Chrysler strategy awaited

Chrysler Group CEO Tom LaSorda will release details of a turnaround plan on Wednesday.

Analysts say U.S. suppliers too weak to bear more cuts

February 8, 2007 | BY TIM HIGGINS | FREE PRESS BUSINESS WRITER - -The last time the Chrysler Group unveiled a major turnaround plan, suppliers shouldered a major role when the company required large cost reductions.

This time around, industry analysts don't expect such drastic demands, in large part because the U.S. supplier community probably could not meet them.

Suppliers have been weakened in recent years by production cuts and price decreases, and industry insiders have predicted another increase in bankruptcies this year. In 2001, when the Chrysler Group last went through a major restructuring, the company sought to reduce material costs by 15% over two years.

"One of our themes is: Does the supply base have anything left to give?" Robert Schulz, an analyst with Standard and Poor's Corp., a leading credit-rating agency, asked rhetorically. "It's not clear that any of these turnarounds, Ford, GM or changes at Chrysler, can be done largely on the back of suppliers. It seems like that isn't the most viable way to move forward on improving the U.S. operations."

That doesn't mean suppliers will avoid an impact from the plan, experts predict. "One of the ways they are always going to look for improving their position is figuring out is there a way to take costs out of their supply base," said Kim Korth, president of IRN Inc. "If you look at Chrysler, who has historically relied more on their supply base for their content than General Motors or Ford, it's a bigger issue."

Chrysler had a rough 2006. It built too many vehicles and racked up a $1.5-billion loss in the third quarter. Chrysler Group is expected to announce its plan to return to profitability next Wednesday. A stated goal is to find $1,000 savings from each vehicle. Analysts believe 10,000 jobs could be cut, and they say several plants appear vulnerable, most notably the assembly plant in Newark, Del.

Furthermore, analysts believe the plan could include greater platform sharing between Mercedes and Jeep Grand Cherokee. Such sharing could mean that fewer suppliers are needed, said Dave Gleditsch, chief technology officer at Pelion Systems, a company that works with suppliers to be more flexible and lean.

"Are some suppliers going to be eliminated from the equation?" he asked. "That's a serious concern in the supply base."

Chrysler Group officials are not talking about the plan's specifics but comments by Chief Operating Officer Eric Ridenour last month to analysts provide insight.

He said the company wants to take greater advantage of component sharing among the group's vehicles, noting that a $4 part carried over six platforms could reduce costs by about half.

By 2011, the company hopes to have 70% of the parts shared on more than one vehicle family.

Ridenour also said the company will be looking to expand its supplier base beyond North America in search of optimizing cost and quality.

"There's going to be a necessity on the part of the suppliers to seriously be able to show that if it is still being made in traditional North American locations that it is ... 'competitive' in an apples-to-apples comparison with global sourcing," Korth said.

The News Journal in Delaware reported Wednesday that two businesses that supply the Newark plant -- Collins & Aikman Corp. and Caliber Auto Transfers -- have warned state officials of potential layoffs as early as next month.

Collins & Aikman spokesman David Youngman told the Free Press that notice of possible layoffs comes as the bankrupt firm sells assets.