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Chrysler aims to pump life into struggling lineup
Source: Agencies |
November 5, 2009, Thursday
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CHRYSLER hopes to make billions of dollars to repay government loans and revamp all of its cars and trucks with an ambitious plan that hinges on doubling sales in five years.
The plan, which includes spending US$23 billion to overhaul or replace all its Chrysler, Dodge, Jeep and Ram models by 2014, is realistic as demand improves over the next five years, says Sergio Marchionne, Chrysler's new CEO, who has turned around Italian automaker Fiat Group SpA.
Marchionne made his remarks after a daylong presentation of his five-year plan to save the ailing 84-year-old Chrysler. Much of the overhaul includes cost savings from combining purchasing and engineering with Fiat, and using Fiat's smaller, more fuel-efficient designs to replace aging Chrysler vehicles.
Marchionne's Fiat, which now owns 20 percent of Chrysler with an opportunity for more, was put in charge of rescuing the automaker by the US government. Chrysler emerged from bankruptcy protection in June.
Some industry analysts say the goal of selling 2.8 million vehicles globally is overly ambitious because of increasing competition. The company must also fight public perception of noisy, poor-performing vehicles, especially in mid-size sedans, the biggest segment of the US car market.
Sedans like the Dodge Avenger and Chrysler Sebring, along with many other models, have flopped. Chrysler said it will update these cars to make them more comfortable and quieter, then replace them in 2012 with Fiat designs.
Marchionne says the US market will expand over the next five years, pushing up the company's sales. Chrysler also will have to regain some market share, he said.
Rebecca Lindland, an auto industry analyst for the consulting firm IHS Global Insight, said the sales figures may be rosy assumptions.
"Everything needs to go perfectly" for the plan to work, she said. Her company's expectations for Chrysler's US market share is nowhere near the automaker's forecast of 13 percent by 2014, up from the current 9 percent.
The plan depends on the US market recovering from this year's sales of 10.5 million cars and light trucks to 14.5 million in 2014.
The company also has lowered sticker prices to boost sales and generate more cash as it fixes its struggling lineup, but it must tackle quality problems to survive. Consumer Reports recently panned most Chrysler products.
"We get it," said Doug Betts, senior vice president of quality. "We're not in denial related to the public record for quality for Chrysler."
And it will be tough to win back skeptical buyers. The automaker's sales are down sharply this year as buyers flee to other brands and a weak US economy curbs demand for autos. Chrysler lost upward of US$8 billion last year and would have run out of cash without government help.
The US government has so far has provided roughly US$15 billion in aid. Chrysler still has around US$9 billion of that available, and Marchionne said it will not return for more money.
"If we screw this up, it's over," he said.
Still, Chief Financial Officer Richard Palmer said the company aims to pay back US government loans by the end of 2014. He also expects Chrysler to break even in 2010 and report an operating profit of US$5 billion in 2014.
A federal report earlier this week said that Chrysler and General Motors Co. are unlikely to pay back their loans in full.
Chrysler's growth, though, depends on better cars and sales. Besides the mid-size car, Chrysler will introduce four new Dodges by 2013. They include a seven-passenger crossover vehicle, a mini-car and a compact. By the end of next year, most current Dodge models will receive new exteriors, interiors and engines.
Ralph Gilles, Chrysler's chief designer, said Dodges will have crisp handling, be quieter, more fuel-efficient and have more luxurious interiors, reflecting consumer complaints about all those issues.
The Chrysler brand also will get six new vehicles, including a Fiat small car and a new mid-size crossover in 2013. The automaker is also considering adding a mid-size pickup to its Ram truck lineup.
Chrysler had US$5.7 billion in cash at the end of September, up US$1.7 billion since it exited bankruptcy protection this June. As recently as December, though, the automaker was practically out of cash. It plans to sell shares publicly by the end of 2014.
Its operations broke even in September because of savings from job cuts and factory closings.
Joe Veltri, Chrysler's product development chief, said he has a lot more funding to revamp products and create new ones. Chrysler can go to a cupboard of Fiat technology to develop new products, a vast difference from Chrysler's prior owner, Cerberus Capital Management LP, a private equity firm.
"We have far more tools to work with," he said.
The plan, which includes spending US$23 billion to overhaul or replace all its Chrysler, Dodge, Jeep and Ram models by 2014, is realistic as demand improves over the next five years, says Sergio Marchionne, Chrysler's new CEO, who has turned around Italian automaker Fiat Group SpA.
Marchionne made his remarks after a daylong presentation of his five-year plan to save the ailing 84-year-old Chrysler. Much of the overhaul includes cost savings from combining purchasing and engineering with Fiat, and using Fiat's smaller, more fuel-efficient designs to replace aging Chrysler vehicles.
Marchionne's Fiat, which now owns 20 percent of Chrysler with an opportunity for more, was put in charge of rescuing the automaker by the US government. Chrysler emerged from bankruptcy protection in June.
Some industry analysts say the goal of selling 2.8 million vehicles globally is overly ambitious because of increasing competition. The company must also fight public perception of noisy, poor-performing vehicles, especially in mid-size sedans, the biggest segment of the US car market.
Sedans like the Dodge Avenger and Chrysler Sebring, along with many other models, have flopped. Chrysler said it will update these cars to make them more comfortable and quieter, then replace them in 2012 with Fiat designs.
Marchionne says the US market will expand over the next five years, pushing up the company's sales. Chrysler also will have to regain some market share, he said.
Rebecca Lindland, an auto industry analyst for the consulting firm IHS Global Insight, said the sales figures may be rosy assumptions.
"Everything needs to go perfectly" for the plan to work, she said. Her company's expectations for Chrysler's US market share is nowhere near the automaker's forecast of 13 percent by 2014, up from the current 9 percent.
The plan depends on the US market recovering from this year's sales of 10.5 million cars and light trucks to 14.5 million in 2014.
The company also has lowered sticker prices to boost sales and generate more cash as it fixes its struggling lineup, but it must tackle quality problems to survive. Consumer Reports recently panned most Chrysler products.
"We get it," said Doug Betts, senior vice president of quality. "We're not in denial related to the public record for quality for Chrysler."
And it will be tough to win back skeptical buyers. The automaker's sales are down sharply this year as buyers flee to other brands and a weak US economy curbs demand for autos. Chrysler lost upward of US$8 billion last year and would have run out of cash without government help.
The US government has so far has provided roughly US$15 billion in aid. Chrysler still has around US$9 billion of that available, and Marchionne said it will not return for more money.
"If we screw this up, it's over," he said.
Still, Chief Financial Officer Richard Palmer said the company aims to pay back US government loans by the end of 2014. He also expects Chrysler to break even in 2010 and report an operating profit of US$5 billion in 2014.
A federal report earlier this week said that Chrysler and General Motors Co. are unlikely to pay back their loans in full.
Chrysler's growth, though, depends on better cars and sales. Besides the mid-size car, Chrysler will introduce four new Dodges by 2013. They include a seven-passenger crossover vehicle, a mini-car and a compact. By the end of next year, most current Dodge models will receive new exteriors, interiors and engines.
Ralph Gilles, Chrysler's chief designer, said Dodges will have crisp handling, be quieter, more fuel-efficient and have more luxurious interiors, reflecting consumer complaints about all those issues.
The Chrysler brand also will get six new vehicles, including a Fiat small car and a new mid-size crossover in 2013. The automaker is also considering adding a mid-size pickup to its Ram truck lineup.
Chrysler had US$5.7 billion in cash at the end of September, up US$1.7 billion since it exited bankruptcy protection this June. As recently as December, though, the automaker was practically out of cash. It plans to sell shares publicly by the end of 2014.
Its operations broke even in September because of savings from job cuts and factory closings.
Joe Veltri, Chrysler's product development chief, said he has a lot more funding to revamp products and create new ones. Chrysler can go to a cupboard of Fiat technology to develop new products, a vast difference from Chrysler's prior owner, Cerberus Capital Management LP, a private equity firm.
"We have far more tools to work with," he said.
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