Chrysler Outlines 'The Plan.' Now, Can it Work?
November 05, 2009
After Chrysler Group LLC detailed an all-encompassing, five-year business plan to a horde of analysts and the media Wednesday, most left the company's headquarters in Auburn Hills, Mich., wondering whether it was fair to judge the plan outlandish or merely wildly ambitious.
The two critical components to Chrysler's rejuvenation at the direction of 20-percent owner and managing partner Fiat S.p.A.: a) a massive increase in global sales, from 1.3 million units projected for this year to 2.8 million by the plan's finish in 2014; and b) a wholesale but hardly radical refreshening of its product portfolio that will enable the tremendous sales leap.
Chrysler CEO Sergio Marchionne acknowledged the plan's numbers and assumptions invite skepticism. In his closing comments, he enumerated at length epitaphs written for Fiat when he took over as CEO and Fiat was in similar straits.
Marchionne set the tone for cynics when began the more than 7-hour marathon overview by saying that contrary to popular belief, Chrysler has not been burning through its cash reserves, most of which exists because of billions in government loans from the U.S. Department of Treasury's Troubled Asset Relief Program.
Marchionne said that rather than burning cash, the company earned a modest $200 million in revenue in the third quarter and has added more than $1 billion to its cash on hand - thanks mostly to the results of colossal cost-cutting of its structural costs, not to mention the shedding of most of its debts in Chapter 11 bankruptcy.
Astounding Assumptions?
Although Chrysler's ability to add to its cash reserves likely was a transitory phenomenon (thank the Cash For Clunkers program and the fact Chrysler factories were shut down for months), participants here couldn't escape the tone of aggressive optimism behind Chrysler's assumptions about sales increases.
Marchionne and other Chrysler executives - including Richard Palmer, executive vice president and CFO, the man charged with delivering much of the incredible news - said a primary factor underlying the company's ambitious volume targets is the assumption U.S. and world markets will begin a steady recovery beginning next year.
But that does not wholly rationalize Chrysler's outsized projections for sales and market-share increases. By 2014, Chrysler's projections for brand sales growth include a volume gain for the Jeep brand from about 500,000 in 2008 to more than 800,000 units and a 50-percent volume gain for the Ram brand, increasing unit sales by some 135,000 units from 280,000 today to 415,000.
Sales in Canada are projected to increase from 160,000 units to 220,000 units, while sales in Mexico are expected to jump from 80,000 to 120,000.
The company expects to hike its market share from less than 9 percent now to more than 13 percent by 2014.
These results are what bring Chrysler to some openly optimistic financial assumptions, which include an operating-profit breakeven next year and becoming operationally cashflow-positive in 2011. The company projects a paying back the U.S. Treasury fully by 2014, an amount of around $5.7 billion.
The Product Side
The rosy volume and financial gains won't develop without products that sell. Chrysler's plan, by brand:
Dodge: The plan for Dodge is a mixed bag. Next year sees two major product launches: an all-new 7-passenger crossover based on the new Chrysler 300 architecture, that effectively is the replacement for the out-of-production, truck-based Durango, and an all-new Charger using the same platform.
For 2010, the Avenger, Caravan and Journey also get major "interventions" as Marchionne likes to call redos that are more than facelifts but less than major engineering makeovers. And after a 500-unit final run, the Viper comes to the end of the road in May.
In 2012, a new C-segment sedan will replace the unloved Caliber hatchback and who knows, there may be some replacement for the Viper.
In 2013, Chrysler - at long last! - launches a Fiat-based subcompact car, the overdue appearance of a production car fulfilling the promise of the Hornet concept. The Avenger also is totally redone.
The Grand Caravan is all-new in 2014.
Chrysler: A new 300 flagship is coming next year, the same time the Town & Country minivan gets a wholesale makeover of everything but its platform and the Sebring midsize sedan gets a "major modification" that execs say includes just about everything that can be modified within the confines of the existing platform
But then nothing much happens until 2012, when there's a new C-segment compact sedan. In 2013, Chrysler gets a Fiat-developed compact car, a Sebring replacement and a new midsize crossover. In 2014, the Town & Country is redesigned.
Ram: This year's intro of an all-new Ram Heavy Duty will have to hold Chrysler's newly formed brand until at least mid-2011, by which time Joe Veltri, vice president of product planning, hopes he has convinced Marchionne to have pulled the trigger on a unibody replacement for the Dakota midsize pickup.
In 2012, all the Ram pickups with have major modifications and there will be a new large commercial van and a small van sourced from Fiat to replace the currently Daimler-based Sprinter.
Jeep: In 14 months, every Jeep will be heavily overhauled or refreshed, said Veltri. That includes next year's launch of the all-new Grand Cherokee and a heavy makeover of the Wrangler that includes an all-new interior. Next year also sees a refresh of the aging Liberty and heavy modifications for the Patriot and Compass.
In 2011, the Wrangler gets more modifications, with the focus on the addition of a diesel engine and a fuel-saving start/stop system.
Further out, the Patriot and Compass will be replaced by a single new model in 2013, the same year Jeep gets an all-new subcompact model likely based on Fiat Punto underpinnings. The Liberty also is replaced in 2013
Veltri said that by 2014, 56 percent of the Chrysler Group's worldwide volume will be based on Fiat platforms.
Yet, Marchionne countered, the Fiat brand will not have a large impact in the U.S. - it will be up to Chrysler to carry the water of the company's turnaround.
"We're not going to revolutionize the world with a Fiat in the U.S.," he said.
Marchionne insists the recovery outlined this week is a stretch, but is not the result of mass executive delusion. He said the 5-plan is the culmination of intensive and rational study.
"No one is planning miracles here," Marchionne said. --Bill Visnic, Senior Contributing Editor
Photo by Chrysler
Fiat-Chrysler CEO Sergio Marchionne (left) and his management team outlined the five-year plan for Chrysler on Wednesday.
Posted by Michelle Krebs at 3:35 AM under Chrysler , Featured , Personalities | Comments (10) | digg this | Seed Newsvine
There's nothing wrong with ambitious plans, as long as they recognize it as such. Having a target that, while being a stretch, still has some chance of success (no matter how small) can inspire people to try harder. Coming out with a "we're screwed, no point trying" plan just ends up in failure because its built on the assumption of failure. Overly ambitious and totally unrealistic plans are bad too, because people will see through them, and it starts to look like desperation rather than determination.
This doesn't mean Chrysler won't stumble or implode completely. But they do need to have a positive, rather than negative, outlook on their future. I'm a little skeptical of the sales targets myself, but even if they only achieve half of what they set out to do, they will have done well.
At least this with this new plan, and the comments I've read from Marchionne and others, they realize they need good product, they need to make a profit (or at least break even), and that they need concentrate on sales volume, not marketshare. Toyota stumbled big time when they obsessed about marketshare, rather than sticking to their original plan: sell as many units as they can for the highest profit possible. Marketshare will take care of itself in the end. Money pays the bills, not marketshare.
Posted by: pushrod | November 05, 2009 at 6:14 AM
I always estimate company outlooks to be overly optimistic. If they weren't, the CEO would get kicked right out of office. Typically I assume every estimate is 60% substance and 40% fluff. Despite such a reality check, I think Marchione is still way out of line. Here's why:
1. Fiat doesn't exist in the US. They haven't in decades. Fiat doesn't know the American public. They don't know how to market them.
2. Fiat doesn't plan for any new products until 2013! One year before this supposed 2.8 million cars. And that 1 model is a subcompact, not a hot seller.
3. Chrysler products primarily compete with themselves. Most Chrysler owners are folks that think they're getting a nice Dodge. Tweaking a few interiors isn't going to change that.
4. Chrysler has poor build quality. Nobody's sure if the addition of Fiat will really help.
5. Mopar fans appear to be furious with this plan. They could potentially isolate what few customers they have. Alternatively, most folks that want an italian-bred vehicle will be scared to buy a Chrysler.
6. Jeep fans will be furious if Fiat touches the Wrangler.
7. The economy still sucks.
8. It's still expensive to import European goods, which means Chrysler would have to compete with the likes of VW or Audi.
Essentially, I just don't see it happening.
Posted by: estreka | November 05, 2009 at 9:15 AM
I think estreka has made some good points. A huge jump in sales is forecast without much in the way of changes to models that are basically not selling now? It is good that Chrysler has $5 billion in cash reserves since they will need it all. And a FIAT 500 modified for the United States market will not be anything more than a niche car, at best like the MINI and at worst like the Smart Car. Good luck with this.
Posted by: sprocketboy | November 05, 2009 at 10:06 AM
They sure planing a lot of refreshing on the inside of cars, but I do not see how this plan can realy work. Chrysler problem is over banding and too many models, and I see it getting worse in this plan. Jeep is getting a compact car, is this makes any sense? Its like adding Yaris to Lexus. I will not be suprise if they will add Vespa to Ram.
Posted by: mzohar | November 05, 2009 at 11:45 AM
If we go back to late 2006 thru 2007, we can read all of the rosy talk from Allen Mulally and Bill Ford about what a great opportunity to move forward, rising to the challenges, yadda yadda, and they were given little chance to survive. Credit rating at B3. Cash burn to below $15 billion on hand (Dec.'07).
But they are working through all the radical and controversial strategies of One Ford. Meanwhile, improving build quality and increasing market share and making money. Early.
For many of us who are skeptical of the 5-year Marchionne plan, myself included, we are probably jaundiced with the memory of Fiats and Alfas of 35 years or more ago linked to the dismal, recent history of the Chrysler Corporation.
Before the "telethon" yesterday, Marchionne knew who his go-to people are, and who are the yes men (ok, persons) on both sides of the Atlantic and set his goals. I for one think I'll wait and see how this latest edition of The Saga Of Auburn Hills plays out.
Posted by: fulcrumb | November 05, 2009 at 3:31 PM
fulcrumb: I don't think the Ford CEO ever promised to double sales in four years, and Ford has always been healthier than Chrysler (or better said, the least sick of the Detroit 3). As to being jaundiced about the Fiats and Alfas of 35 years ago, in British magazine Which? Car's survey of used vehicles (up to 8 years old), Fiat placed 35th out of 38 brands in quality. At least it beat Chrysler, which came in last. Surveys in France and Germany did not rank it much better. So I would say that Mr. Marchionne has a huge project on his hands here.
Posted by: sprocketboy | November 06, 2009 at 8:58 AM
Fulcrumb - interesting point. But Ford was in a much better position than Chrysler with at least average quality at that time (now towards the top). Ford also didn`t set itself to increases sales by a huge margin. Ford also could fairly easily leverage their European operations (Fiesta next year, not 2013 and also the new infleunces on the Fusion and Taurus).
Chrysler is in a much worse position with only 5 billion rather than $23 billion to play with.
Posted by: guy1974 | November 06, 2009 at 9:49 AM
Chrysler has in place what it needs to go forward. Despite all the arm chair quarterbacks here, Chrysler has some excellent products in its current (and future) platforms, engines, and transmissions, (coming). Most of the lineup is relatively recent, and all of it can be substantially improved with proper engineering and execution. They still have a loyal customer base and what has lost many of them recently is the Daimler connection, along with its sub par quality. I think this is Chryslers VERY LAST CHANCE to get it right though. If they do, a lot of previous customers would return. Remember that a 12% (U.S.) market share isn't unusual for Chrysler, and it's the best selling brand in Canada (that would be #1 - Chrysler, Dodge, Jeep, combined). Not so shabby for a company just out of bankruptcy!
Posted by: jimboy45 | November 08, 2009 at 2:39 PM
jimboy - I hope you are right but I think you may be forgetting that Chrysler has so awful new product in key segments like the Caliber and the Sebring. The key car markets are compact, mid size and small SUV - Honda is based upon Civic, Accord and CRV, Toyota has the vast majority of its sales from Corolla, Camry and RAV4. The Sebring was brand new and is ranked last in car reviews against much older vehicles. Ford and GM both have creditable entires in that market. The Caliber sold 560 last month, not due to a shortage - less than 1 per dealer.
They need to up their game and not just rely on the 300 and the Ram truck.
Posted by: guy1974 | November 09, 2009 at 8:17 AM
I'll give Mr. Marchionne one thing: I had no hope at all for Chryco, but this plan actually has me feeling optimistic for them. A well-handled product refresh can work wonders until the replacement product arrives; look at the Ford Fusion, Focus and Escape for the best examples of this.
From what I can tell, the biggest complaints against Chrysler products are interior design and finish, followed by exterior styling. In other words, perceived-quality issues. These are things that can easily be improved with a dynamic refresh.
Body mechanicals shouldn't be an issue for now, since many Chrysler vehicles share a chassis with the Mitsu Lancer & Outlander, and those are class-leading cars. And if you read the details of Chrysler's plan, they are addressing mechanical & component quality control issues immediately.
I'm not saying they're going to hit it out of the park. But they DID at least show up for the game, which is more than I was expecting of them!
Posted by: misterfusion | November 09, 2009 at 11:35 AM