscent of the current Sebring's design). It even has a small quarter window behind the rear door (a real one, not a black plastic slab) that would tie in with the fake black plastic one on the current Sebring. Most importantly, this product would be viewed as a new fuel efficient Chrysler Division product (as opposed to the still attractive, but long in the tooth PT Cruiser) that might draw some customers back into Chrysler showrooms. This product would have a short model cycle (maybe 3 years maximum) until a more appropriate and distinct product could be developed to take its place.

Here's a couple of links if you want to see what the car looks like:

undefined

undefined

My suggestion for a long term fix for a Chrysler Division compact car would be to work with Nissan to develop a compact sedan and coupe cabrio off the company's RWD FM platform. The car would receive a distinct exterior/interior design that would be clearly identified as a Chrysler brand product although it shares underpinnings with Nissan.

Edited by cire
0

Share this post


Link to post
Share on other sites
I would rather not see them rebadge anything. To me, rebadging foreign market products would be a quick fix to give the company some small fuel efficient products to plug gaps in their lineups until more permanent solutions could be developed.

I agree.

0

Share this post


Link to post
Share on other sites

They can with minivans seriously I have ridden in a new Dodge Caravan SE 3.3L Flex Fuel and actually like it stow n go and all. I would get an SXT with the 4.0L to have some guts but I was impressed with the value for the money. The pearl red color was great too. The minivans are a strong point as is the Charger/300/Challenger even though they won't sell in the numbers they could with cheap gas they are great driving cars. As for the Sebring/Avenger with the new Malibu it makes these products even more laughable. Hell a G6 is like a world apart so the Malibu is at least two worlds apart. They are at the buttom of the catergory. Chrysler let the ball drop here and it is clear. As for Jeep that is another bright spot, so are Cummins prowered trucks. They will live with the new Journey I have hope, lots of it. Especially with Jimmy at the helm.

0

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now