Friday, May 2, 2008

New Chrysler aims for profits, quality

Carmaker’s top leaders say it will be smaller, partner with others, and have higher quality products

Eric Morath / The Detroit News

Chrysler LLC's top executives have a vision for the automaker that in some ways defies much of what has defined being one of Detroit's Big Three.

Their Chrysler will be smaller. It will forge more alliances with other automakers and parts suppliers to gain access to new technology and to make better use of its manufacturing capacity. It will build fewer, but better, cars and trucks that meet changing consumer demands. And it will be profitable.

"Just tonnage is not the measurement anymore," Chrysler CEO Bob Nardelli said Thursday in a wide-ranging interview with The Detroit News that included Jim Press and Tom LaSorda, who share the title of vice chairman and president. "It's not about bragging rights. It's about financially delivering."

Carmakers to consolidate

This vision of a new Chrysler comes as the U.S. auto industry faces severe headwinds. A turbulent economy and rising gas prices are stifling vehicle demand and shifting consumer tastes to smaller and more fuel-efficient models.

Vehicles sales are down 7.7 percent through April and Nardelli doesn't expect a turnaround later in the year. Still, he said Chrysler is making progress. The company finished 2007 with $1 billion more cash on hand than expected and is on track to restore profits and positive cash flow, though he did not provide a timetable.

Chrysler has "a long way to go" but is on the road to profitability, Nardelli said.

Getting there will require being smaller.

Consolidation means that eventually there will be five or six global car companies that will sell more than 10 million units combined annually, but Chrysler won't be among them, Press said.

In that world, "we can play beautifully," he said. "Not being the biggest, but really fulfilling the needs of people where there is a visceral or emotional" connection to the vehicle.

"We're going to be a great little car company."

Chrysler will look to partner with the giants, as it has with Nissan Motor Co. and Volkswagen AG, to use Chrysler factory space to build vehicles for them.

In turn, larger companies will build vehicles for the Auburn Hills automaker, but Press promised those cars will be injected with "Chrysler DNA."

The automaker is focused on quality and intends to build vehicles that will earn buyers' loyalty. After launching five models this year, Chrysler will slow its product introductions and focus on making existing and future vehicles better -- no longer relying mainly on new models to prop up sales.

It will sell more parts

Chrysler will continue to look for partners on products and parts. The automaker is seeking a potential joint venture partner for its new axle plant, being built in Marysville, near Port Huron, so it can maximize production efficiency there by building axles for itself and others.

Other automakers "may be less inclined to buy from a direct competitor, but more inclined to buy from a joint venture," Nardelli said.

Chrysler is also selling transmissions and engines built in North America to manufacturers in China and Russia as a way to take advantage of excess capacity.

LaSorda said the automaker continues to seek out other alliances -- particularly to gain technology in the area of electric vehicles and other fuel-saving technologies.

"Why would we spend hundreds and hundreds of millions on (research and development), when we could buy it?" he asked.

The three executives said Chrysler's owner, Cerberus Capital Management LP, empowers them to make day-to-day decisions, including product-level alliances. Cerberus executives, however, lay out the company's long-term strategy and would negotiate any wider alliance, such as a speculated union with Nissan.

At this point, LaSorda said there have been no further talks about partnerships with Nissan. The two automakers recently reached a deal that calls for Nissan to build small cars for Chrysler and for Chrysler to build pickups for Nissan based on the Dodge Ram.

Chrysler seems to be facing down reality and smartly paring down its business and looking for alliances, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

"Compared to competitors, Chrysler lacks economies of scale," he said. "By doing these partnerships, particularly with a component like an axle, which a customer wouldn't see, it gives them a better shot at achieving that scale."

Private firm has advantages

Private ownership allows Chrysler to move quickly on partnerships and with its reorganization plan, Nardelli said.

Forecasting a significant drop in 2008 sales late last year allowed the automaker to cut shifts at five plants to better match production with sales. Nardelli said a public company might not have been able to take such bold action, fearing shareholder backlash. "Because we're a private company we can say what we want," he said. "The bad news is, we were right."

Chrysler's restructuring, which began last year before Daimler AG sold Chrysler after nine tumultuous years, is on target to reduce head count. LaSorda said the automaker will shed 10,000 workers from its payroll this year, matching the number of jobs cut last year.

In November, as part of that plan, Chrysler said it would eliminate 8,500 to 10,000 hourly workers. LaSorda said early retirement and buyout packages have achieved 78 percent of that goal already this year.

The executives reiterated their support of federal fuel economy standards, saying Chrysler is producing environmentally friendly vehicles that reduce American dependence on foreign oil. The company will roll out its first hybrids later this year and offer diesel and hybrid versions of its next generation Dodge Ram pickup.

Nardelli, however, railed against state-specific regulations. He also suggested the next president could use environmental tax incentives to encourage consumers to buy greener vehicles and bolster the nation's economy by only offering the incentives on domestic cars and trucks.

1 comment:

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