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post #1 of 5 (permalink) Old 02-12-2008, 08:19 PM Thread Starter
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Turning Chrysler Into Toyota

From Business Week:

Turning Chrysler Into Toyota
By cutting models and dealerships, Chrysler aims to be a leaner, more productive, and more profitable business

by David Welch

When private equity firm Cerberus Capital Management put Robert Nardelli in charge at Chrysler LLC, the promise was that business as usual would be a thing of the past (BusinessWeek.com, 8/6/07).

Nardelli's right-hand man, former Toyota Motor (TM) executive James Press, is making that happen, mainly by trying to emulate the efficiencies of his former employer. At meetings with Chrysler's dealers this week, Press revealed the beginnings of a plan to overhaul the troubled automaker's lineup, trimming its 28 existing models to something in the neighborhood of 16 and adding new ones to fill existing gaps.

Press also told dealers he also wants to accelerate consolidation of the company's bloated dealer body, resulting in a smaller retail network that sells Chrysler, Dodge, and Jeep brands under the same roof. The moves come on the heels of two major restructuring moves announced by Chrysler in the last 12 months that cut more than 700,000 cars worth of production at several plants and took out about 23,000 jobs.

"We'll get the company sized right for the market we'll be in," Press told reporters after the dealer meetings on Feb. 8. "We'll be the best damn little car company there is."

Sacrificing Short-Term Sales?
Press' emerging retail strategy is what Chrysler needs, but putting it into practice will be a big challenge. The company has to get rid of some of its look-a-like models sold by different brands and put more marketing muscle behind the remaining nameplates. But the plan also risks sacrificing market share and buyers as the company trims its offerings. Plus, getting dealers to buy one another could take years as the company will need to play matchmaker with buying and selling entrepreneurs.

"They will lose sales," says John Wolkonowicz of Global Insight's North American Auto Forecasting Group. "When they get rid of one model, they may only get back 20% of those buyers with their remaining cars.

Press told dealers he wants to eliminate models sold by one Chrysler brand that are basically clones of a car sold by a sister division. His logic is that, with fewer models, Chrysler can put its marketing dollars behind one car in every market segment and create more noise with its advertising. "Press said they need fewer products so we can really get behind every one of them," says one dealer who attended the meeting.

Eliminating Redundancies
Press did not tell dealers which models are on the block. But it's easy to see which cars might be killed. Instead of the Dodge Caliber and Jeep Compass, only one compact car might survive. Ditto for the Dodge Avenger and Chrysler Sebring midsize cars. Chrysler also may get rid of either the Chrysler Town & Country or Dodge Caravan minivan and sell just one. The company wouldn't need two large sport-utility vehicles either.

In all, Press told dealers in San Antonio on Feb. 6 that he envisions that the three brands could sell something like five passenger cars, three SUVs, two crossover SUVs, one minivan, one full-size van, and a family of pickup trucks.

But Press stressed during a speech at a dealer convention in San Francisco on Feb. 8 that he doesn't have a specific number of models in mind yet and that the company will look for new models to build. "We don't know how many models we're going to have," Press said, according to Chrysler's media web site. "Nobody knows that."

If Chrysler cut all of its duplicate models, they would represent roughly 600,000 vehicles' worth of sales. If Chrysler only found cars for 20% of those buyers, the company's market share would fall from 13% today to roughly 9%. But Press insists the strategy isn't meant to shrink the company or even accept lower market share. He told dealers in San Francisco that Chrysler would have a product line aimed at selling 2 million to 2.5 million vehicles a year, compared with just under 2.1 million last year.

He later said Chrysler plans to add more models to find new buyers not already shopping Chrysler's brands: "We'll pick up more quality sales volume," he said.

Let's Make a Dealership
The next challenge will be sparking a wave of merger-and-acquisition activity among dealers. Chrysler has been trying to get all three brands under one roof since the 1990s. But state franchise laws won't let the company close any dealership at will. So the company must encourage dealers to buy one another by offering financing for acquisitions. Even then, it won't be an easy sell.

Chrysler's truck-heavy product line is out of touch with the market. And the economy is slipping into a recession. "Who would want to increase their Chrysler exposure when we're in a recession and Chrysler is suffering disproportionately?" says Maryann Keller, an auto industry consultant who sits on the board of national dealer chain Lithia Automotive Group.

Press countered that dealers will have incentive to sell. As Chrysler trims the product line at each individual brand, dealers who aren't selling all three will have a limited showroom, he said. The value of their franchises will fall. So they will either have to buy another dealer to get all three brands or sell out.

A Long Way to Go
Right now, Chrysler has 3,600 dealers. Only 30% of them have all three Chrysler family brands under one roof. Tripling them up will also drive consolidation, Press said. That will leave big urban markets with fewer, but more profitable dealers. In Boston, for example, Chrysler wants to drop from 22 dealers to 10, he said.

What Press wants is a retail strategy that looks like Toyota. Instead of dealers located just 5 or 10 miles apart, he wants dealers at least 27 miles apart. Simplifying his vehicle lineup would be more like Toyota's approach, too.

But the former Toyota executive has a long way to go with Chrysler.
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post #2 of 5 (permalink) Old 02-13-2008, 12:33 AM
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when/if the pheonix come out, if they could be as good as the 2gr-fe is now, that would be a start.
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post #3 of 5 (permalink) Old 02-13-2008, 06:28 AM
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Wait until law suits start on dealer sales/buyouts when another company buys one of the three brands they were counting on (JEEP). With everything in flux I imagine it will be very difficult to establish a value on any dealership not visuallizing what will actually be saleable down the road.
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post #4 of 5 (permalink) Old 02-13-2008, 09:42 PM Thread Starter
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Yep it'll be much harder that it looks on paper. Seems most states have laws that make it hard for a manufacturer to dump tons of dealers.
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post #5 of 5 (permalink) Old 02-13-2008, 10:54 PM
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They don't have to dump them they are franchises they can refuse to sell them new product. If they don't accept a reasonable offer. The company i work for just went threw that 2 years ago. Luckly we sell and maintain other product lines not the automotive industry. But the one company was getting rid of all the dealer they offered to buy us all out or quit selling us new product the obvious answer to that take the buy out.
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