Fear and Cost-Cutting at Chrysler Group |
The original editorial
Why does Chrysler's market share keep falling? People can come up with many answers, but I believe the basic issues is fear.
Bob Eaton arranged the sale to Daimler-Benz in the belief, fueled by industry analysts, that Chrysler could not compete on its own.
Was this true? Honda, Fiat, and BMW do quite well on their own. Given a few more years of reinvesting its profits, Chrysler could have accomplished the same kind of turnaround as Volkswagen, especially if it had forged alliances with other automakers.
Chrysler's pre- and post-takeover behavior was ironic, in that the company continued to pinch pennies. Their comeback was fueled partly by cost savings, but mainly by the decision that Chrysler would, rather than embarking on a cost-cutting binge, invest heavily in new cars, new technologies, and new ways of working.
Now, given the choice between investment and cost-cutting, Chrysler has chosen cost-cutting. The company has returned to its 1997 budgets, despite amazing profits. Rather than increase its market share by building factories (or taking over other companies' factories), Chrysler is cowering in the corner, fearful for the downturn, heeding analysts who claim that overcapacity is rife in the industry. Chrysler will not be building enough PT Cruisers to fill demand. No additional capacity is being dedicated to the Cruiser. Any new cars come at the expense of other Chryslers.
Cost-cutting did not work for General Motors, which faced similar issues at the same time - why would it work for Chrysler now?
Not capitalizing on the PT Cruiser is an incredible mistake. Microvans are a craze because they offer nearly all the advantages of full-size minivans with better gas mileage, handling, and image. The PT Cruiser could easily outsell the Ford Explorer, but it will not, because Chysler is too scared to build them. Instead, competitors will take over the market - many already sell microvans in Europe. Chrysler is giving up an amazing opportunity to convince import, Ford, and GM owners that Chrysler can indeed build a dependable car.
Indeed, the ultimate cost-cutting move is the end of Plymouth, a division with hardly any unique marketing costs. Rather than build up the Chrysler name by making sure every Chrysler is upscale, as with Acura and Infiniti, Chrysler is pushing Chrysler down into Plymouth's place.
Other indications of cost-cutting abound. The original Neon easily beat other cars in its price range. The new one is about average. The fans have been pushing for a supercharged Neon for years, but we've seen no sign of this happening - other than the same rumors we've been hearing since 1994.
The 300M should have a five-speed to be a true BMW challenger. Chrysler says they can't afford it. Volkswagen, Toyota, and Honda can in nearly every car they make. Not Chrysler, fearful they might not sell.
Want a Sebring with a five-speed and V6? Sorry, you need to get a Mitsubishi model with the Chrysler name on it. The actual Chrysler Sebring, the sedan model, is not available with that combination. In fact, if you want a six cylinder engine with a five speed, you are limited to Volkswagen, Toyota, Honda, Mitsubishi, BMW, General Motors, and Ford. But not Chrysler.
Where are Chrysler's competitors while they are listening to the analysts? For less than the cost of developing a single new model, Ford has purchased Volvo's car business. And Land Rover. And most of Mazda. Honda has expanded, building new plants in the US and selling engines to GM - they plan to expand by 45% in the next few years. Don't be surprised if the Odyssey takes over the Caravan's position as the #1 minivan. They'd have it now if they could build enough Odysseys.
I miss the courageous Chrysler that would have created the capacity to build as many PT Cruisers as they could sell, through partnerships or by renovating abandoned plants. I miss the Chrysler that would have kept the Neon at the head of its class and stayed at the forefront of technology. Personally, my fear is that Chrysler, due to its own fear, will, like Nash, Hudson, and AMC, find itself lost to history, the victim of bad decisions and an unwise merger.
Andrew Renth's Reply
Hi Dr. Zatz, I just read your editorial and I must say that it is a good topic to discuss. My dad would probably say that cost-cutting has been a problem with Chrysler for years. I think it also has been a big problem.
Fear, on the other hand, I don't know. I think it is stupidity. The top officials won't listen to anyone unless it is Wall Street. Just put the pride into the cars AND DIVISIONS like Walter P. Chrysler did. After all, who is the company named after anyway, Eaton? Holden? To me they don't care about Chrysler, only their reputation, salary, and privileges.
You're right, Chrysler could have competed on its own. Eaton should have bought out Volvo. Even a joint venture would have been fine. This would help the safety reputation, quality issue, European issue, and environmetal issue. Plus, I don't think the Swedes would have been power hungry and controlling.
Cost-cutting: I can see it on just about all of Chrysler's cars. It's the little detail I don't see. Items like black molding on Chryslers instead of chrome, black plastic mirrors even on the LHS (almost everybody is painting the mirror casings today), paint that is substandard compared to a Ford or an Acura, no clear lens covers like Ford and other car companies, etc... (I could go on!). Quality and customer satisfaction are also hampered by cost-cutting.
Last, the Neon, PT Cruiser, and Plymouth. To me the new Neon looks like a rental car. Sure quality is better, but the Neon doesn't interest me too much anymore. As for the new R/T (YAWN). When I drive my Daytona Shelby, I wonder how a Neon R/T coupe would be like if it had the 2.2 intercooled turbo making about 180 hp in it. It would be the return of the Omni GLHS. The PT Cruiser would be better if it was a Plymouth. Personally, I really don't like the PT Cruiser. If it was a Plymouth, it would make more sense.
If they sell well, then build more capacity. Look what Iacocca did with the minivans. You are really right about Plymouth. It should have been built up instead of cut down. Build the company up, not down.
Our reply to Andrew
We agree with Andrew - he's right, it is cost-cutting. We'd argue this is being done out of fear as well as too much obesience to industry analysts (who, as we all know, have always been right - after all, due to pollution controls, our cars only get 6 mpg, cannot go past 50 mph, and idle very poorly), but in the end, it's a penny-wise, pound-foolish outcome that will only lead to a crisis at Chrysler sooner or later.
Already, Chrysler is losing the minivan market. Don't think it's impossible for Chrysler to become a bit player there, even though they dominate now. They've made lots of enemies out of customers with their dealers' uncaring response to transmission and paint woes, not to mention the poor reliability of minivan transmissions until the recent past. Many people are jumping to Toyota and Honda as fast as they can. Also remember that Chrysler used to be the #1 full-size van maker!
We've heard about the cost-cutting effort from many people within Chrysler. For the most part, they think it's a bad idea, though they don't say that directly to outsiders - they like their jobs and want to keep them. Chrysler has saved billions over the years, but instead of reinvesting that money, as they would have done in the early 1990s, they are now passing it along to Daimler, for disbursement to stockholders, executives, and other DaimlerChrysler initiatives - buying Korean companies, selling Smart cars, etc.
If Chrysler really wants to save money, here are some suggestions from us: transfer your executives' perks and inflated salaries over to the production side. Make those five-speed 300Ms, supercharged Neons, and, most of all, get those PT Cruisers into production. (If worst comes to worst you can always convert the factories over to making your own coupes). Then you can give them double perks in a few years.
By short-changing the present, Chrysler is almost guaranteeing its long-term failure. The company needs to put its money on the table now to be a dominant player.
