Jerry Flint, Forbes.com, 01.19.01, 12:01 AM ET
Chrysler has problems: a $500 million loss in the third quarter of last
year, maybe $1 billion in the fourth quarter. U.S. operations are not
pouring money into the bank at Stuttgart, the headquarters of
DaimlerChrysler, and the Germans need all the money they can get to help pay
for their acquisition spree.
So it's panic time in Stuttgart. The Germans seem to think they must burn
down Chrysler (nyse: DCX) in order to save it.
The German plans:
1.Chopping planned new Chrysler models.
2.Ordering--not asking--suppliers to cut prices 5%.
3.Getting rid of thousands of Chrysler white-collar employees.
4.Combining some product development and production with Mitsubishi of
Japan, in which DaimlerChrysler holds a controlling stake.
5.Using parts or production techniques from Mercedes itself.
Chrysler's German masters think that all these actions will save billions of
dollars. The final solution is supposed to be ready at the end of February,
but I have serious problems with these ideas.
Let me start with new product plans. Chrysler has lived and prospered by
bringing out innovative and exciting vehicles--from the first minivan to the
PT Cruiser. In a market that is increasingly driven by imaginative, stylish
products Chrysler can ill afford to stifle its product pipeline. Call me
paranoid, but I am suspicious of any Stuttgart-directed cutting in this
crucial area.
Ordering parts suppliers to cut prices 5% is another mistake. Suppliers have
already made big concessions to Chrysler, and are furious with the new
demands. Some, in fact, are saying they won't do it, even if they lose
business.
Let me say two things:
Chrysler made huge profits when it worked with suppliers. Under former
Chrysler President Tom Stallkamp the company achieved remarkable cost
reduction through cooperation. This was one of the great strengths of
Chrysler when it was independent. But the Germans had Stallkamp fired--he
talked back too much--and now they are reverting to the old tried, tested
and unsuccessful methods of other carmakers.
To my knowledge DaimlerChrysler isn't making brutal demands like this--at
least publicly--to parts companies in Europe. For example, the Smart car,
made by Daimler in Europe, is a disaster losing $500 million per year the
last time anyone gave out figures. Daimler did not autocratically cut the
prices it was paying German and French parts makers by 5%. Nor are the
Germans shutting the money-losing Smart factory or laying off large numbers
of employees.
Meanwhile, the bosses in Stuttgart want to lay off, retire or fire thousands
of U.S. white-collar employees. If the United Auto Workers are interested in
organizing the white-collar workers of Chrysler, now is the moment.
What about the idea of combining designs or parts with Mitsubishi to save
money? Mitsubishi is presently an unsuccessful company. Chrysler outsells
Mitsubishi by nine-to-one in the U.S. Yes, the two companies have some
cooperative ventures, but they are not particularly successful and there are
few reasons to think that larger cooperation, involving angry Americans and
dumbfounded Japanese, would work.
What about sharing with Mercedes? Most of Mercedes' cars sticker for $50,000
or more. Chrysler's sweet spot is the $20,000 range. If someone's got a
little trick to save a few pennies on low-visibility components, fine. But
it wouldn't pay to ship parts from Germany to the U.S., and Mercedes'
designs and parts are expensive. That's why its cars cost so much. So how
much can you save? And the company runs the terrible risk of diluting the
Mercedes name.
What would I do?
Yes, new product plans should be reviewed. That's always wise, but it should
be done by people who know a lot about the American market. The goal should
be to offer the best, most creative cars and trucks at the lowest cost. I'd
also mend fences with the suppliers, and go back to the old strategy of
cooperating and sharing the savings.
What about staffing? Chrysler was never overstaffed when I worked in
Detroit. Somehow I doubt that this has changed. Yes, there might be a little
fat, but the ugliest fat I've seen is the German plan to crate an extra
headquarters for themselves in New York City. Why not cut that one, boys?
On the product front I'd put cooperative ventures with Mitsubishi on the
back burner and be very careful about putting Mercedes components or
production technology onto Chrysler platforms. A Mercedes S class sedan and
a Dodge Neon shouldn't have anything in common.
A final parting thought on Chrysler's present products: Stop worrying. The
new minivan is a winner. If it gets the first-rate marketing and advertising
it needs, sales will take off in the spring, a traditionally good time for
such vehicles. The same with the new Chrysler Sebring convertible, which is
just moving to dealers. And the launch of the new Jeep Liberty--which looks
like a big winner--is crucial, so every effort should be made to do it
right.
As I see it, Chrysler has three big problems: product development costs,
rebate-based marketing and an ongoing need for new products. Getting these
three right is hard work. Panic won't do the trick.
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Steven St.Laurent
2000 Dakota Hemi 4.7 (WRECKED!!)
2000 Ford Roush Mustang Stage III - TT version (sold)
1999 Chebby (gone in 2003)
1993 Tracker (still going-going-going...)
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Aspiring for now:
2003 Dakota Hemi 5.7 or a V-10 mod
2003/4 Viper GTS-R
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