Chrysler Group
Recovery and Transformation Plan Seeks Return to Profitability,
Redesigns Business Model
Financial Impact - Return to profitability by 2008
Employee Impact – 13,000 employee reduction; Newark Assembly
Plant to be idled, shifts eliminated and total capacity
reduced by 400,000 units
Redesigned business model for long-term competitiveness,
including greater emphasis on fuel-efficient products,
global growth and partnerships
€2.3 billion ($3 billion) powertrain investment leads to
more fuel-efficient line-up
DaimlerChrysler is looking into further strategic options
with partners
DaimlerChrysler AG’s Chrysler
Group today announced a three-year Recovery and Transformation
Plan that seeks a return to profitability by 2008 while also
taking steps to change its business model for the long run. The
plan will result in an employee reduction of 13,000 people from
2007 to 2009.
Chrysler Group President and CEO
Tom LaSorda outlined the plan at the DaimlerChrysler AG Annual
Press Conference, held in Auburn Hills, Michigan.
Dr. Dieter Zetsche, Chairman of
the Board of Management of DaimlerChrysler: “The Chrysler Team
worked out a comprehensive Recovery and Transformation Plan
using all resources within DaimlerChrysler. In addition to that
and in order to optimize and accelerate the presented plan we
are looking into further strategic options with partners beyond
the business cooperation partners mentioned. In this regard, we
do not exclude any option in order to find the best solution for
both the Chrysler Group and DaimlerChrysler.”
Overall, the Recovery and
Transformation Plan is aimed at a return to profitability with a
primary focus on costs. It is structured to over-achieve in
order to offset potential unforeseen market headwinds, resulting
in a target of €3.5 billion ($4.5 billion) of financial
improvements – or a return on sales of 2.5 percent – by 2009.
.
.
“There are two integrated parts to
the plan,” LaSorda said. “First, the Chrysler Group needs to
solidify its position in the North American marketplace. In
addition, the key to our long-term success will be our ability
to transform the organization into a different company to
achieve and sustain long-term profitability.”
The program will be supported by a
€2.3 billion ($3 billion) investment in new engines,
transmissions and axles, which will set the table for a product
offensive of more than 20 all-new and 13 refreshed vehicles from
2007 to 2009.
RECOVERY
The Recovery plan is aimed at a return to
profitability through a combination of revenue programs and by sharply
focusing on costs.
The key measures include:
Revenue Management
Continue the product offensive with eight
new and five refreshed products in 2007. Key products include the new
Chrysler Town and Country and Dodge Grand Caravan minivans, midsize
Dodge Avenger sedan, Chrysler Sebring convertible and a Jeep Liberty
that completes the revamping and expansion of the Jeep family.
Improve
the retail-to-fleet mix, build momentum with new offerings in global
markets and improve the effectiveness of marketing and incentive
spending.
Reduce and
optimize the dealer network to improve dealer profitability.
Material and Fixed Costs
Reduce
material costs by up to €1.15 billion ($1.5 billion) by 2009.
Explore
the sale of support operations, including transportation services.
Capacity & Efficiency
Reduce
total production capacity by 400,000 units per year.
In 2007,
eliminate a shift at Newark (Delaware) Assembly Plant and the Warren
(Michigan) Truck Plant. In 2008, eliminate a shift at St. Louis
(Missouri) South Assembly Plant.
Idle
Newark Assembly Plant in 2009.
Idle the
Cleveland (Ohio) Parts Distribution Center in December 2007.
Adjust
powertrain, stamping and component operations to reflect reduced
capacity.
Employee Reduction
Overall,
Chrysler Group will reduce the number of employees by 13,000, or
approximately 16 percent.
Hourly
employment will be reduced by 11,000 over three years, with 9,000 in
the U.S., and 2,000 in Canada (4,700 in the U.S. and 1,100 in Canada
in 2007 alone).
Of the
U.S. hourly total, 4,000 employees will be impacted by assembly
plant actions; 1,000 by reduced capacity in powertrain, stamping and
other component operations, 1,000 by other actions including the
potential sale of support functions and 3,000 through technology,
efficiency and productivity.
Salaried
employment will be reduced by 2,000 over the next two years, with
1,000 each in 2007 and 2008.
Special
retirement programs and other termination and attrition programs
will be announced separately.
LaSorda said these actions complement
significant other restructuring measures taken since 2001. Previous to
this announcement, the company closed, idled or sold 16 plants (five
assembly, 11 component) and reduced its workforce by one-third.
The financial impact of these Recovery
measures will be seen beginning in 2007 with a restructuring charge of
up to €1 billion ($1.3 billion), with the net cash impact for the year
of about €800 million ($1 billion). The impact of the balance will be in
the following two years.
In 2007, the Chrysler Group expects to
further reduce dealer inventories to align with market demand, which
will result in a reduction in operating profit of approximately €230
million ($300 million).
TRANSFORMATION
Key parts of the Transformation will be a
greater global footprint and a shift in the product mix to smaller, more
fuel-efficient vehicles.
Currently, North America represents some
90 percent of the Chrysler Group’s business, and its product line-up has
historically been heavily weighted toward minivans, trucks and sport
utility vehicles. “Those two factors were advantages for Chrysler Group
once upon a time,” said LaSorda, “but the rules of the global
marketplace have changed. High fuel prices and other dramatic shifts in
the market have driven a shift in consumer preferences to smaller, more
fuel-efficient vehicles. We must make some strategic adjustments to
build off our historic strengths, but not rely on them so much so that
we are put at a competitive disadvantage” he said.
“That will require a redesigned business
model, with three primary areas of strategic focus”, LaSorda said.
“First, the Chrysler Group will add a more robust customer and brand
focus while continuing to stress product leadership. In addition, we
must achieve better global balance and rely more heavily on leveraging
partnerships to manage costs while finding growth opportunities.”
Specifically LaSorda pointed to the
following initiatives:
Customer and Brand Focus
Continue
the product offensive through 2009, with more than 20 all-new
vehicles and 13 refreshed vehicles.
Build on
its existing product strengths through new entries in the minivan,
pick-up truck and select rear-drive full-size vehicles. At the same
time, the company will learn to do more with less with a plan to
reduce product platforms from the current 12 to seven by the year
2012.
Expand
into new commercial vehicle segments, including entering the Class 4
& 5 truck segments for the first time.
Continue
the shift to a car/truck mix that is less reliant on trucks.
Invest in
powertrain with €2.3 billion ($3 billion) dedicated to new engines,
transmissions and axles, in order to move toward a portfolio that is
more fuel efficient. That will include a common axle program for all
vehicles, plus work on a new transmission technology. Last week, the
company signed a non-binding memorandum of understanding with Getrag
(a German-based supplier) to develop this more fuel efficient “dual
clutch” transmission technology.
As part of
that powertrain offensive, the company has under development a new
V-6 engine platform (dubbed “Phoenix”) which is targeted to reduce
the number of six-cylinder engine families from four to one.
In
addition, Chrysler Group will introduce its first two-mode full
hybrid with the 2008 Dodge Durango, and is also evaluating a mild
hybrid for future applications.
Finally,
it will expand its line-up of diesel engines, including several
BLUETEC-labeled vehicles, a designation emblematic of the cleanest
diesel in its class.
Increase Global Presence
Avoid
nameplate redundancies in North America and develop and introduce
vehicle programs aimed at global markets.
Use third
parties where possible to access regional products and markets where
it makes economic sense.
Balance
supplier purchasing globally by targeting €3.8 billion ($5 billion)
of additional purchasing to low-cost sources to complement the
company’s global growth.
Partnerships
Better use of alliances and partnerships
around the world, such as the Chrysler Group does currently with:
In manufacturing, an agreement with
Volkswagen to build minivans in North America for VW’s dealers.
In retail, such as in Mexico where it
sells a Hyundai-produced vehicle as the Dodge Atos, and soon will sell a
small cargo van produced in Taiwan
In import opportunities, such as the
recently-announced agreement in principle with Chery Automobile Company
of China (contingent upon approvals from the DaimlerChrysler Supervisory
Board and the Chinese government) produce a small car for sale in North
America and Europe.
And in focused partnerships, such as the
GEMA World Engine project with Hyundai and Mitsubishi in Dundee,
Michigan, or the DaimlerChrysler consortium with General Motors and BMW
to develop hybrids.
