A Reversal of Fortune at Chrysler, Too
Dieter Zetsche,chief executive of DaimlerChrysler.
MICHELINE MAYNARD | DETROIT, Sept. 19 — Maybe Chrysler is not so different after all.
After Daimler-Benz merged with Chrysler in 1998, Chrysler vowed to break away from its troubled Detroit brethren and join ranks with the Japanese automakers. It designed innovative vehicles like the gutsy 300C sedan and the spunky PT Cruiser, gambling that an emphasis on bold design, better quality and German engineering would set it apart from the Big Two.
“There were a lot of people that thought Chrysler was really home free,” said David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.
But in recent days, a series of stunning announcements have signaled that Chrysler, despite all those efforts, has not been able to escape many of the same problems bedeviling General Motors and the Ford Motor Company.
On Tuesday, Chrysler said it would cut its production schedule for the rest of the year by 16 percent because of slumping sales as a result of high gas prices. That comes on the heels of similar cuts at G.M. and Ford, which are both trying to restructure after billions of dollars in losses in the last year.
Chrysler, which lately has ranked fourth behind G.M., Ford and Toyota Motor in American sales, reiterated that it expected a $1.26 billion loss this year, when it had planned to break even.
As a result, Chrysler said it would embark on what was likely to be its second major revamping since 2000, and acknowledged that its market share could shrink further, potentially dropping it to fifth place behind Honda in the United States.
Chrysler workers, whose profit-sharing checks the last few years were proof that they worked for Detroit’s most successful company, now find themselves vulnerable like their counterparts at G.M. and Ford.
Analysts have said all year that Chrysler, the only Detroit automaker to gain market share last year, was faltering. But Chrysler executives maintained that a strong second half, when it is introducing a volley of new vehicles, would lift its fortunes.
That has not proved to be the case. During a briefing Tuesday with industry analysts, Chrysler said it would cut third-quarter production by 90,000 vehicles, double its original plan.
Chrysler, which depends more heavily on sport utility vehicles, pickup trucks and minivans than any other Detroit carmaker, said it would also cut another 45,000 vehicles from its production plans in the fourth quarter.
Over all, Chrysler said it planned to build 705,000 cars and trucks during the second half of the year, or 16 percent fewer than its original second-half projection.
“We have to clearly dig deeper into the top of Chrysler to make sure we further can accelerate the process of increased competitiveness,” said Dieter Zetsche, chief executive of DaimlerChrysler, who ran Chrysler from 2000 until last year.
His replacement at Chrysler, Thomas W. LaSorda, signaled that the automaker would embark on its second reorganization in six years, vowing to “turn over all the rocks” at Chrysler to determine the right cost structure for the auto company.
Mr. LaSorda, speaking in a conference call with analysts and journalists, said that it was premature to discuss plant closings and that Chrysler needed to keep open “the majority” of its plants.
But he said the company was facing sharply higher costs for raw materials and parts, up as much as 60 percent this year in some cases. He said Chrysler needed to act as soon as possible.
In the presentation to analysts, Chrysler forecast that its share of the American car market would be 10.6 percent in the third quarter, down from its original plan to hold 11.2 percent. That puts it in fourth place, behind G.M., Ford and Toyota and just slightly ahead of Honda.
But in July, Honda outsold Chrysler, bumping it down to fifth place in the American market. Honda recently announced plans to build a new factory in Indiana, raising the likelihood that it could overtake Chrysler permanently.
Unlike its major Japanese rivals and G.M., Chrysler had no subcompact cars in its lineup when gas prices hit $3 a gallon, even though DaimlerChrysler sells them overseas.
Despite its vow that it would build only vehicles that customers wanted, it allowed unsold sport utility vehicles to pile up on vacant lots all over metropolitan Detroit.
Even though its cordial relationship with the United Automobile Workers union allowed Chrysler to set the industry pattern for contract talks, it has not been able to reach a deal to cut health care costs like the ones G.M. and Ford worked out with the U.A.W.
The reversal of fortunes at Chrysler was a disappointment to many in the auto industry who thought Chrysler might have hit on a magic formula that other Detroit companies could follow.
“Up until a few months ago I would have said Chrysler was the best-performing domestic automaker,” said Jesse Toprak, director of market analysis at Edmunds.com, a Web site that provides car-buying advice.On Tuesday, analysts asked whether the German parent of Chrysler was in some way to blame for the predicament, by forcing Chrysler to keep churning out big vehicles like sport utility vehicles that were hugely profitable, but increasingly out of favor with consumers.
Mr. Zetsche said management on both sides of the Atlantic was equally to blame, while Mr. LaSorda said the responsibility “sits right on my lap.”
Eager to persuade Wall Street and the financial press to look beyond the current problems, Mr. LaSorda and Mr. Zetsche played up the eight new vehicles that Chrysler is introducing before the end of the year, including new Jeeps, another sport utility vehicle for the Dodge brand and the latest version of the Chrysler Sebring sedan.
They said that the freshness of the vehicles would mean an automatic jump in sales.
But even that is not assured: both the Commander and the newest version of the Ford Explorer, once the country’s most popular sport utility vehicle, failed to take off last year, because of the rise in gas prices after Hurricane Katrina.
Still, Mr. LaSorda noted, the new lineup includes more fuel-efficient cars and crossover vehicles, like the new Dodge Caliber compact and two Jeeps — the Patriot and Compass — that are built on the Caliber’s underpinnings.
He acknowledged, however, that those vehicles did not deliver the profits of its big sport utility vehicles, which earned Chrysler the highest profit-per-vehicle of the Big Three last decade.
In any case, Americans will not get to build the smallest models. Mr. Zetsche said last week that DaimlerChrysler was likely to build a subcompact car in China or elsewhere in Asia for export to the United States, because it could not afford to build them here.
One reason is Chrysler’s labor costs, which now stand higher than those at Ford and G.M. because it has not reached a deal to reduce its medical costs. On Tuesday, both Mr. Zetsche and Mr. LaSorda said that Chrysler would keep trying to reach an agreement with the U.A.W., whose president, Ron Gettelfinger, said earlier this month that a deal would not come about because Chrysler was not in dire financial straits.
That was before Chrysler disclosed a raft of bad news. It announced last week that it expected to lose $1.5 billion this quarter, up from a previous estimate that it would lose $600 million. It was another surprise for Wall Street, given Chrysler’s earlier predictions that it would break even this year.
The agreement Chrysler was seeking with the union would save the automaker about $340 million annually, or about $600 per vehicle, Mr. Cole said.
“When you’re dealing with unions, you have to have a crisis to get people to move,” Mr. Cole said.
Mr. Zetsche said he was “extremely dissatisfied” with the union’s stand.
“It is a very strange position that we should have to lose $10 billion before we can have the same as at G.M. and Ford,” he said, referring to G.M.’s $10.6 billion loss last year.
The U.A.W. had no comment. But even without a deal on health care, Dale Hunt, president of U.A.W. Local 7 in Detroit, said he was confident that Chrysler could pull out of its slump as soon as its new models reached showrooms.
Mr. Hunt’s factory, called Jefferson North, began a four-week shutdown Monday to help clear inventories of the Jeep Grand Cherokee produced there.
Despite the layoffs at his plant, “I do believe that we’ll have the hottest products on the market,” Mr. Hunt said.
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