DaimlerChrysler's Biggest Test Still to Come

Automotive Industries,  April, 2001  by Ron Harbour

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To escape the malaise, DC needs the help of its suppliers.

What's the hottest industry trend going today? It has to be the bashing of DaimlerChrysler. Industry watchers seem to delight in the company's most recent round of troubles, and everyone from Juergen Schrempp on down is fair game.

So pardon me for not jumping on the bandwagon. Yes, the Chrysler Group has problems. There probably have been some bad decisions that have allowed higher costs to creep into new products. There has also been a bit of bad luck concerning the timing of the auto industry's downturn. And maybe the takeover by Daimler has not worked out the way any of the parties intended.

But at the same time, what DaimlerChrysler is experiencing today is not even close to the crisis that occurred some two decades ago, when a government bailout and K-cars were about the only things that kept Chrysler afloat. The Chrysler Group today still has a lot of things going for it, and should be able to survive the current downturn.

The recent round of announcements notwithstanding, Chrysler's manufacturing operations are not in bad shape. The company has been working hard to be leaner and improve its operations. During the boom times, Chrysler did not build lots of new facilities. Instead, production increases were achieved through added shifts and overtime. Thus, the company can dramatically cut costs by eliminating some shifts and reducing overtime.

While several operations will be shuttered, some of those plants were already slated for closing because advances in manufacturing had created excess capacity. For example, the company's assembly plants have been implementing flexible methods into their production systems. That may have driven up some costs, but it will also make the plants better in the future. Furthermore, it makes it easier for DaimlerChrysler to meet its production needs with fewer plants.

In fact, one of DaimlerChrysler's best manufacturing stories of the past year turned out to be one of the biggest reasons for its current rocky times. The launch of the company's new RS minivan was an unqualified success. But because the launch was accomplished faster than anticipated, the new minivans were in dealers' hands before supplies of the old NS models were depleted. Dealers had to heavily discount the old minivans to move them off the lots, which impacted RS sales. The result was higher inventories of new minivans, which forced Chrysler to offer incentives on the new, higher-priced and higher-cost models. So what should have been a real success story -- an excellent launch of a new, high-quality-product -- turned into a mini-disaster. That won't happen again soon.

In its minivan, its trucks and especially its PT Craiser, DaimlerChrysler still has plenty of vehicles that will attract American customers. But the real test will come with the next products developed for the U.S. market, when the Chrysler Group's new management team has to engineer and manufacture new products for an American cost base.

Can they do it? I think so, based on what I've heard from DaimlerChrysler's leaders. To help escape this latest malaise, one of the first things they did was ask their suppliers to help them through this financial muddle. While suppliers are showing some initial resistance, the two sides must eventually find a way to jointly reduce costs.

I also agree strongly with DaimlerChrysler's decision that recent cuts will only slightly impact product development. The cutbacks may be necessary, but the Chrysler Group simply cannot cut its way to profitability. The real revival of the Chrysler brand will be decided by products brought to market.

So for now at least, give the new team at DaimlerChrysler some slack. The company's current problems were not necessarily caused by the Germans. But the new leadership is responsible for actions today and in the future that will determine the future success of the Chrysler brand, and ultimately this "merger" of two unequal partners.

RON HARBOUR is president of Harbour and Associates, manufacturing consultants

in Troy, Mich.

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