Fiat CEO Sergio Marchionne Says Chrysler in Worse Shape Than Thought
By Chris Haak
On the sideline of the Frankfurt Auto Show, Fiat’s CEO told reporters that the situation at Chrysler was even worse than he had known. I’m not quite sure why this is a surprise to him – and maybe it’s not and his statement is intentional PR-speak, but the fact that Chrysler has nothing to show for the 2010 model year aside from a revised interior for the Dodge Caliber, a heavy duty version of the Ram pickup, and a new hood for the unloved Chrysler Sebring that no longer has the strakes on it.
As CNNMoney reported, Marchionne and his management team was surprised at how little had been done at Chrysler in terms of product development over the past two years – in other words, while Cerberus had stewardship of the company. The product launches that occurred during the Cerberus era – such as the Challenger and half-ton Ram – were products that had been developed during Daimler’s ownership of Chrysler.
Chrysler’s problems predate its purchase by Cerberus Capital Management LP in August 2007. When Chrysler was but a single cog in the DaimlerChrysler global empire, the company didn’t need to do all of its own engineering work. Daimler did large portions of necessary engineering for Chrysler vehicles when Chrysler was part of DiamlerChrysler. Although the alliance obviously wasn’t as successful as Jürgen Schrempp and Bob Eaton thought it would be, Chrysler was in fact able to leverage some of Diamler’s engineering and development resources. As former Chrysler CEO Bob Nardelli noted during congressional testimony, Daimler basically “hollowed out” Chrysler during its nine years of ownership, leaving the cast-off as something less than a viable standalone car company.
Adding to Chrysler’s hollowed-out state as of August 2007 when it was liberated from Daimler (and vice versa), Chrysler began offering buyouts to reduce its headcount in a futile attempt to stay afloat. The company lost many of its talented engineers during the buyouts. And then to add insult to injury, product development was slowed or halted in an effort to save money. So there already wasn’t much, what was there was largely delayed, and there weren’t enough people remaining to get all of the work done.
Of course, much was made about Fiat riding in to save Chrysler as a white knight, with its stylish, fuel-efficient small cars and well-regarded platforms. The fact is, those won’t appear for at least another 18 months in the US. The only near-term launch that Chrysler has in the pipeline is the new 2011 Jeep Grand Cherokee – which to be fair looks like a giant step up from its predecessor – but is probably not the type of product the company needs at the moment. At least the Grand Cherokee will be the first vehicle to feature Chrysler’s new Pentastar V6 (formerly Phoenix V6) engine, which on paper appears to be at or near the top of its class in terms of fuel economy and power.
Meanwhile, Chrysler needs to sell some cars for the next year and a half before the Fiats and Alfa Romeos arrive stateside in order to keep the lights on. The company shuttered all of its assembly plants during its stay in Chapter 11 bankruptcy protection, which – post cash-for-clunkers – means that the company’s inventory is far too low. There just aren’t enough cars to sell right now, even if Chrysler wanted to sell more.
Sergio Marchionne and his management team are currently working on a five-year product plan for Chrysler, and expect the plan to likely result in further job losses and plant closures, and a good portion of the plan will probably be kept under lock and key for competitive reasons. One glaring need, aside from the obvious one of “more small cars,” is a competitive midsize sedan, right in the heart of one of the most-competitive, highest-volume segments in the market. The Sebring and Avenger, both cars that came in last in comparison tests immediately at the time of their launch, are selling extremely poorly. And how exactly does Chrysler plan to develop and market a class-leading replacement for those two cars within 18 months, even if it adapts a Fiat platform to an all-new Chrysler or Dodge body. Two years is far shorter than the typical development period for most models, and definitely makes one wonder if corners have to be cut to meet the aggressive schedule. If shortcuts have been taken, that probably is not a positive development in terms of repairing Chrysler’s (and Fiat’s) reputation as purveyors of sub-par quality.
One bit of bright light for Chrysler amidst all of this gloom is that the company announced yesterday that it is returning to the practice of offering leases on new cars. An oddity of the bailouts is that GMAC is now working with Chrysler dealers as well as GM dealers. With the generally-poor residual values of Chrysler vehicles, I have a feeling that the offers won’t be as attractive as those that, for example, Honda is able to make when it wants to move metal aggressively at the end of a model year. Still, the re-institution of leasing for Chrysler certainly won’t have a negative effect on sales.
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