On 4 November 2009, Sergio Marchionne hosted a day-long presentation of his management team’s vision for Chrysler. The five-year plan, presented over a session lasting more than eight hours, was broadcast live on the Chrysler Group LLC website.
The key points are summarised in the following document.
Sergio Marchionne opened proceedings and said that, apart from his own summary at the end of the day, his role would be largely “ceremonial”. However, on the issue of Chrysler Group LLC’s financial status, and in particular the suggestion that the company was bleeding cash, he said, “Some of you have been surmising that we are losing money” and that Chrysler was “…burning through the cash endowment that we received when we came out of bankruptcy…This is not true.” According to Marchionne, Chrysler Group LLC achieved break-even operating performance in September 2009. Chrysler Group LLC’s cash position at the end of September 2009 was such that the company had US$5.7bn cash (up from US$4bn when it exited Chapter 11 in June 2009), and the company is positive on an EBITDA basis by roughly US$200m in Q3 2009.
Richard Palmer, Senior VP and Chief Financial Officer, presented Chrysler’s financial plan for the period to 2014. Chrysler’s financial projection is based on an assumption of an increase in sales from 1.3 million units in 2009 to 2.8 million units in 2014, with the US market growing from 10.5 million in 2009 to 14.5 million in 2014, and Chrysler’s US market share growing from 9% in 2009 to 13% in 2014.
Some of the key dates in Chrysler’s five-year plan are as follows:
- Q4 2009: Chrysler to begin reporting financial statements
- 2010: Chrysler to achieve break-even
- 2011: Chrysler to post a positive operating cash flow, and to generate US$15bn during the next five years.
- 2014: Chrysler to have paid back government loans; net revenue of 20% to reach US$65-70bn
Chrysler will spend US$23bn on engineering and capital over the next five years. Palmer confirmed that a Chrysler IPO would be unlikely to occur before 2011.
Very little was said about manufacturing, in terms of reference to models and plants. No mention was made of production capacity utilization, plant openings or closures, the addition or reduction of shifts, or the size of the production workforce. Given the level of change planned by Marchionne and his team, there was a surprising absence of detail regarding the level of investment required at Chrysler’s manufacturing facilities to prepare them for Fiat manufacturing standards and requirements. Furthermore, the role of unions, so heavily involved in Chrysler’s emergence from Chapter 11, was not mentioned.
At the end of the presentations, Marchionne confirmed that the company has allocated production of 277,000 units by Chrysler for Fiat. However, where this would take place, and which models this would be, or where they will be sold, was not confirmed.
Scott Garberding, head of manufacturing, gave a presentation which focused not on production numbers, volumes and manufacturing technologies, but on ways in which the company intends to improve its manufacturing efficiency, including improvements in manufacturing quality and productivity, and a reduction in operating costs and injuries.
A more detailed presentation of the significant changes and investments planned for Chrysler’s manufacturing operations in North America is eagerly awaited.
There have been complaints, and we have heard them, was the basic message of Doug Betts, Senior Vice President with responsibility for Quality. Betts’s presentation highlighted inefficiencies in quality and problem solving. “In 2007, Chrysler was spending 71 days in order to get someone to [work on a quality] problem.”
Betts announced that Chrysler has added 200 engineers in manufacturing plants to control quality. In future, Chrysler will implement Fiat Group’s audit standards, which it claims are similar to Chrysler audit standards, but will employ tighter quality standards used for fit and finish. By 2012, Chrysler’s product quality will equal that of its leading competitors, and product quality at launch will be significantly improved.
MODEL AND PLATFORM PLANS
By 2014, Chrysler Group’s models and platform strategy will have evolved as follows:
- Number of future car models (including Chrysler-engineered models, excluding full-size trucks): 21
- New segments enabled by Fiat: 2
- Total number of segments: 6 (up from 4 in 2010)
- Platforms shared with Fiat: 3
- Total number of platforms: 7 (from 11 in 2010)
- Consolidated platforms: 4
- Number of models: 21 (remains unchanged from 2010)
For those vehicles that use Fiat architecture, Chrysler confirmed that it will make sure the vehicles retain unique Chrysler attributes. As well as the production of Chrysler cars based on Fiat platforms, the plan calls for 277,000 cars to be manufactured by Chrysler for Fiat.
By 2014, 56% of sales will be based on Fiat-derived platforms. The following tables show how the company’s model and platform strategy will change by 2014, including Chrysler’s entry into new segments:
Brand: Ralph Gilles, President and CEO of the Dodge Car brand, said that Dodge is to become a lifestyle brand, repositioned as a youthful and refined brand, but without emphasis on a particular age group. Chrysler plans to steer Dodge away from the current “base, mid, high” trim level offering, a towards a more “lifestyle-based” approach, offering instead a range of trim levels categorised as sweet/simple, fun/practical, uptown/luxury, thrill seeker (including Ultimate Sport SRT) and cool/extroverted.
Sales target for 2014: 800,000 units
Model plans: Five refreshes or all-new models in 2010. Furthermore, “eleven Dodge vehicles will be redesigned or significantly refreshed by 2014.”
Brand: Fred Diaz, President and CEO of the Ram brand, presented his vision for the new Ram truck brand. This included the new marketing tagline, “My name is Ram.” The brand’s image remains relatively unchanged, focusing on the typical elements of a truck brand.
Sales target for 2014: Annual Ram sales to reach 280,000 in 2010 and 415,000 units by 2014.
Brand: Chrysler’s mission is to “reignite the American dream… [It is] time once again for America to arrive in style”. Chrysler aims to be “different, aspirational, remembered”.
Sales target for 2014: 600,000 units. Olivier Francois, President and CEO of the Chrysler Brand, Chrysler Group LLC and the Lancia Brand, wants to double Chrysler’s market share by 2014, from 1.8% to 3.4%; by that time, the brand’s entire product line-up will have been refreshed or all-new.
- 2010 - all new 300/300C sedan (including 300 Sport Edition); Sebring and Town & Country to receive major facelift (including launch of Sebring Ocean Edition and Town & Country Fashion Edition). Also, PT Cruiser Final Edition
- 2012 - all-new C segment sedan, all-new D-segment sedan
- 2013 – Fiat Group small car; Sebring to be replaced by a Fiat Group vehicle; mid-sized crossover, based on Fiat vehicle.
- 2014 – Town and Country to receive major modification
In order to achieve these goals, and to rebrand Chrysler as a style brand, Chrysler will reduce unnecessary spending on mainstream events, but focus on its appearance and presentation at the more targeted and customer-focused events that it chooses to attend. Brochures will become desirable, and there will be a new, classier, more stylish look to its dealer showrooms, starting in Europe in Q4 2010, in partnership with Lancia.
New Chrysler logo
Shortly before the presentation of Chrysler Group LLC’s five-year turnaround plan, the company’s new logo was approved by the US Patent Office. The logo, pictured below, is a compressed, or streamlined version of the company’s previous logo, which had been used since the 1990s.
Brand: Physical, emotional; Jeep core customers are adventurers, identified as “doers” and “dreamers”. Mike Manley, President and CEO of the Jeep Brand, plans to return “Jeep…to its rightful place of being the global SUV brand.” In its marketing, Jeep’s new tagline is: “i live. i ride. i am. Jeep.”
Sales target for 2014: 800,000 units, up from 497,000 units in 2008.
- B, C and D Jeeps will eventually be based on Fiat Group vehicles. Grand Cherokee stays on Chrysler platform.
- Eliminate Patriot and Compass after 2012, to be replaced with a single C segment vehicle based on a Fiat platform.
- Introduce a Fiat-based B segment SUV in 2013.
- From 2013, the Liberty will be based on a Fiat platform.
- Extend Wrangler product reach; Maley says the “Wrangler serves as the anchor of the Jeep Brand”
- All-new Jeep Grand Cherokee in 2010.
- Wrangler refreshes in 2010 (facelift) and 2011 (new powertrain)
- There will be a diesel-powered Wrangler equipped with stop-start technology
The only Fiat model confirmed for the 2009-2014 period is, as expected, the 500. Fiat will start importing the 500 in to the US in 2010 with a MultiAir 1.4-litre engine. The 500 convertible will arrive in 2011, followed by the 500 Abarth in 2012. It remains unconfirmed which badge the 500 will wear.
Sales target for 2014: 100,000 units
The changes planned by Marchionne and his team will see the fuel efficiency of the Chrysler fleet improve by 25% by 2014.
Diesel engine strategy:
Chrysler’s diesel engine plans include:
- Introduce new generation of Common Rail with Multijet2 injector
- Adapt Fiat engines to Chrysler applications and apply Fiat technologies to purchased engines
- Apply after-treatment technologies to meet 2015 emissions limits in Europe and US
Gasoline engine strategy:
In terms of gasoline engines, Chrysler’s plan involves:
- Q2 2010: Launch Pentastar V6. The Pentastar V6 will first be available in the Jeep Grand Cherokee in mid-2010, and will replace all existing 2.7- to 4.0-litre V6 engines.
- Q4 2010: 1.4 Multiair for 500 available
- Q4 2011: 1.4 Turbo MultiAir available
Over the period to 2014, Chrysler will:
- Apply Multiair & Gas Direct Injection to 4‐cylinder World Gas Engine family
- Develop high-performance Pentastar V6 (single and twin turbo versions, also Multiair)
- Enhance V8 efficiency
On transmissions, the following will be done:
What the alliance partners offer each other in terms of engine technology
In engine technology, both partners stand to gain from the alliance, as outlined below:
Fiat will be the alliance’s global centre of expertise for diesel. Chrysler will be the global centre of expertise for hybrid and large-displacement engines.
In battery-electric vehicles (BEV), an LCV will be introduced in 2012, with additional BEV applications appearing from late 2013. In terms of hybrid electric vehicles (HEV), a Ram 1500 HEV will appear in 2010, followed by plug-in HEV (PHEV) versions of a minivan and the Ram 1500 as part of the demo fleet funded by a DoE grant. Chrysler Group expects to introduce additional HEV and PHEV applications from mid-2013, with the intention of “mass market penetration” from late 2014.
In terms of purchasing, Chrysler stands to gain from Fiat Group’s well-established global sourcing network.
Daniel Knott, Chrysler Group’s head of purchasing, emphasised that, “We will take the best of Chrysler and the best of Fiat and create the one best way for Chrysler and Fiat.”
The key points of Knott’s presentation are outlined below:
- Creation of a Chrysler‐Fiat Group Purchasing Organization
- Shared suppliers will rise from 52% to 65% by 2014. The number of unique suppliers will be reduced from 48% to 35% over the same period.
- Chrysler is targeting a saving of US$2.9bn from synergies over the period 2010-2014; this includes savings of US$500m alone in 2010, rising to US$560m by 2014.
Chrysler’s purchasing strategy will be based on:
- Supply base optimization
- Part cost reduction
- Component sharing
- Unwavering commitment to part quality
- Improved supplier relationships
Chrysler aims to reduce its dependence on US fleet sales, and increase its retail sales. The most significant change, however, will be the company’s planned increase in sales outside North America, which in 2009 is forecast to account for no more than 11% of the company’s total sales, but by 2014 is expected to stand at around 18%.
Chrysler Group’s investment in its sales and distribution networks will exceed US$500m over the next five years, with over US$120m to be invested in 2010 alone.
By 2014, Chrysler Group expects the following sales volumes for its brands in the NAFTA region:
- Jeep: 800,000 units
- Dodge: 600,000
- Chrysler: 600,000
- Ram: 400,000
- Fiat: 100,000
The Fiat 500 will be sold in North America, in mainly metro markets; which brand it will be sold under has not yet been confirmed, but there will be a dedicated sales team in each dealership.
Chrysler is targeting a sales increase in Canada from 166,000 units in 2009 to 220,000 units. In that market, the company is seeking an increase in market share over the same period from 11% to 13.8% by 2014.
In Mexico, Chrysler is forecasting an increase in sales of 43%, to 118,000 units, by 2014. This would give Chrysler an 11.6% market share.
International business (sales outside North America)
As mentioned above, the most significant change in terms of Chrysler sales will be in its international presence. The company is targeting a rise in the percentage of Chrysler Group vehicles sold outside North America from 11% in 2009 to 18% by 2014. Fiat’s scale in markets outside North America vastly exceeds that of Chrysler Group. Chrysler stands to gain significantly from the partnership with Fiat in Latin America, Europe and Asia.
To achieve this, Chrysler is targeting annual global sales outside North America of 500,000 units (including vehicles produced by Chrysler under Fiat Group brands). In 2009, Chrysler is forecasting sales of 144,000 units.
Global distribution and sales networks
In many international markets, Chrysler distribution, sales and marketing is still intertwined with Daimler, especially in back office functions. In the future, Chrysler sales and marketing will be integrated into the Fiat structure in Europe and Latin America; in other markets, Fiat and Chrysler will jointly develop new distribution channels or work with global distributors.
Financial Services will be provided by FGA Capital in Europe, FIDIS in Latina America and Fiat Group partners in the rest of the world (RoW).
The increase in sales in North America, plus the boost to sales forecast in all other markets, will takes Chrysler Group’s global sales to 2.8 million units by 2014, more than double today, according to the plan.
In 2010 alone, in what was referred to as a “blockbuster year for us”, 75% of the company’s product line-up will be refreshed or all-new. By 2012, Chrysler’s global product offering will consist of a range of models that will have been entirely refreshed, replaced or be all-new. Marchionne: “100% of the portfolio will have been renewed in some way by 2012.” 50% of the range will be based on, or derived from, Fiat Group platforms by 2014.
The full Jeep range will be offered worldwide, as well as six vehicles branded as Chrysler or Lancia, depending on the market. Furthermore, there will be five Dodge or Ram brand models distributed on a regional basis.
Marchionne ended the day with the following remarks, which sum up the level of ambition and enthusiasm which he and his team are committing to the regeneration of Chrysler:
“That’s the plan. It’s comprehensive, it’s ambitious and it’s serious. Today is the first day of a new Chrysler. We have laid out our plan and we are now publically accountable. We look forward to the future with a renewed sense of purpose. We are now prepared for the painful and difficult job of rebuilding equity in each one of our brands.”