BUSINESS

LESSONS OF THE ORIENT

CHRYSLER BETS ON IMPORTED IDEAS TO MAKE ITS NEW LINE OF SEDANS A SALES WINNER

ROSS LAVER March 30 1992
BUSINESS

LESSONS OF THE ORIENT

CHRYSLER BETS ON IMPORTED IDEAS TO MAKE ITS NEW LINE OF SEDANS A SALES WINNER

ROSS LAVER March 30 1992

LESSONS OF THE ORIENT

BUSINESS

CHRYSLER BETS ON IMPORTED IDEAS TO MAKE ITS NEW LINE OF SEDANS A SALES WINNER

In an industry that thrives on flashy showmanship and razzle-dazzle marketing, Yves Landry has won renown as a born salesman. The fast-talking president of Chrysler Canada Ltd. has a talent for making even the most gloomy situation sound hopeful—a considerable achievement given the dark clouds hanging over the North American car business. Still, even Landry acknowledges a twinge of nervousness over his latest project: the long-awaited launch of a new generation of family sedans, due to begin rolling off the assembly line in June at Chrysler’s state-of-theart plant in Bramalea, Ont., just northwest of Toronto. For the troubled automaker, the new models offer a chance to persuade skeptical car buyers that the company’s products are as good as the Japanese competition. “Think about something as dumb as a door handle,” 53-year-old Landry said between gulps of coffee in his Toronto hotel room during a recent interview. “If it doesn’t look and feel right, people are going to say, ‘Hey, these guys still don’t know what they are doing.’ Our objective

ler Canada, Detroit-based Chrysler Corp., has struggled for years as the weakest of North America’s three major automakers, behind General Motors Corp. and Ford Motor Co. At a time when the competitive pressures from Japan’s big carmakers are increasing rapidly, many analysts question whether Chrysler is strong enough to survive the 1990s as an

is a handle that can compete with the best in the world—because the customer won’t accept anything less.”

Landry, a native of Thetford Mines, Que., who joined the company as regional sales manager for his native province in 1969, is a legend as a pitchman among Chrysler executives. But never has more ridden on his ability to make a sale. The parent company of Chrys-

THE RACE TO MARKET

16 29 39 months LH design Major prototype produced \ * Test Production First vehicles begins parts suppliers selected Traditional design I I Source: Chrysler Corp. 24 36 45 51 months

independent. Adding to the uncertainty is a change announced last week in the company’s top management: former GM executive Robert Eaton, 52, will replace 67year-old Chrysler chairman Lido (Lee) Iacocca at the end of this year (page 35). Chrysler’s reply to its critics: a wave of sleek new vehicles, of which the midsize cars slated for production in Bramalea are by far the most important. The cars, codenamed “LH,” are not only Chrysler’s first all-new family sedans in 12 years; they are also the first fruits of a new approach to designing and engineering new vehicles. That approach, based on how the Japanese have long built cars, is designed to lower costs by dramatically shortening the time required to take vehicles from the

drawing board to dealers’ showrooms.

Although the LH cars are not expected to go on sale until next October (the company has not set prices yet, but they are likely to range between $17,000 and $30,000, depending on features), prototype versions are already the focus of intense scrutiny in the auto industry. The flurry of attention is partly because the new models incorporate what automotive stylists call a “cab-forward” design. By shortening the engine compartment and extending the windshield over the front wheels, Chrysler’s designers have increased the amount of passenger room without making their cars longer or heavier. In the next few years, most of Chrysler’s competitors plan to offer similar cab-forward models as part of a trend towards sleeker, more wedge-shaped cars with improved aerodynamics and fuel efficiency.

Still, most auto-industry insiders say that they are less interested in the design of the new cars than in the process—and competitive pressures—that brought them to production. After struggling back from the brink of bankruptcy 12 years ago, Chrysler made about $10 billion in profits between 1983 and 1990. But the company’s turnaround came at a price: to boost earnings, Iacocca and his senior managers initially skimped on developing new products. Even now, many of Chrysler’s vehicles, including the Chrysler New Yorker and Dodge Dynasty, are based on the front-wheel-drive Kcar introduced in 1980. To prop up sales of

older, conservatively styled models, the company has been forced to hold the line on prices and offer substantial factory rebates.

Chrysler’s strategy produced mixed results. Because older models do not require huge new investments in machinery and engineering, they are comparatively cheap to build. In 1991, Chrysler lost $914 million on revenues of $33.8 billion—a relatively strong performance in light of the overall slump in the car market. In the same year, industry leader GM lost a record $5.1 billion on sales of $142 billion. Chrysler’s Canadian division actually managed to turn a profit: $34.2 million on sales of $8.3 billion. As Iacocca put it recently, “We have had to manage our way through the worst market since 1983.”

But Chrysler cannot survive long simply by squeezing earnings from an elderly product line. Company officials acknowledge privately that the automaker is in urgent need of new car models to attract younger, more affluent buyers. Above all, the company has needed a new array of mid-priced family cars to rival such fast-selling competitors as the Ford Taurus, the Honda Accord and the Toyota Camry.

Chrysler executives say that the LH is exactly what they have been looking for. “The waiting was worth it,” said Landry. Among other qualities, the first three new cars, to be known in Canada as the Chrysler Intrepid and Concorde and the Eagle Vision, abandon the boxy profile of the old K-car line in favor of the

more aerodynamic shape adopted by other makers’ newer models. (The front end of the Vision, in fact, appears remarkably similar to that of the 1992 Honda Prelude.)

A less visible quality, however, may prove more important to Chrysler’s bottom line. Landry points out that the new generation of sedans is scheduled to begin rolling off the assembly line a mere 39 months after the company launched the LH project. Traditionally, North American automakers, including Chrysler, have required four or five years to get new vehicles into production. “Five years is a long time in this business,” said Landry. “If you sit back and allow the Japanese to change models every three or four years, you’re going to fall way behind.”

To close the gap, Chrysler executives overhauled the company’s traditional corporate structure. Like GM and Ford,

Chrysler has been dominated for decades by strong individual departments, including design, engineering, manufacturing, marketing and finance. The managers responsible for developing new cars had to negotiate separately with representatives of each department, who had their own interests to protect— resulting in costly turf battles and unnecessary delays.

By contrast, Japan’s automakers use teams of specialists from each department to develop new vehicles. From the day that they begin working on a project, their sole focus is the success of that vehicle. The team leader, rather than acting as a mere co-ordinator among departments, has real power to cut through red tape and make sure that the final product meets expectations.

Although Chrysler’s executives now have nothing but praise for the team approach to product development, they were not always so impressed by the Japanese way of doing things. Indeed, the company filed suit against General Motors in 1984, after GM announced that it was entering a joint venture with Toyota to build compact cars in California. In its suit, Chrysler complained that the agreement violated U.S. antitrust laws and would limit competition in North America. The case was settled privately in 1985—leaving GM free to pursue the joint venture.

After failing to stop GM, Iacocca—despite his oft-repeated criticisms of Japan’s trade policies—decided that Chrysler needed a Japanese partner of its own. He quickly formed a joint venture with Mitsubishi Motors to develop and manufacture small sporty cars in the United States. The new collaboration, based in Normal, 111., was named Diamond Star Motors, and the man chosen to be its chairman was Glenn Gardner, an energetic Chrysler execu-

tive who had joined the automaker as a student engineer in 1958. “I know Lee gets painted as a whiner, but I don’t agree with that,” Gardner said in an interview at Chrysler’s Detroit headquarters. “Why in hell did he send me down to Diamond Star? He said, ‘Glenn, go there and learn. If we can’t lick them, join them.’ ” Gardner, 56, who spent three years at Diamond Star before returning to Chrysler to supervise the LH project, says that the experience of working with Japanese engineers and managers was eye-opening. “My track record before the Mitsubishi project was pretty good, but when I got to Diamond Star, it hit me that I still had a heck of a lot to learn,” he recalled. “I really had to eat crow.”

For one thing, Gardner says, the entire newproduct team at Diamond Star consisted of about 650 people—about half as many as

Chrysler would have needed to develop a vehicle using the traditional North American approach. And at Mitsubishi’s insistence, the new company forged a close working relationship with outside suppliers at the outset of the project, rather than soliciting bids after the engineers and designers had drawn up final specifications. That allowed the team to consult on a daily basis with parts suppliers on the design of the vehicles, modifying their plans to ensure that the cars could be assembled efficiently and at minimal cost.

In the scramble to raise money for its own product-development activities, Chrysler pulled out of Diamond Star last year, selling its 50-per-cent stake to Mitsubishi for $146 million. But Chrysler dealers still sell two car models manufactured by Diamond Star in Normal: the two-door Plymouth Laser and the Eagle Talon. More importantly, Chrysler has applied many of the lessons it learned from Mitsubishi to the LH project. “We started out

with a clean sheet of paper,” said Gardner, Chrysler’s general manager of engineering for large and midsize cars. He added: “The original budget for the LH was about 1,400 vehicleengineering people. The highest number we have ever had on the team was 741. That’s pretty good for a start.”

By adopting the team approach, Chrysler also succeeded in developing the LH cars faster than it had ever produced a vehicle before. The first prototypes were ready 92 weeks before the scheduled start of production—32 weeks earlier than in the past. Last summer, 125 employees from the Bramalea plant travelled to Detroit to begin assembling complete vehicles for testing. Traditionally, that kind of work was not done until about four months before the start of production. The extra time allowed Chrysler’s engineers to correct flaws and mod-

ify their designs so that the cars could be manufactured more efficiently. Said John Franciosi, 37, the Bramalea plant manager: “The cost of making changes early in the process is significantly lower. It’s all of those hundreds of little things that determine whether you can build a defect-free product.”

Now, all that remains is for Chrysler to persuade its critics, including the millions of North Americans who have lost faith in Detroit’s ability to compete with the Japanese, that it has finally closed the gap with its overseas rivals. Landry, the consummate salesman, says that he is looking forward to the challenge. “When you’re spending hundreds of millions of dollars a month on product development,” he added, “you’d better get it right. We simply can’t afford to come out with a lousy product.” Indeed, nothing less than Chrysler’s survival is at stake.

ROSS LAVER