Thursday, September 4, 2008

New Chrysler executive James Press tries to jump-start the troubled auto company

Jim Press, Chrysler president and vice chairman.
Anne Cusack / Los Angeles Times
Jim Press, Chrysler president and vice chairman during an interview with Times reporters and editors.
By Ken Bensinger and Martin Zimmerman, Los Angeles Times Staff Writers
September 4, 2008
After 37 years at Toyota Motor Corp., during which time he rose to the top job in North America, James E. Press shocked the car world by jumping to Chrysler last year.

It was a dramatic transition, from being the only American on the board of the world's most successful car company to co-president and vice chairman of the smallest, and most troubled, of the Big Three U.S. auto manufacturers.

While Toyota soared, gobbling up market share and surpassing all but General Motors Corp. in U.S. sales, Chrysler slumped. A nearly decade-long merger with Daimler ended ungracefully; the German carmaker sold 80% of the company to private equity shop Cerberus for $7.4 billion last May -- a fraction of what it paid for Chrysler in 1998.

Newly private Chrysler, headed by former Home Depot Chairman Robert Nardelli, made Press its key industry hire. Since then, Chrysler has signed a cost-cutting major new contract with the United Auto Workers that will significantly reduce the high cost of manufacturing its vehicles. It also announced plans to cease production of four vehicles, cut production by more than 1 million vehicles and shrink its pool of dealerships.

The company also signed a pact with Nissan Motor Co. to produce trucks in exchange for small cars that it will sell in South America and, eventually, the U.S., and inked a deal with Chinese carmaker Chery Automobile Co. to make small cars that could make Chrysler the first company to bring Chinese autos to the U.S.

Meanwhile, Chrysler has fallen to No. 5 in U.S. vehicle sales and, according to Press, has no hopes to turn a profit until 2010 at the earliest.

A California native and an avid swimmer (he calls swimming his job and cars his hobby), Press has lived in Japan and New York but now calls Detroit home. He visited the Los Angeles Times this week to discuss the rebuilding of Walter P. Chrysler's auto company. The interview was edited for length and clarity.

Chrysler has had some pretty significant decreases in the volume of vehicles it sells. You've described that as a good thing. Can you explain?

Volume is vanity; gross profit is sanity. In an attempt to try and maintain a bigger market share and a higher sales volume, we were making decisions that economically weren't in the best interest of the company. Fleet sales are an example of that. There's no economic benefit, because the long-term effect of fleet is to deteriorate your residual values. That's a case where we could actually sell fewer cars but financially be in better shape and position ourselves for more retail business, which is really the key.

The old metric of volume doesn't really work anymore, because the more some companies sell, the more they lose.

What's the ideal number you want to get to in terms of U.S. sales volume?

We're closer to 2 million or 2.5 million per year as a car company (as opposed to a goal of 4.5 million previously). That's about where we're going to wind up. The market is going to recover in 2010, 2011 or 2012, and we've got some good new products coming and that growth should be attainable.

Do you see getting smaller not just by cutting back on fleet sales but also by trimming back the lineup?

Exactly. Our product portfolio has been brought down to where we're focusing more on profitable models. Vehicles that haven't been increasing profit we quit building.

The really profitable segments of trucks and SUVs aren't going to be there in the future. The profitable cars of the future are going to be environmentally friendly vehicles, socially responsible products. They're going to have smaller margins.

It's a much more competitive environment.

Making cars that are fuel efficient is not what Chrysler is perceived as being strong at. Is Chrysler in a strong enough financial position to bring those products to market?

Absolutely. The small car has been an entry-level, low-equipment, low-margin vehicle. This transition of customers into smaller, more fuel-efficient vehicles doesn't mean they're giving up their desire to have comforts and luxuries. If you can maintain the margins, you could make money on those vehicles.

We have accelerated our alliance partnership program to be able to introduce those platforms much faster than if we had to develop them ourselves. An example of that is our partnership with Nissan. We don't have a lot of low-cost, entry-level sedans. But it's a segment we'll be in by 2010.

Ford is going to make their Fiesta in Mexico and then focus on building their F-series trucks in the US. Is it possible that Chrysler will build its small cars outside the U.S. and its trucks in the U.S.?
We produce vehicles in Mexico, but we also just announced a $1.8 billion investment in our Jefferson North plant in downtown Detroit. Our new agreement with the union has given us much better parity in terms of labor costs. The value of the dollar has declined, which has given us a more competitive position in terms of sourcing components. We're not in an environment any longer where this is such a high-cost country. I think that through some creative innovative engineering and design we can continue to become more efficient here.

What do you see as your biggest challenge in helping the company through these turbulent times?

Our biggest issue is credit. Getting people financed that could have been financed before is difficult and the cost of that credit is substantially higher. A lot more people are being turned away. That's why we switched our financing to allow our customers to buy a car rather than lease it.

Instead of leasing a car and turning it in after 36 months, they get to keep the car.

Why are carmakers asking for $50 billion in loan guarantees from the government?

This wasn't the auto industry's request. It was in the energy bill that was passed last year. When they cranked up fuel economy requirements, in that bill they provided $25 billion worth of loan guarantees to help auto manufacturers and suppliers retool to produce vehicles that could achieve those levels. When you take a look at the broader section of potential customers that might draw on that line of credit, it becomes apparent that maybe $50 billion might be an appropriate number. It accelerates the introduction of technology in the market to help reduce our dependence on foreign oil and improve greenhouse gas emissions. The longer it takes to transition to that technology, the further behind we are. It's not a loan bailout, and it's not because the U.S. car companies are distressed.

What are your plans for the product line?

We just introduced the Journey, which is a four-cylinder crossover SUV, seven passengers, 25 mpg, under $20K starting price. We're also investing $3 billion in the Phoenix engine.

It's an investment in a revolutionary new technology that will give us high fuel efficiency and really good performance.

What are you doing to address quality problems?

In the last year, we've made substantial improvementsto our vehicles. By focusing on fewer models, we can make sure that those we develop have a lot more robust quality in testing and development. The commitment of the people and the focus on quality has been improved by adding the first-ever chief customer officer. And we have quality teams which manage quality by vehicle system, across all vehicle lines, powertrain, brakes, all areas. This way if you take people who just know brake systems, they can pick up problems through all car lines.

Now that you're selling the Viper brand, are you thinking of selling other assets?

We've been selling assets. Now that we're a private company, we don't have to worry about disposition of idle assets. We just sold a plant down in Italy that has been unused for a number of years that they couldn't move off the books because they didn't want to take a hit on the balance sheet. But we're not selling the whole company off. Cerberus said it's a long-term investment for them.

What's the biggest difference between Toyota and Chrysler?

Toyota has been focused on the market, on the customer. The decisions drive up from the marketplace to the customer. What I found at Chrysler, before Cerberus ownership, was it was primarily manufacturer driven, where they decide what the manufacturer wants and they try to move that out to the customer. That paradigm might have worked in the past, but in today's age it doesn't. That's Cerberus' main desire, to achieve a customer-driven model. We've invested a half a billion dollars in changing the vehicles. You can't charge more for it, but the customer is going to know it sounds better, it smells better, it feels better. It's an enhancement of what the customers want.

Any regrets about leaving Toyota?

I had 37 great years at Toyota. I had a great career. Toyota does so many things right and to apply those lessons to a company that has a shot of making it and transitioning has been very rewarding. It's a different world, it's a different business. In the beginning [at Toyota], we were begging gas station owners to take three cars and enough parts to repair one. They were our first dealers. It was a completely different world. They were really smart.

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