Business

Chrysler’s Crisis

As the auto industry slump ripples through the economy, the German-run manufacturer needs the Big Three’s biggest fix

Robert Sheppard February 12 2001
Business

Chrysler’s Crisis

As the auto industry slump ripples through the economy, the German-run manufacturer needs the Big Three’s biggest fix

Robert Sheppard February 12 2001

Chrysler’s Crisis

As the auto industry slump ripples through the economy, the German-run manufacturer needs the Big Three’s biggest fix

Business

Robert Sheppard

Dear fellow parishioners,

We are gathered here today in the church of the American automobile—just a freeway jaunt from Motor City itself— not necessarily to bury Chrysler but to see what else it might have up its sleeve. The setting is suitably cathedral: DaimlerChrysler's 10-m-high “styling dome,” a giant mosque-shaped showcase designed for the worship of cars and trucks. The occasion is solemn; corporate news has intervened. But not to be outdone, Chrysler engineers—twitchy as expectant fathers—have arranged a sideshow: a sneak preview of their newest pickup truck, the 2002 version of the Dodge Ram 1500. It is a ritual like few others.

One by one, designers and marketing execs take the dais with almost Presbyterian zeal to extol the history of the Ram truck, and to argue that they were the first to “polarize” the pickup market in 1994, grabbing market share from their boxy rivals with bold, almost menacing designs. This newest model, they say—bigger and badder than its predecessor—flows direcdy from that vision. Each new contour is lovingly explained: the “jewelled” gleam of the headlights; the bulging lines of the hood that has the engine appear to be bursting out of its carriage; the oversized grill with its phalanx of chrome bars. “When you see this grill coming at you in your rear-view mirror,” says one corporate enthusiast, “you will know it’s a Dodge.”

Tough talk, if a little surreal coming just two hours after the Chrysler Group’s new president, Dieter Zetsche, has announced that six manufacturing plants will be closed or idled through 2002, production will be scaled back at seven others, and the giant automaker will be cutting 20 per cent of its workforce—26,000 jobs—wham, most of them to be gone by the end of March. But this is Chrysler, America’s tough guy, bloodied but unbowed and, in design terms at least, unapologetically muscular.

Of course, Chrysler has been in this predicament before, when the brassy Lee Iacocca had to go cap in hand to Washington for a bailout in 1980. But then came the magical mini-

van, tapping into a consumer vein that few had envisioned. By the mid-1980s, Chrysler had turned the corner, emerging so much leaner and meaner that only a few years ago it was winkling out the most profit per car of the Big Three North American automakers.

This time is different. The Germans are in charge now. Upscale Daimler-Benz AG, the barons of Stuttgart, snapped up Chrysler in 1998 in what was declaimed “a marriage made in heaven.” A Hollywood marriage maybe. It began to unravel two months ago with the news that the Chrysler operation has lost $2.6 billion in the past six months (and at least that again now in restructuring costs). The » executive suites were purged. Chrysler’s Canadian1 born president, James Holden, was shown the door. ? Zetsche and sidekick Wolfgang Bernhard, the new f chief operating officer, were given the take-charge | seats and Big Questions were raised. Can this marriage of German precision and American pizzazz really be made to work? Will Chrysler’s woes, the biggest by far of the Big Three, help tip the North American economy into recession? And maybe more to the point: how does a company with so many recognizable brands, including the Motor Trend Car of the Year in 2001—the cult-phenom, gangsterchic PT Cruiser—lose so much money so quickly? Was no one watching the road?

In the corridors of DaimlerChryslers airport-sized headquarters in Auburn Hills, small knots of Chrysler workers gather beneath the overhead TVs, talking in whispers as they watch the news conference with Zetsche being replayed over and over again with the numbing majesty of a presidential assassination. Zetsche is an interesting study. Tall, elegant, a 47-yearold engineer with a handlebar moustache and a reputation as a turnaround artist, he speaks quick, impeccable English even as he mixes his Vs and Ws. But there is no mistaking his authority. Car writers refer to him deferentially as Dr. Zetsche. His American colleagues use his first name (“Dieter says...”). But by the way it is said, a little too familiarly, you can tell they haven’t truly taken the measure of this guy yet.

Still, the contrast between Zetsche’s Chrysler operation

and his immediate predecessor’s is so stark you can draw it with a stick. “Under Jimmy Holden, you always felt you could just pick up the phone and talk to any of the senior executives you wanted to,” says Ken Lewenza, the president of the Canadian Auto Workers local in Windsor, Ont., that deals regularly with the DaimlerChrysler bosses. “Holden was a very confident guy. He would hold top-level briefings with us all the time, but there were never any numbers on the table, he would just talk. These new guys, boy, they do their homework. From the very beginning, they promised us complete transparency and they’ve delivered on that. I call them the statisticians.”

Holden’s Chrysler was very growth-oriented. The internal plan—forget what was felt to be the hiccup of a December downturn—was to build market share from 15 per cent to 20 per cent over the next three or four years with big dreams and back-slapping labour agreements. A $ 1.5-billion expansion to Windsor’s Pillette Road plant—pledged in July—is now on hold. As recently as November, Windsor workers worked a double-overtime shift on Remembrance Day— labour cost in excess of $2 million—only to have downtime imposed on them a few weeks later, after Zetsche and his team

took over on Nov. 17. And now the layoffs.

Of the six plants to be closed or idled, five are relatively small operations in Mexico and South America that employ 3,100 people. Farther north, the only one on the block (for now) is an engine plant in Detroit that was slated to be replaced in any event. Still, the cuts will fall largely on the backs of Canadian and American workers, who will see their plants scale down, for the first time in eight years, from three shifts to two, and their overtime—almost a guarantee of $10,000 to $15,000 more a year—taken away. Just under 2,700 autoworkers at DaimlerChryslers three main Canadian plants—two in Windsor and a newer one near Brampton, Ont.—are slated to receive layoff notices. Count in the white-collar jobs that support them, and the very real possibility that the maxivanproducing Pillette Road plant in Windsor might close in 2003 when the current contract runs out, and the number could top 5,000 in very short order.

But it is not just assembly-line workers who are feeling the Chrysler pinch. In the same styling dome that the automaker uses to baptize its new inventions, engineers spent all of December and much of January tearing apart their own vehicles and many of their competitors’, looking for cheaper

ways to build. (Zetsche’s byword: find savings in things the customer doesn’t see.) Suppliers have been told to cut costs by five per cent or face a bill for the difference. And DaimlerChrysler dealers will be the next to feel the heat. Already, the incentive deals have been changed so that, among other things, DaimlerChrysler won’t buy gas for new vehicles when they show up on the dealer’s lot.

Nine good years. That’s how long the current car-buying boom has been going on in the United States, slightly less in Canada. Now there’s a dropoff.

Last year, 20.1 million new cars were sold into the booming North American market; this year, estimates put the figure at closer to 18.8 million—and that may only be the beginning. In production-reliant Ontario, the cutbacks are expected to trim at least one per cent in gross provincial product. The money lost in car exports will neutralize the effect of Ottawa’s $6-billion tax stimulus this year, says CIBC World Markets. Recession-wary

consumers, Japanese imports

taking aim at the booming minivan and sport-utility markets, and incentive wars—in the case of DaimlerChrysler, even between its new and its remodelled minivans—are affecting all the Big Three. General Motors has slipped to 28 from 32 per cent of market share and is vowing to cut four per cent of its workforce (16,000 people), including 10 per cent of its white-collar workers, largely through attrition. But it is still profitable. So is Ford, though it, too, has just announced

250 layoffs at a Windsor engine plant.

Let’s not overreact, says Dennis DesRosiers,

Canada’s pre-eminent auto industry analyst. The

car industry has always been cyclical; the average downturn is three to four years, he says. But the slump surrounding the 1991 recession saw Canadian car jobs shrink by 27,000—17 per cent—to 132,000. Now there are about 184,000 workers manufacturing cars and car parts, mostly in Ontario and ^ Qucbcc fr j°b losses rise

to 10,000 over the next

For links www.macleans.ca I !

A CYCLICAL INDUSTRY The ups and downs of new car and truck sales

BIG NUMBERS 229 million vehicles on the road in Canada and the United States in 2000.1989:196 million 631,000 Canadians employed in all aspects of the auto industry, including manufacturing, parts and sales in 2000.1992: 550,000 7.9% Canada’s share of North American vehicle sales in 2000. Mexico: 4.1%

SALES FORCE Market share in Canada and the United States

GM 29% others 15% . Toyota 9% DaimlerChrysler 16% Honda 7% Ford 24% Consultants ■ /

Source: DesRosiers Automotive Consultants

year or so, that is still only a fiveper-cent decline. Yet for those on the line, the cuts represent big changes in lifestyle and standard of living. Hardest hit will be the younger workers, many with college educations to handle computer-controlled robots, who will be the first on the dole.

Chrysler’s problems are the same as every other carmaker’s, if more pronounced: too much capacity and little flexibility to shift production to what is really hot. A case in point: the PT Cruiser, a runaway success. But Chrysler forecasters missed the boat completely when they put the car into production at a small Mexican plant that can’t keep up with the demand. Why not retool and build it at a larger facility? Well, that is still being studied.

Can the Daimler version of Chrysler design or muscle its way out of its funk, as it did with minivans in the early 1980s, with the upscale Jeep Grand Cherokee, precursor of the New Age SUVs, in the early 1990s, and with the PT Cruiser last May? “I’m more than aware that you can never save a company on the cost side,” says Zetsche.

But what this means for what Chrysler designers like to call their “exercises in Americana” is not entirely clear. New Jeep and truck models are on the way. So is the musclebound Dodge Viper, aimed to be the only commercial car to offer a 500-horsepower engine when it hits the streets in 2003.

Teutonic statisticians may be running the show right now, but at the styling dome there is still division between church and state. Mercedes designers have been over for a quickie

tour and there are tentative plans to exchange designers for short-term periods. “But they want to keep their brand identity and we want to keep

ours,” says Trevor Creed, DaimlerChryslers senior vicepresident for design, a firm believer in holding back designer exchanges to an artistic minimum. An amiable Brit who started off designing Vauxhalls, Creed is credited with putting some of the zippy, low-hung lines into Chrysler’s sporty brands. He talks about designing cars as the art of being able to zig and zag away from your competitors. And some say that is what the company has done on the restructuring front, as well: the first into the trough of recession and perhaps the first out of it. Then again, the road is long. ED