Warren Steele: Chrysler Corporation Cost Estimator

Why it mattered: Knowing the rough cost of a new car or engine gave Chrysler the ability to figure out whether it was feasible to make, say, a turbine car, or to make air conditioning standard.

Let it be said that I am Warren Steele, otherwise known as Bob Steele, and I spent 32 years at Chrysler Corporation, 22 of which were in Cost Estimating and Planning. I was asked to set down if I could some of the thoughts about my days there.

The cost estimator would sit down with the planners and the stylists and the engineers and look at things and go, “Well, how do costs of proposed designs relate to past models and to our competition? Where can we reduce costs to help pay for various new features? Are new design concepts economically feasible? Can they even be accomplished? Are they compatible with existing facilities?”

That last question was a big one. That was a real big one.

warren steele

One time, they were talking about the prospect of going to a full-frame car again, like we used to have years ago [largely before 1960]. This was in the 1960s and 1970s, after the Imperial went to the new stub-frame design. It was going to be done at the Jefferson plant where our Chrysler Imperial models were made, and we told them it was a huge, huge bricks-and-mortar plant rearrangement.

To give an overview of cost planning, I’m going to read off some of these company goals, because they’re pretty good.

  • Helps set reasonable cost targets for cars we will build several years into the future.
  • Estimate and control costs throughout design and engineering.
  • Check actual costs against the planned or estimated costs.
  • Compare these costs with those of our competitors’ cars.

They said, “You estimating guys have gone off the deep end. What in the world are you talking about here?”

We showed them: “Well, your full frame is around 20 feet long, whereas a stub frame is only around ten feet, okay? Because of the length, every time that conveyor goes around the corner you’re going to wipe out part of the building, so you’re going to have to go in there, tear down parts of the building, then build onto it to let the frame can swing around to go around a corner.”

It’s interesting, some of the things we would run across.

One saying was, “If you build a million cars and you were going to put $1 into all those cars, how much does that amount to?” That’s going to run into real money. It’s the same thing with a penny, how much a penny on a million cars would be. Things add up. Little grains of sand, you know? Little drops of water.

How the cost of cars is estimated long before anything is built

“A 1962 tear-down showed that the 1960 Chrysler Newport design was $85 per vehicle less than the 1960 Oldsmobile 88, but the Chrysler’s price was higher. This convinced management to give us $100 more for the 1963 Chrysler Newport reskin: we could add pleats to the seats, carpet the trunk floor, add wheel opening moldings, etc.”
— Burton Bouwkamp, product planner

We had to decide early on how we would do an estimate.

An estimate includes direct labor, like the guys on the line drilling the holes and bolting things up. It also includes variable burden or overhead, such as rags and grease, which varies with the job; and fixed burden, such as the cost of keeping the factories and the conveyers.

Sometimes they’d say. “Wait a minute, you told us that that new product was going to cost $2.25 more than the current product, it got into production, and it was $2.75. It was more. Now, how can you face this?”

So early on, we started to put in a reserve for contingencies; it varied, sometimes 5%, sometimes 10%, but we’d always put that in as a line item below our estimating numbers. I got called a number of times about this: “Wait a minute, how come you put that 10% on our proposal here?”

warren steele, 2000I said, “Well, because in the past, these kinds of things generally end up costing more.”

That was a battle until we were able to show them in concrete terms, “Here’s what it was estimated at, here’s what it ended up.” They got off our backs on that early on.

Next, where do you go to find your material costs? In the early days, the only way was talking to people from the plants, “How much did you guys pay for a ton of iron?”

We started with guys who just knew how much we were paying for various materials. The plants didn’t want to let anybody know what it was really costing them to make their engines or whatever. For a long time, every estimator had his own little bible in which he had what he thought the cost of material was. Eventually, we were able to get detailed material cost charts.

Then the direct labor. We figured out how much you’re paying for the various skills and labor. Soon you’d get into the overhead for the taxes and the salaries of the plant managers and all; it became a real chore to pry all this information out. Everybody had their own little kingdom, as it were. Eventually, towards the end, this all proved itself out quite well.

We had departments full of cost-estimating personnel. Most of them were from the manufacturing activities, processing engineers, that sort of thing. People that worked out on the lines in, let’s say, castings and machinings. The people that knew how many cycles-per-second you’d get off a machine or how many pieces of a die casting you’d get out. They were very effective and they were process engineering people.

We were staffed with these kinds of people early on, and it became increasingly difficult to get good people. At various times we tried raiding the plants, and they didn’t want to let any of their good process engineers go. Finally, we staffed things up.

440

Okay, another story on the side about direct labor. We working on something, maybe a 440 cylinder block, and the cost of making it at the engine plant. The casting would come in, then the guys on the line would wrestle it up on the conveyors and such. It turned out that the direct labor part was much higher than what anybody had anticipated, and significantly higher than the block that it replaced. The block was heavier, and bigger.

I had to explain the extra cost: “The block is 73 pounds and we have a deal with the UAW that anything over 70 pounds will require two UAW linemen to wrestle it around.”

After they heard that story, they said, “Well, okay, send it back to engineering and see if they can redesign the gussets or whatever on the block, take out three pounds, and maybe we’ll get down below that threshold of the 70 pounds;” and they did. That’s another thing that you’ll see a lot in this estimating business, where you alert the system to problems like that.

Costing out “different” cars

[Allpar asked, “How hard was it to cost out the Horizon/Omni, K-cars, and such?” since they were a major departure from past cars.] It wasn’t that hard, like most other jobs. One interesting part in the K body program was when front wheel drive (FWD) vs rear wheel drive (RWD) discussion [arguments] came up. We had to cost out these two designs that were mocked up, and we found FWD to be significantly higher than RWD [expensive constant velocity half shafts, radial tires etc]. Vehicle spatial aspects were mostly equal.

burton bouwkamp and roy axe

The L-body was another one to be involved in, because front wheel drive was so foreign. We bought Volkswagen and other front wheel drive cars, and designing of our own compact car began [of note, the company had already been making similar cars in Europe].

As with any new program, regular status reports were ongoing, not only for cost but for weight also. What sticks in my mind here what engine to use, we had no small motor. —what to do? We settled on the small VW 1.7L engine for a time, until our own 4 cylinder came on stream. That VW engine was really bad.

Racing cars

We did little on these cars; whatever cost issues developed were simply handled by race teams with occasional help from us. Costs be dammed — win races. Regular Monday morning NASCAR race result meetings were held, these became fun with the likes of Richard (don’t call me Dick) Petty on deck.

Richard Petty 1964 Plymouth Hemi car

Engine changes

We had to routinely cost all changes (Change Requests) to any program after being established. As an example, with turbocharging, they began experiencing major problems like compressor axial shaft bearings burning out after heat soaking. We had to create a water-cooled casing surrounding the bearings. Big cost and much iteration later, we had cooled bearings.

EFI replacing carburetors was fun. That was a long and complicated adventure. Because idle speed, fuel air mixture adjustments were built into the computer, we no longer required manual adjusting which dealers were back-charging to us—a big cost saving. After a year of getting charged for adjustments no longer possible, we convinced dealers about non-existent adjustments.

Purchasing

We would also come up with targets for the purchasing department. The purchasing guys eventually came around to wanting to give us the proper cost figures.

You can imagine, if you’re a buyer over there, and some guy up there in the cost estimating department thinks that that bracket should cost $2 and we’re paying $4 for it, “Well, geez, let’s get together on this. What’s going on?”

EGR valveOnce there was an EGR valve that cost about $5. We cost-estimated this valve in detail, and they were still charging us about $1.50 more than we thought that that should cost. All our figures made sense, so we finally met with somebody, and they said, “Well, that cast iron part is expensive, we don’t have any of that kind of machining, so we just bought it from somebody, and here’s what we paid them.”

We said, “Okay, we’ll find somebody that’ll make it for what our cost estimate was.” All of a sudden, we had a big cost reduction on that EGR valve. Those kinds of things went on and on and on.

Teardowns, boarding, plus and minus

We had basically two activities: chassis electrical, where I spent most of my time, and body, glass, seats, and that kind of thing. That was another estimating department.

We also had a car teardown where they would bring various competitor vehicles in, take them all apart, down to the last nut and bolt, and “board” them — put all these parts up on a board.

warren steele in 2015Let’s say we were going to compare a Plymouth to a Chevrolet or something, to show the differences. They’d board them, put the two columns up there, and we would go through and we would cost-estimate the differences between the various competitors’ cars.

Which brings us up to how we estimated. Normally we would use what they call a plus and minus way of estimating. For example, we had a six-cylinder diesel engine that they were talking about and they had it designed and they said “Here, we’d like you guys to estimate this for us.”

“What are you going to do with this?”

“Well,” they said, “we want to know how much more or less this diesel engine would be, than the six-cylinder gas engine.”

So if you were to come along and say well, we’re going to do what they call a whole-cost estimate on each engine, that would put you into the poor house because you would have to completely run through everything from stem to stern and it would just be prohibitively expensive.

So we would do what they call a plus and minus estimate. We’d go through all the various parts: “How much is the crank shaft, more or less, than the other crank shaft?” We’d get right down into the material, the material weight, and we’d show that. These estimates were broken down to the miniscule portions.

The “manual,” calculators to computers

cost bookAll this time, there was no manual, no book, no written-down procedure for how this all should go. At one point in time we did run across the one and only book that I know about it; it’s called Realistic Cost Estimating for Manufacturing. You can still buy it (last published June 1989; currently around $5.) It’s the size of a pocket book, I guess you would say (150 pages, around 6” x 9”).

It had something of a preamble, the basic thing that all cost people should have in the back of their minds and it goes like this:

The purpose of the estimating function is not to produce exact cost data but rather to supply cost figures having a probability of falling within an acceptable range. Therefore product cost estimates seldom coincide with actual manufacturing cost figures. And neither the preliminary estimate nor the final estimate is expected to be exact. Preparation of precise cost figures would be excessively time-consuming and expensive even if they were possible to predict.

That goes to my earlier mention of contingency, reserve for contingencies in there. It was interesting that at the very end of things we had this book that it was actually a pretty decent story on what you should do if you’re going to run a cost-estimating department.

friden calculator

When we started up, every one of my estimators had an expensive Friden calculator to figure the areas and volume and cost-per-pound and the strikes per minute on a machine or whatever. Later on, we went to personal computers, with all of the material types, product codes, and the costs for all the materials you’d ever think about. Then we had another whole register that had direct costs for the classifications of labor, and another one for the variable burden and the fixed burden, even the contingency percentages.

The people

bob millerWe had 12 bosses during my time:

  1. Ernie Rothaar
  2. Roger Helder, a real gentleman, from Ford Finance
  3. Neal Moore, who actually got his name on the annual report during one of his times with us—this actually put me one step away from showing in the annual report!
  4. Tex Herron [spelling may be wrong]
  5. Don Morrisey, a reciprocal of Roger Helder, with major blaspheme problems
  6. Bob Miller, a really nice guy, but only until Iacocca had him “fly-up”
  7. Jerry York [top photo], who always had to have an ash tray man at the ready. Jerry held his cigarette straight up between the thumb and forefinger, something he inherited from England days-—cool!

    jerry york

  8. Dave from Finance, but only for a short time. Even though he had been given responsibility for us, he never once bothered to come over to Engineering to see our — or his — operations.
  9. John Wurster. I devoted an entire chapter to John in my memoirs; John was one of these guys who never wore his rain/trench coat, just draped it over the shoulders like a spy. I could write a movie script about John especially during the times we had to travel overseas together for meetings.
  10. Walt Anderson, always with a cigar.
  11. Irv Rock
  12. Dick Schneider, and then I was out in 1987.

I just wanted to mention, at the back end of this whole thing, these very colorful people who ran things after World War II. They came back to do this automobile stuff.

Many of these guys from the World War II era, they had their buddies, their friends and the guys they worked with in the engineering plants that we had like the Chicago operation or the Highland Park Machining or whatever. Any time you wanted something done, if you’re having trouble, you would just talk to your boss who knew the boss of that guy over there because they worked together on the B-29 engine project and you got what you needed.

dodge chicago plant

One time, we were doing a six-cylinder diesel, and we decided to compare that in a plus and minus basis to the current six-cylinder engine. To do that I had to have the detailed cost makeup of our six-cylinder engine out in the Trenton Engine Plant, but when to the controller there what I needed he was not very kind to me and told me to shove off.

I went into my management and said, “I can’t do my work. He just sort of blew me off and told me to go back in my ivory tower and don’t bother me.” My management picked up the phone and told his secretary to get so-and-so’s so-and-so at the Trenton Engine Plant. They did that, and my manager explained what was going on. The Trenton Engine man said “Okay, you tell your man Warren to go back to his office and in ten minutes he’s going to receive a phone call from the controller here at the Trenton Engine Plant, and he’s instructed to give your man there anything he wants.”

Ever since that day I was on very good terms with the controller at the Trenton Engine Plant, who was a fire breathing blasphemous guy.

assembly line

Cost estimation moves around

Where else at the time (just after the war) should it be, or could it be, but in the engineering division?

The engineering division was where everything was created. Even Styling was in the engineering division. They sort of ran everything. Whatever they came up with, the manufacturing people would make it, the sales guys would sell it, and the service guys would service it, etc. Early on, then, it became necessary to have a cost activity on the cars that germinated there in the engineering division.

Well, as time went on and more and more sophistication came into this thing, it became evident that maybe having that activity in the engineering division was maybe not too smart, because maybe they really want the designs, maybe they’ll “engineer the costs in their direction,” seeing as they own the cost department.

with carlieThere was a big discussion there for a few years about where our activity should be, and they thought, “Well, how about if we put it in Purchasing?”

“Well, ah, geez, no, that would be a horrible thing to do because then the purchasing guys would use us to prove out that their buying habits were the way they should be. Nah, nah, nah, we can’t put it there.”

And they said, “Well, okay, why don’t we put it in Manufacturing?” Well, they said, “Hey, same thing there. Manufacturing would be more inclined to make the costs favorable to the manufacturing of something here.” So where else could it be?

Well, it could be under Product Planning because they want to plan their products in the best way they could. But they were afraid, again, that maybe somebody there would twist the cost estimates to their satisfaction.

By this time, the bean counters were coming in, and so the idea came up; they said, “Hey, wait a minute, the cost people, why don’t we put them in the financial arm?” That’s what they did; most of the bean counters didn’t have a clue of what we did and how we did it, so even though we reported to Finance, they pretty much left us alone.

Some of my managers and my bosses from the finance area were our champions, but they never even came over to see what we did because we were still in engineering and that’s where everything was started off, and they were afraid to move anything around, so they left us alone in the engineering activity where we were right next to where the engineers were.

Did Cost Estimation pay for itself? [Allpar question]

Decidedly yes, witness during our many financial crises we survived essentially intact.

During the financial meltdown, when Iacocca was negotiating our bailout, they shut down most every area of the corporation, except essential areas. We were deemed essential and so from corporate shutdown at Thanksgiving until mid January we were continually on duty.

Many departments would not get approval for further funding unless they had our sign-off.

Creation Commons license for the Friden calculator image

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