Is Chrysler next?
First GM restructures, then Ford, now everyone wonders
Josee Valcourt / The Detroit News - -Three years since its last turnaround, DaimlerChrysler AG's Chrysler Group will make deep production cuts and consider more restructuring moves as it braces for big losses.
DaimlerChrysler Chairman Dieter Zetsche said Tuesday that the automaker will cut output by 90,000 vehicles in the third quarter -- up from previous estimates of about 75,000 -- and another 45,000 in the fourth quarter to bring dealer inventories more in line with consumer demand and make room in showrooms for new models that will roll out later this year.
Zetsche also said the Auburn Hills-based automaker may have to take more drastic cost-cutting measures in the wake of last week's announcement that Chrysler will lose $1.5 billion in the third quarter, more than double its July estimate of $600 million in red ink, and report a loss of $1.2 billion for the year.
"We have to clearly dig deeper into the top of Chrysler to make sure we further can accelerate the process of increased competitiveness," said Zetsche, whose comments came Tuesday during a presentation to analysts in a Webcast from DaimlerChrysler's Stuttgart, Germany, headquarters.
Neither Zetsche nor Chrysler CEO Tom LaSorda, who spoke to the media during a conference call Tuesday afternoon, detailed what further restructuring moves might entail.
"We're going to turn over all the rocks and determine where the cost structure sits and do things that are right from a financial prudence perspective," LaSorda said.
But Zetsche spoke harshly of Chrysler's performance and the automaker's failure to act more quickly as its problems mounted.
"It goes without saying that I myself am more than dissatisfied with the situation," he said. "It's not acceptable."
Rivals retrench at same time
Chrysler's losses loom as southeast Michigan's economy is already being buffeted by major restructurings at General Motors Corp. and Ford Motor Co. As Chrysler thins inventory and considers other cost-cutting moves, its crosstown rivals are already closing plants and cutting thousands of jobs in a bid to restore profits
Mike Tremain, a worker at Chrysler's Warren truck plant, where Dodge Ram and Dakota pickups are built, said he's not surprised by talk of restructuring.
"They haven't been forthcoming and truthful about anything and unfortunately it's the little guy that's going to hurt," he said.
The production cuts come after Chrysler fell far short of July and August sales goals, Zetsche said. The action aims to reduce inventories, mainly of light trucks, that have been building as high gas prices prompted consumers to turn to more fuel-efficient models.
Seventy-one percent of Chrysler's retail sales are light trucks, which include pickups, sport utility vehicles and minivans. While Chrysler's overall sales are down 9.7 percent so far this year, truck demand is off 12.9 percent.
The automaker had counted on employee-pricing-for-all to work the same magic it did last summer but the incentive failed to drive showroom traffic, while consumers embraced free financing deals from GM and Ford. In the January through August period, Chrysler, Dodge and Jeep models sat on dealer lots an average 85 days, compared to 71 days for GM, 75 days for Ford and an industry average of 63 days, according to Edmunds.com, a car buyer's Web site.
"We were hoping that we could find our way out of this situation by continuously reducing our production, but not significantly, and increase our sales," Zetsche said. "The reality is that we fell short of those plans and relatively significantly."
The philosophy was "next month we will make it, next month we will make it" until the time came to "face the music."
Zetsche, who led Chrysler through a three-year turnaround launched in 2001 and turned the reins over to LaSorda last summer, was critical of Chrysler's stumble following 12 profitable quarters.
On the impending third-quarter loss, he said it was "utterly unacceptable to surprise (investors) the way that we did."
He acknowledged that some at Chrysler sibling Mercedes also were dismayed by the prospect of red ink in Auburn Hills.
"Definitely there was a strong reaction," Zetsche said, but he added, "There is more of an understanding that we're all together in one boat rather than, 'Look at those a--holes, there goes our bonus.' "
LaSorda: 'Full responsibility'
LaSorda holds himself accountable. "The decision for what's going on at Chrysler Group sits right on my lap. I take full responsibility."
LaSorda and Zetsche said the automaker will review all aspects of the business to search out cost-savings and other measures to help restore profits. But they said it is too early to talk about possible plant closings or layoffs.
"We have to ask structural questions of the business," Zetsche said. "I can't tell you the outcome, but we will ask those questions."
Chrysler will immediately work with suppliers to pursue cost cuts, and continue to push for health care concessions from the United Auto Workers, which Ford and GM have already secured.
UAW President Ron Gettelfinger has said Chrysler is in better financial shape than GM or Ford and does not need concessions.
"We are extremely dissatisfied with the position of the union as far as health care costs are concerned," Zetsche said. "It's a very strange position that we should lose $10 billion before we can have the same as Ford and GM."
UAW spokesman Roger Kerson declined to comment Tuesday.
Should Chrysler implement its own turnaround plan, experts predict it won't be as extreme as those at GM and Ford.
"They are not in the same position as GM and Ford in terms of having to take very drastic actions to improve profitability," said Chuck Moore, managing director at Conway, MacKenzie & Dunleavy in Detroit, which specializes in corporate turnarounds.
"Chrysler is probably in the best position of all the Big Three because they can move production around" to meet demand, he said.
Brian Ackerman, sales manager at Mike Riehl's Roseville Chrysler-Jeep, said Chrysler's move to trim inventory should alleviate pressure at dealerships.
"It's a good decision because it's important to line our inventory with the sales rate," he said.
While reducing vehicle output should also help Chrysler regain its financial footing, the company also must produce cars and trucks based on demand, said Tom Libby, an analyst at J.D. Power and Associates' Power Information Network.
"They have to improve their share and appeal to customers, which is a more strategic issue that includes the image of the brands and appeal of the products."
LaSorda said the rollout of 10 models this year, with eight to come, including the Chrysler Sebring midsize sedan, will help shift Chrysler's product mix to meet demand for fuel-efficient vehicles.
Small and midsize models will make up 27 percent of Chrysler's lineup next year, up from 21 percent this year, LaSorda said. And about one-third of Chrysler products will be less than a year old in 2007.
"We just need to get out there with great new product," he said.
Charles V. Tines / The Detroit News
Auto analysts say reducing vehicle output should help Chrysler regain its financial footing but the company also needs to produce cars and trucks based on demand. "They have to improve their share and appeal to customers," says Tom Libby, analyst at J.D. Power and Associates. See full image
Big 3 retrench
GM and Ford are restructuring while Chrysler is cutting production and considering other moves in the face of financial losses.GM's turnaround plan
Ford's Way Forward plan
Chrysler's outlook
Chrysler will lose money this year after three years in the black on a restructuring launched in 2001.
What Chrysler did from 2001-03:
What Chrysler will do now
Sources: GM, Ford, Chrysler
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