Automaker wants to reduce models, streamline
February 9, 2008
SAN FRANCISCO -- Typically a new vehicle marketing launch costs $100 million, but when Chrysler LLC rolled out its redesigned minivans last year, it cost the Auburn Hills automaker $200 million.
Why spend $100 million for the Dodge Grand Caravan and $100 million for the Chrysler Town & Country?
Because we wanted that Dodge to compete with Chrysler as best as we could," Jim Press, Chrysler president and vice chairman, said facetiously Friday during a presentation at the J.D. Power and Associates automotive roundtable ahead of this weekend's National Automobile Dealers Association's annual meeting.
That $100 million could've gone into another vehicle or the bottom line.
"We're doing the same thing with other vehicles," Press added. "We're engineering by badge to support franchises, and we don't have the retail volume to support the franchises."
The automaker, which became private in August, is rapidly moving to realign itself and spent the past week or so telling its franchise dealers of plans -- dubbed Project Genesis -- to significantly lower the number of its models and of stepped-up efforts to consolidate the dealer network.
"We don't have a specific number. We don't have a specific timetable. But we do know that when this new product portfolio rolls out in four or five or six years, if you don't have all three brands under one roof, you won't have the full product line available to optimize your costs. That's a fact. Time is not on the side of waiting to see what happens."
Dealers have told the Free Press that Chrysler has told them the automaker could cut its model number by nearly half, giving them around 18 or 19 models to sell as it steps up efforts to compact its dealer network. Chrysler has about 30 nameplates.
"For us to be an effective company at this ballgame, all three of our brands belong under one roof for marketing and production so we can allocate the product, planning and developing resources so we can effectively develop world-class cars and trucks," Press said.
Cerberus Capital Management acquired a majority stake in Chrysler in August, making the Auburn Hills company the first privately held automaker in more than 50 years. Since then, Chrysler's new management has moved with lightning speed, slashing as many as 12,000 jobs on top of 13,000 already planned for elimination, cutting four products and cutting production. The company has indicated it wants to cut less-profitable fleet sales by perhaps as much as 200,000 vehicles.
Chrysler, which was on track to lose $1.6 billion last year, sold less than 2.1 million cars and trucks in the United States last year, a 3.1% decrease from 2006.
"We always thought at Chrysler we were a 4-million-a-year company," Press said. "So we had 32 products because we're a 4-million-a-year company. We had plants running to have a 4-million capacity. We had the whole overhead, we had our employment based on selling 4 million cars a year. But guess what? At retail, we're selling a million and a half.
"Wake up now."
Chrysler sees the opportunity to compete domestically against global automakers that use scale to save money but must, in turn, use one-size-fits-all approaches to design.
Press stressed Friday that Chrysler has not set a goal for how many vehicles to eliminate, nor has it said how many dealers it wants to eliminate.
"All we did with the dealers is we gave them some theoretical, conceptual examples," he said before his speech. "This is all going to be in dialogue with our dealers. So, there are no numbers. ... We're still working through what those products should be. But we do know that we don't need 11 SUVs."
He indicated that Cerberus will help dealers consolidate by sharing expertise in real estate, taxes and financing.
Steve Landry, Chrysler executive vice president for North American sales, told the Free Press that Chrysler is working with dealers on what the right number of dealerships is for different markets.
"The smartest thing I think we're doing is looking at how many service stalls do we need ... then backing into how many dealerships we need," he said. "In some cases, like Florida, you may have a dealer that has 150 service stalls, and that may equate to two or three dealerships that we don't need."
Over the past four years, Chrysler has consolidated 250 dealers through Project Alpha, he said. Still, the Chrysler brand has about 110 stand-alone dealerships, he said.
"The good news is that we're addressing this now for something that is four or five years down the road and not coming in 2011 and saying, 'We need to get this done by next year,' " he said.
Timing could help the Genesis plan, said Mike Maroone, president and chief operating officer of AutoNation, noting that commercial real estate prices have "stopped skyrocketing" and the auto industry is in a slump.
But how long the process takes could depend upon how much Chrysler is willing to spend to encourage deals.
"It depends on how much capital they put into it," he said. "They did some tremendous things transforming the labor agreements. It took ... billions and billions of dollars to do that. We'd like to see them put significant capital behind this, because it's not going to get easier two years from now