Chrysler presents fix-it plan
After meeting this week with DCX board, CEO LaSorda to unveil plan in mid-February.
Christine Tierney and Josee Valcourt / The Detroit News
Chrysler Group CEO Tom LaSorda presented the broad outlines of a plan to restructure the Auburn Hills automaker to DaimlerChrysler AG's management board Wednesday in Stuttgart, Germany, according to company sources.
DaimlerChrysler is scheduled to announce the plan -- which some analysts view as its final attempt to fix Chrysler -- in mid-February. The plan is likely to be put to DaimlerChrysler's governing supervisory board on Feb. 13 for approval and could be announced that day or on Feb. 14 during DaimlerChrysler's annual results conference. The news conference will be held at Chrysler's headquarters in Auburn Hills for the first time since the 1998 merger.
DaimlerChrysler spokesman Jason Vines declined to discuss details of the plan. But people involved say it's likely to include job cuts and the closure of at least two U.S. factories, including an under-utilized assembly plant in Newark, which makes sport-utility vehicles.
The closures will be part of Chrysler's strategy to reduce production to match demand. In addition, Chrysler is expected discuss a revamped future product plan that includes more small, fuel efficient vehicles. Overall, Chrysler has seven teams working on various aspects on the plan designed to cut costs by $1,000 per vehicle.
Chrysler underwent a restructuring at the start of the decade under Dieter Zetsche, now CEO of DaimlerChrysler. But it still appears to have too much production capacity in the United States, where Zetsche did not shutter any assembly plants during his four-year plan.
Chrysler sank into the red in the third quarter, losing $1.5 billion, as demand for its vehicles dropped and inventories surged.
Two-thirds of the vehicles that Chrysler sells are minivans, pickups, and SUVs -- vehicles in categories that have been hurt by the recent volatility in gas prices.
This month, Chrysler's top sales executive chief Joe Eberhardt stepped down as dealers increasingly resisted the company's efforts to get them to take more vehicles than they could sell.
But his departure does not reduce the pressure on Chrysler's senior management to deliver a plan to stop the losses. Zetsche said he expected the plan to be drafted before the end of the year and made public in early 2007.
"Investors are looking for cost initiatives -- reductions in personnel and cuts in capacity, as the other two are doing," Frankfurt-based auto analyst Juergen Pieper said, referring to restructuring programs under way at General Motors Corp. and Ford Motor Co.
"Longer term, investors will be looking for action on the product side," said Pieper, an analyst at Metzler Bank.
"My assumption is they're going to cut production out," said Dan Frost, owner of a Chrysler-Jeep dealership in Southfield. "They have to lower production just to get everything sorted out."
DaimlerChrysler has come under renewed pressure from German investors to ditch Chrysler, just as rival BMW AG unloaded its loss-making British subsidiary Rover in 2000.
A former manager at Mercedes-Benz, whose own recovery is on track, said executives in Germany feel confounded by the U.S. division's problems. "People don't know what to do any more."
The frustrations felt in Germany mounted in September when the United Auto Workers President Ron Gettelfinger said the union had no intention of offering Chrysler the same concessions on health-care coverage that it gave GM and Ford. Gettelfinger, who sits on DaimlerChrysler's supervisory board, has softened his position and negotiations have started.
DaimlerChrysler has retained longtime consultants McKinsey & Co. to help Chrysler's management with the turnaround plan.
A few Mercedes executives are also contributing to the effort. Its own recovery plan was drafted with the help of McKinsey consultants. The luxury carmaker was struggling to contain the damage to its reputation and bottom line caused by deterioration in its vehicle quality.
McKinsey's chief contribution in past turnaround plans at DaimlerChrysler has been to organize the process and track the implementation.
Rumors continue to circulate that Zetsche might bring back Wolfgang Bernhard, his former deputy at Chrysler. But sources close to the situation strongly downplay that likelihood.
German media speculate Bernhard may seek to leave his current position at Volkswagen AG following the resignation of VW CEO Bernd Pischetsrieder