Thursday, November 05, 2009

The Chrysler Business Plan - The Good the Bad and the Ugly

I'll give new Chrysler CEO Sergio Marchionne credit where credit is due. Yesterday's 7-hour presentation on Fiat's plan for Chrysler was much more thorough and complete than the incompetent half-assed non-plans thrown up by the Old Chrysler and GM on Capital Hill last spring. That being said, all the Powerpoint slides in the world can't make up for the fact that first Daimler, then Cerberus, nickeled and dimed suppliers until Chrysler earned the worst quality ratings in the industry and at the same time gutted Chrysler's new product development pipeline. Marchionne had the unenviable task of convincing the world that the Chrysler Group has the horses and men to put Humpty Dumpty back together again.

Chrysler's core plan calls for a doubling of market share over the next five years. The company plans to be operationally solvent in a year, and in 5 years to have raised enough money to pay for a full line of product development and integration of Fiat-based vehicles, and at the same time, fully paying back government TARP money by 2014. How realistic is this plan? The key slide is this one, which I got from

It shows Chrysler's total sales of just under a million vehicles a year, and just under10% market share. This is the low point according to the business plan. By 2014, sales are projected to double to 2 million vehicles/year and a 14% market share. It's easy to draw a bar graph, but it's harder to sell 2 million cars a year, especially when your competitors aren't standing still.

Marchionne is forthright in admitting deficiencies in Chrysler's current models, and the product plan calls for quality improvements, nips and tucks in interior and exterior styling of current models, with these changes holding the line for at least the next three years until new models make an impact. The fact is, that other than a new Dodge Grand Cherokee coming out next year and a mini-compact Fiat 500 coming in just over a year, Chrysler has nothing new in the pipeline for the next three years, and Fiat-based models and others to come after that will have to be financed by hypothetical money to be raised by positive cashflow generated by sales of current models. (Marchionne bragged that Chrysler's cash on hand rose from $4 billion upon exit from bankruptcy in June to $5.7 billion at the end of September, but some speculate that the cause of that was an increase in accounts receivable that could neutralize the whole gain and then some.) Since Fiat has said it will not invest cash in the company, and the debt and equity markets aren't a realistic option for Chrysler, the only place left to go for capital is through internal cash flow generation, and in better times than we're now in Chrysler has not been able to generate anywhere near the cashflow needed to simultaneously revitalize its entire product line on an emergency basis.

I want to take my remaining space in this post with a quick analysis of some of Chrysler's current product lines and their competitive positions. So Chrysler thinks that a "refresh" of its higher volume products and the "wannabes" (Sebring, Avenger) will guide them to doubled market share? The obvious falsity of this assumption is what will kill the Chrysler business plan.

Let's start by looking at minivans. I drive a Chrysler minivan. I like it, but I'm not in the market for a new one, so I'm irrelevant. Toyota will unveil it's first full redesign of the Sienna since 2003 at the Los Angeles Auto Show in December, for introduction next year. Honda has a major update of the Odyssey set for next year as well. Chrysler thinks it will double marketshare with its current powertrains and some styling tweaks? Nagahappen.

The new Dodge Caliber will feature a new dashboard. Good luck going against next year's Euro-level Ford Focus and Chevrolet Cruze. What about the next generation Civic which should arrive sometime within the next 24 months?

The Ford Fusion already kicks the tail of the Avenger & Sebring. If Ecoboost is half that Ford says it is, the carnage will get worse. The new Sonata is supposed to be pretty good as well, rumored to be getting a direct-injected version of the "world engine" that's a generation ahead of the Chrysler cars.

The Grand Cherokee? There will be no shortage of premium quality SUVs with engines at least as competent as the new Pentastar V-6, and with better transmissions as well.

The Jeep brand as a whole will continue to get loyalist buyers, in roughly the same proportion that it now does -- unless, of course, oil prices spike, and then sales will go down.

The 300/Charger/Challenger? Again, some loyalist buyers, but for the most part, these cars have had their day in the sun and are fading out. Just about all of the full-sized competitors have come out with newer, more advanced models since the 300-series was introduced. Many of them will be on the second refresh before the 300 is updated.

Finally, saving the biggest dog for last, the Ram truck. The Ram 1500 was brand new last year, and the consensus is that it is a much better vehicle than the model it replaced. Unfortunately, due to brand loyalty, probably the hardest segment to gain market share in is the full-sized pickup niche. Look at Toyota, it put an all out effort recently and it returned middling results. The Ram is a good truck, but so are all of the major competitors. Lack of faith in the brand and a shrunken dealer base will make retaining current market share an uphill battle.

New product is the key to gaining market share. Look at the vehicles who had a great month in October. Hyundai, Kia and Subaru all had great results. They all have significant new models. Among the domestic makers, Ford and General Motors posted sales gains, but Chrysler was down 30%. The Ford Taurus, Buick LaCrosse, Chevrolet Equinox, all feature brand new metal and all did great. Chrysler had no new product and got creamed.

I wish Chrysler the best. I feel for the workers that I see every day. Chrysler stakeholders have to look at the world with impartial eyes and figure what will likely happen to the company, and how that will effect their future. In my opinion, I don't see how Chrysler is going to make it. I actually see this as a positive thing for General Motors and Ford. If they can pick up Chrysler's market share, and if they no longer need to compete with Chrysler's suicidal pricing, they will both likely benefit from Chrysler's departure from the market.

1 comment:

  1. Webmaster6:37 AM


    NICE analysis-very informative.


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