A meeting of top Chrysler Group executives dissolves in a chorus of guffaws — forced laughter, perhaps — as they file out of a conference room.
One by one, the suits disappear into adjacent corridors here in Chrysler's sprawling headquarters until only Tom LaSorda remains.
Despite his considerable 6-foot-plus frame, LaSorda is dwarfed by a pentastar-shaped skylight that looms over his shoulder. And the symbolism is crystal clear.
As president and CEO, LaSorda is charged with ensuring Chrysler's star burns brightly. But he is besieged by monstrous challenges, such as crippling employee health-care costs, elevated material prices and the lingering shadow of a summer that saw production run amok.
Insiders confirm LaSorda has said his job is on the line following Chrysler's $1.5 billion third-quarter loss, which broke a streak of 12 consecutive profitable quarters. The shortfall occurred largely because the auto maker misjudged the market and accumulated 100,000 unsold vehicles — in addition to its reported inventory, Ward's revealed in October.
Soaring pump prices quashed demand for its high-margin light trucks, yet the auto maker ran plants at full throttle, sometimes even paying overtime. Industry observers were shocked as airports and shopping centers were transformed into storage yards for new Chrysler SUVs and minivans.
“Never put a car in a sales bank,” says Thomas Stallkamp, industrial partner at Ripplewood Holdings LLC and former president of DaimlerChrysler Corp. “It's absolutely written in stone. (Chrysler) just went nuts on inventory build.”
Adds Earl Hesterberg, president and CEO of mega-dealer Group 1 Automotive Inc., “(Chrysler is) not one of the more attractive franchises at the moment.”
Through October, Chrysler Group sales were down 8.6% vs. 2005.
In a very public September mea culpa before analysts, LaSorda took the heat for the auto maker's build-and-bank strategy. One month later, he did so again in private meetings with dealers.
“I walked through that; told them what had happened; and I took responsibility,” LaSorda says, vowing the sales bank will soon be empty.
Then a look of grim determination washes over the usually affable executive.
“We'll ride this thing down,” he says in a low, quiet voice. “I don't want to be debating on inventory…that's something I'm not going to talk about.”
Clearly, LaSorda wants to move on. In a wide-ranging interview with Ward's, he reveals his 2007 checklist, which includes “slightly” fewer new-product introductions than 2006, and possible expansion of Chrysler's manufacturing footprint in Russia and/or Brazil.
However, efficiency gains in North America are top of mind. And LaSorda admits market conditions likely will prevent Chrysler from reaching his 100% capacity utilization goal any time soon.
“Capacity's all driven based on volume,” he says. Percentage utilization “still should be in the high 90s. I mean, that's where you've got to be.”
The most recent Harbour Report on manufacturing efficiency rated Chrysler's capacity utilization at 94%, good for third place behind Toyota Motor Corp. and Nissan Motor Co. Ltd., with 106% and 95%, respectively.
“The down weeks for inventory adjustments don't help,” he adds, referring to the auto maker's second-half production cut of 135,000 units.
Backed by a team of Mercedes-Benz division executives, LaSorda and other top Chrysler leaders are chasing a per-vehicle cost reduction of $1,000. The value of this initiative is estimated at $2.8 billion annually, which would be a significant step torward LaSorda's primary mandate of achieving sustaintable profitability.
Corporate parent DaimlerChrysler AG has said Chrysler could suffer a full-year loss of $1.28 billion, a $3.2 billion swing compared with 2005's $1.9 billion profit.
But obtaining the per-vehicle cost reduction will require “a balancing act,” LaSorda says.
“If you have a vehicle that's only going to live for another year, the opportunity to get $1,000 out of the vehicle in a year vs. one that's just getting going is a little different.”
Gone in 2007 are niche products such as the Dodge Ram SRT-10 and the diesel-powered Jeep Liberty CRD, but Chrysler is mum about which other vehicles might be chopped from its lineup. The Chrysler Pacifica cross/utility vehicle, as first reported by the Detroit Free Press, appears near death, with suppliers being told to stop developmental work.
However, savings potential appears significant because a substantial share of the auto maker's '07 showroom is new. The all-new '07 Chrysler Sebring boosts the core brand's profile in the crucial midsize car segment; while Jeep redesigns the Wrangler to include a 4-door model, upgrades the Grand Cherokee with a diesel engine and adds two nameplates, the Patriot and Compass.
Meanwhile, Dodge boasts its first midsize SUV, the Nitro, plus a small car, the Caliber, which racked up nearly 76,000 sales through October.
So, how is Chrysler going about the task? Through more intelligent design, LaSorda says, referring to the auto maker's ongoing strategy of consolidating components, which streamlines assembly. Right out of the gate, the bill for Caliber production was $300 million lower than the cost of building its predecessor, the Chrysler Neon.
“Part of the variable cost is transportation,” LaSorda adds.
This would seem to shine a spotlight on Chrysler's assembly site in Newark, DE.
Two hours from the eastern seaboard, Newark is home to the Dodge Durango fullsize SUV and its new-for-'07 platform-mate, the Chrysler Aspen. And slow demand for SUVs — Ward's data show total segment sales were down 13.3% through October — has Newark operating on one shift.
But LaSorda is mum on the likelihood of closing this or any other plant.
Analysts suggest his hands are tied. With Chrysler's current level of manufacturing flexibility, the auto maker would be hard-pressed to consolidate production at a plant such as Warren Truck Assembly.
“There isn't the flexibility in other plants to integrate that product without (major) expense,” says David Cole, chairman of the Center for Automotive Research.
Further complicating this scenario is next year's scheduled production of a Durango hybrid-electric vehicle. “We have to keep that going,” LaSorda says, adding powertrain progress fuels sales.
Negotiating a plant closing with the United Auto Workers union will be a challenge, Cole says, because Chrysler is a victim of its past success. Those 12 profitable quarters do not inspire the “urgency” to move quickly the way it did at GM and Ford, he explains.
Reeling from a string of multi-billion-dollar losses, Chrysler's crosstown rivals were able to negotiate cost relief, especially in the troublesome area of health care. But despite invoking the law of pattern agreements, Chrysler failed in a similar bid that would have reduced its per-vehicle health-care obligation from $1,400 to $600.
LaSorda, the son of a UAW leader, says he was “discouraged,” but not dissuaded from pursuing the matter further.
“The data suggests we need to push ahead to try to get the deal because (of) the competitive disadvantage; we cannot sustain that,” he says.
Dialogue continues with union leaders, he adds, but no formal talks are scheduled.
Similarly, no formal meetings arose from a November meeting between Detroit's three auto makers and President Bush. LaSorda hopes Washingon reconsiders a tariff against imported product when it's up for renewal.
Chrysler pays $797 per ton for hot-dipped galvanized steel, Ward's is told. That's nearly double the 2002 level of $400.
LaSorda warns: “There's big headwinds in material.”
So he's seeking relief overseas.
“If you look at our volume and our sales, in the (North American Free Trade Agreement) region, you're looking very close to 90%. One of the things we've got to look at is, what is the global growth strategy and what (other) regions would you look at?”
Chrysler 300 production has begun in China, thanks to a joint venture with Beijing Automotive Industry Corp. And other markets are on LaSorda's radar.
“Russia being one potential; one we've spent a lot of time on,” he says. “South America's another region.”
Chrysler is examining its product portfolio to see what fits and what doesn't in these regions.
“We almost have to look at those markets and say, ‘Do we become a niche player with midsize cars or SUVs?’”
If so, Chrysler's current prospects are “very limited,” LaSorda says. This underscores the importance of finding a partner with which to develop a B-car, a process that remains on track, he says.
“We said end of the year, and I'm still confident that we should be able to do something,” he says, confirming Chrysler also will bring the sub-compact to North America.
Meanwhile, LaSorda barely contains his excitement about Chrysler's next-generation minivan, expected in late 2007.
Chrysler defined the segment when it launched its “Magic Wagons” in 1983. Chrysler still leads, but the segment was down almost 10% through October, and sales of competitive products such as the Toyota Sienna and Honda Odyssey are going strong.
LaSorda dismisses the stigma against minivans with characteristic self-assurance.
“Let's be honest. When somebody goes on vacation, how many people are taking minivans?”
Based on the task at hand, it's a sure bet LaSorda won't be vacationing any time soon.
— with Tom Murphy