Trucks and SUVs are strong suit
Chrysler's deal with Nissan last week demonstrates an important, often overlooked fact about the struggling Auburn Hills automaker: Chrysler does some things better than any car company in the world, and other things far better than most.
The company's future may hinge on recognizing that truth and leveraging the clout leadership brings.
At the same time, Chrysler should face the reality that it can't waste resources developing vehicles it's not good at.
The agreement with Nissan will see Chrysler's new Dodge Ram pickup form the basis of the next generation of Nissan's Titan full-size pickup in 2011. Chrysler plans to build the pickups at its Saltillo, Mexico, plant and move production of its own pickups from Mexico to plants in Warren and St. Louis.
In exchange, Nissan will build a subcompact car for Chrysler in 2010. The car will use a new platform Renault-Nissan is developing, giving Chrysler unprecedented access to a vehicle engineered by two companies that know how to produce appealing and fuel-efficient little cars.
A few years ago, then-Chrysler boss Dieter Zetsche said the company would grow from selling 3 million cars a year to 4 million by the end of this decade. That plan crashed, taking DaimlerChrysler with it and leaving the company's U.S. arm to pick up the pieces.
The new Chrysler aims to become profitable selling 2 million vehicles a year. That's 676,000 fewer than it sold around the world in 2007.
There's been a lot of talk about Chrysler reducing the number of models it builds, but a more fundamental truth lies in those numbers: Chrysler has to reduce the number of vehicle architectures. An architecture is a set of structures and components used as the underpinnings for a variety of different vehicles.
The more different vehicles a company builds using a single architecture, the lower its costs and higher the chance of turning a profit. The break-even point differs, based on a variety of factors, but let's use GM's year-old Lambda crossover architecture as a model. When all the vehicles using it hit the road, annual production should be 400,000 to 500,000.
GM can expect a healthy profit from the program. Specialty architectures, like the Dodge Viper, Chevrolet Corvette, Pontiac Solstice and Saturn Sky, can make money at lower volumes, but they sell in such small numbers that they're irrelevant when you're talking about a total of 2 million, so set them aside for now.
Depending on how you count -- and excluding the Viper -- Chrysler has 10 or 11 architectures in production today.
Does not compute, Will Robinson. Two million vehicles divided by 10 architectures equals 200,000 per. That spells Trouble with a capital T, and that rhymes with C, and that stands for Chrysler.
Chrysler is too small to afford any mistakes. Develop a subpar vehicle and you're stuck with it for six years or more. The answer lies in the current product line, however. Today, Chrysler builds four or five architectures that are among the world's best in their categories:
• Full-size pickups (Dodge Ram)
• Minivans (Chrysler Town & Country and Dodge Grand Caravan)
• Rear-wheel drive cars (Chrysler 300, Dodge Charger, Dodge Challenger)
• Small SUV (Jeep Wrangler)
• Larger SUV (Jeep Grand Cherokee)
There's plenty of evidence of Chrysler's capability in those segments. Nissan is getting out of big-pickup engineering because Chrysler does it better. Volkswagen gave up trying to create a minivan and hired Chrysler to build it one. If Chrysler were selling, it would find plenty of buyers for vehicles based on the next-generation 300, Wrangler and Grand Cherokee.
All Chrysler's efforts should focus on widening its lead in those areas.
Chrysler can build a broad and appealing model line on that foundation. The minivan and Grand Cherokee architecture could spin off other good SUVs and crossover vehicles.
The 300/Charger program could provide the basis for a midsize car that's more appealing than the current Chrysler Sebring and Dodge Avenger.
If Chrysler hasn't demonstrated the ability to engineer a great vehicle in a market segment, hire somebody else to do the job for it.
The seeds of a strategy to do that lie in last week's deal with Nissan. The question is whether Chrysler will decide to maximize its strengths or continue to dilute its resources.