Chrysler in crisis

Published: 02 March 2007

The trouble with Chrysler: the background

In 1996 when Chrysler opened its $1.1bn headquarters in Auburn Hills, 30 miles north of Detroit, executives joked that if things didn’t work out, they could always sell it as a shopping mall. Following DaimlerChrysler’s annual press conference on 14 February, local realtors are, no doubt, sneaking in to take measurements. Chrysler Group announced a staggering operating loss of $1.5 billion for 2006, and in the subsequent question time, DaimlerChrysler’s CEO Dieter Zetsche said the company ‘will examine far-reaching strategic options with partners’. When pressed he confirmed: ‘This means all options’. The suits are mulling over a sell-off of the Chrysler Group. Since then Tom LaSorda has been frantically trying to get attention back to his Recovery and Transformation plan, insisting that the company can be back in the black by 2009. His personal email to employees on 22 February stressed that the press was prone to whipping up rumours. Reading between the lines, it also indicates LaSorda thought Dieter should have kept his mouth shut.

LaSorda girds his loins

Details of voluntary redundancy and early retirement schemes landed in employees’ mailboxes on 23 February. On the same day, LaSorda (above) held a conference call to dealers in which he reiterated that the Chrysler Group plans to spend $3 billion on new engines, transmissions and axles to build more fuel-efficient vehicles, and that 20 all-new vehicles and 13 refreshed models are in the pipeline to arrive by 2009. He said: ‘Do these sound like the actions of a company uncertain about its future? Obviously not.’ But then a man in the corner has to make some promises – if he’s to survive.

Echoes of British Leyland

For the workers, the announcement of 14 February 2007 has become known as the St Valentine’s Day massacre. The company’s slim-down plan will cut production by 400,000 units and shed 13,000 staff in that time. It will also close two plants and reduce shifts at two more. The Recovery and Transformation Plan also relies on gaining concessions from the UAW union over its enormous healthcare costs. In September the union refused to give DaimlerChrysler the same deal already achieved by GM and Ford. This issue has to be settled before any sale authorised by Zetsche (above).

What went wrong?

The Big Three were all caught napping when fuel prices went up and stayed up rather than sinking quickly as they usually do in the US. Foreign makes offering more fuel-efficient vehicles (think Toyota et al) romped away with the sales. Chrysler group’s core business is its SUVs and minivans like the Voyager (Town and Country in the US, above), and it doesn’t offer a hybrid. The parent company preferred the idea of bringing diesel to a reluctant US market, but has so far struggled to meet stringent Tier 2 Bin 5 emissions regulations. LaSorda’s main crime, however, was not to cut production before 100,000 unsold pick-ups, SUVs and minivans were parked in empty lots all over Detroit by the end of 2006.

What are the options?

The rescue team at Chrysler faces some difficult choices: • DaimlerChrysler could wait to see if the three-year restructuring plan works. • Worst-case: Chrysler could go out of business. • Daimler and Chrysler could divorce, possibly continuing to share some technology. • The group could lose a division. Plymouth has already gone; Chrysler itself could be next. Jeep and Dodge have iconic vehicles such as the Wrangler, Ram truck, Charger and Viper. Chrysler has, err… the 300C (above). • Tom LaSorda is pushing for more third-party partnerships to cut R&D costs and fill gaps in the company’s line-up. • Chrysler Group could be sold outright.

Who could buy?

DaimlerChrysler shares jumped 8.3% to $69.78 at the news of a possible sale. Shareholders were less than thrilled, however, when The Times reported that JP Morgan Chase & Co was to circulate a memo to potential buyers asking only $13.7bn (about one third of what DaimlerBenz paid in 1998). Suitors have so far been thin on the ground: Nissan, VW and Hyundai have publicly declared they are not interested. Ford and GM have enough problems selling their own SUVs and pick-ups, but GM is rumoured to be interested. Chrysler Group could give an infrastructure and expertise to an Asian or Indian concern, but the burden of its $1300 per car health costs would be a major drawback. DaimlerChrysler is working with the state-supported Chinese company Chery, to build cars designed and engineered in the US. Malcolm Bricklin, the entrepreneur who brought Subaru and Yugo to America, broke off his deal with Chery in November because of quality problems. It is also unlikely that Chery has the experience to sort out a faltering American giant. Another possibility is Magna Stehr, which bought and now runs DaimlerChrysler’s Graz plant in Austria, but buying Chrysler would spoil its business with GM and Ford. It's now rumoured that DaimlerChrysler could sell Chrysler, but keep the Jeep brand, which fits well alongside the Mercedes product portfolio.

The future

Cost-cutting will help, but ultimately, as with any car company, Chrysler Group’s future relies on its products. Manufacturing costs will be reduced by more streamlining: vehicle platforms will be reduced from 12 to seven, and a single new Phoenix V6 engine family will replace four current six-cylinders. LaSorda is promising more smaller fuel-efficient vehicles, and the Dodge Durango hybrid (above) and new diesel Jeep Cherokee and Liberty should also pull in fuel-conscious buyers. There will be more third party deals worldwide: Hyundais are already sold as Dodges in Mexico and Chery will build a small car for Europe in China. The company must make sure its quality will be up to standard, however.

The products: what’s hot, what’s not

Hot list


• Chrysler 300C – an urban icon, never seen with wheels smaller than 20in
• New Chrysler Town and Country and Dodge Grand Caravan – new minivans to go on sale in spring look edgier and full of clever convenience features.
• Dodge Charger – a big hit, milking MOPAR heritage with specials such as the Daytona and R/T
• Dodge Challenger – Hemi-powered retro muscle car arrives 2008
• Dodge Magnum - Mean-looking wagon with a factory roof chop
• Dodge Viper – Corvette biter on road and track
• Dodge Ram – No one can mistake what’s bearing down on them. SRT10 is a monster
• All SRT and Hemi-powered products – Cool image, awesome power and handling Jeep Wrangler – Just what the customers asked for

Not so hot


• Chrysler Aspen (above) – Big, thirsty SUV arrived at the wrong time.
• Chrysler Sebring – Handles like a cheese sandwich, interior plastics look and feel cheap.
• Jeep Compass – Poorly disguised Dodge Caliber. Ads showed its drivers as plastic bobble-heads. Quite.
• Dodge Nitro – Just awful.
• Chrysler Crossfire – Drive never matched its looks, production for 2007 is to be cut by 60%

The future

Cost-cutting will help, but ultimately, as with any car company, Chrysler Group’s future relies on its products. Manufacturing costs will be reduced by more streamlining: vehicle platforms will be reduced from 12 to seven, and a single new Phoenix V6 engine family will replace four current six-cylinders. LaSorda is promising more smaller fuel-efficient vehicles, and the Dodge Durango hybrid (above) and new diesel Jeep Cherokee and Liberty should also pull in fuel-conscious buyers. There will be more third party deals worldwide: Hyundais are already sold as Dodges in Mexico and Chery will build a small car for Europe in China. The company must make sure its quality will be up to standard, however.

The products: what’s hot, what’s not

Hot list


• Chrysler 300C – an urban icon, never seen with wheels smaller than 20in
• New Chrysler Town and Country and Dodge Grand Caravan – new minivans to go on sale in spring look edgier and full of clever convenience features.
• Dodge Charger – a big hit, milking MOPAR heritage with specials such as the Daytona and R/T
• Dodge Challenger – Hemi-powered retro muscle car arrives 2008
• Dodge Magnum - Mean-looking wagon with a factory roof chop
• Dodge Viper – Corvette biter on road and track
• Dodge Ram – No one can mistake what’s bearing down on them. SRT10 is a monster
• All SRT and Hemi-powered products – Cool image, awesome power and handling Jeep Wrangler – Just what the customers asked for

Not so hot


• Chrysler Aspen (above) – Big, thirsty SUV arrived at the wrong time.
• Chrysler Sebring – Handles like a cheese sandwich, interior plastics look and feel cheap.
• Jeep Compass – Poorly disguised Dodge Caliber. Ads showed its drivers as plastic bobble-heads. Quite.
• Dodge Nitro – Just awful.
• Chrysler Crossfire – Drive never matched its looks, production for 2007 is to be cut by 60%
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