• Feb 14, 2007


Project X has now officially been renamed the Recovery and Transformation plan by the Chrysler Group, which plans to reduce its workforce by 13,000 people between now and 2009. About 11,000 employees will be hourly workers, while 2,000 will be salaried employees. In addition, total production capacity for the Chrysler Group will be reduced by 400,000 units per year, aided by the immediate elimination of shifts at its Newark Assembly Plant and Warren Truck Plant, along with cancelling a shift at its St. Louis South Assembly Plant in 2008. In 2009, the Newark Assembly Plant will be completely idled. There's also the standard restructuring moves you'd expect in the plan, like reducing the number of dealers, selling less to fleets, and offering retirement and attrition packages to current workers not affected by the layoffs.

Chrysler Group hopes the R&T plan will return the company to profitability as early as 2008. It's main weapon is cost reduction by the aforementioned layoffs and plant closings. The idea seems to be that if the company can reduce costs enough, its operating profit can offset the quarterly losses it will be facing in the near term.

It's not all slash and cut though, as Chrysler also announced a $3 billion investment in new engines, transmissions and axles that will focus on producing more fuel efficient power and drivetrains. One such product will be a dual-clutch transmission it's commissioned Getrag to produce and a new V6 engine dubbed "Phoenix". There's a slew of BLUETEC diesel vehicles on the horizon, and the 2008 Dodge Durango will host the company's first two-mode hybrid, as well.

One item of note in the press release issued is DaimlerChrysler CEO Dieter Zetsche's statement that, "we do not exclude any option in order to find the best solution for both the Chrysler Group and DaimlerChrysler," which some analysts have taken to mean that selling off the Chrysler Group wholesale is still on the table as a viable option.

Check out the Chrysler Group's full press release after the jump for all the nitty gritty details, and let us know in the comments whether or not you think the Recovery and Transformation plan has what it takes to turn Chrysler around.

[Source: Chrysler Group]

PRESS RELEASE:

Chrysler Group Recovery and Transformation Plan Seeks Return to Profitability, Redesigns Business Model
  • Financial Impact – Return to profitability by 2008
  • Employee Impact – 13,000 employee reduction; Newark Assembly Plant to be idled, shifts eliminated and total capacity reduced by 400,000 units
  • Redesigned business model for long-term competitiveness, including greater emphasis on fuel-efficient products, global growth and partnerships
  • €2.3 billion ($3 billion) powertrain investment leads to more fuel-efficient line-up
  • DaimlerChrysler is looking into further strategic options with partners
Auburn Hills, Mich., Feb 14, 2007 - DaimlerChrysler AG's Chrysler Group today announced a three-year Recovery and Transformation Plan that seeks a return to profitability by 2008 while also taking steps to change its business model for the long run. The plan will result in an employee reduction of 13,000 people from 2007 to 2009.

Chrysler Group President and CEO Tom LaSorda outlined the plan at the DaimlerChrysler AG Annual Press Conference, held in Auburn Hills, Michigan.

Dr. Dieter Zetsche, Chairman of the Board of Management of DaimlerChrysler: "The Chrysler Team worked out a comprehensive Recovery and Transformation Plan using all resources within DaimlerChrysler. In addition to that and in order to optimize and accelerate the presented plan, we are looking into further strategic options with partners beyond the business cooperation partners mentioned. In this regard, we do not exclude any option in order to find the best solution for both the Chrysler Group and DaimlerChrysler."

Overall, the Recovery and Transformation Plan is aimed at a return to profitability with a primary focus on costs. It is structured to over-achieve in order to offset potential unforeseen market headwinds, resulting in a target of €3.5 billion ($4.5 billion) of financial improvements – or a return on sales of 2.5 percent – by 2009.

"There are two integrated parts to the plan," LaSorda said. "First, the Chrysler Group needs to solidify its position in the North American marketplace. In addition, the key to our long-term success will be our ability to transform the organization into a different company to achieve and sustain long-term profitability."

The program will be supported by a €2.3 billion ($3 billion) investment in new engines, transmissions and axles, which will set the table for a product offensive of more than 20 all-new and 13 refreshed vehicles from 2007 to 2009.

RECOVERY
The Recovery plan is aimed at a return to profitability through a combination of revenue programs and by sharply focusing on costs.

The key measures include:

Revenue Management
  • Continue the product offensive with eight new and five refreshed products in 2007. Key products include the new Chrysler Town & Country and Dodge Grand Caravan minivans, mid-size Dodge Avenger sedan, Chrysler Sebring convertible and a Jeep® Liberty that completes the revamping and expansion of the Jeep family.
  • Improve the retail-to-fleet mix, build momentum with new offerings in global markets and improve the effectiveness of marketing and incentive spending.
  • Reduce and optimize the dealer network to improve dealer profitability.

Material and Fixed Costs
  • Reduce material costs by up to €1.15 billion ($1.5 billion) by 2009.
  • Explore the sale of support operations, including transportation services.

Capacity & Efficiency
  • Reduce total production capacity by 400,000 units per year.
  • In 2007, eliminate a shift at Newark (Delaware) Assembly Plant and the Warren (Michigan) Truck Plant. In 2008, eliminate a shift at St. Louis (Missouri) South Assembly Plant.
  • Idle Newark Assembly Plant in 2009.
  • Idle the Cleveland (Ohio) Parts Distribution Center in December 2007.
  • Adjust powertrain, stamping and component operations to reflect reduced capacity.
  • Employee Reduction

Overall, Chrysler Group will reduce the number of employees by 13,000, or approximately 16 percent.
Hourly employment will be reduced by 11,000 over three years, with 9,000 in the U.S. and 2,000 in Canada (4,700 in the U.S. and 1,100 in Canada in 2007 alone).
Of the U.S. hourly total, 4,000 employees will be impacted by assembly plant actions; 1,000 by reduced capacity in powertrain, stamping and other component operations; 1,000 by other actions including the potential sale of support functions; and 3,000 through technology, efficiency and productivity.
Salaried employment will be reduced by 2,000 over the next two years, with 1,000 each in 2007 and 2008.
Special retirement programs and other termination and attrition programs will be announced separately.
LaSorda said these actions complement significant other restructuring measures taken since 2001. Previous to this announcement, the company closed, idled or sold 16 plants (five assembly, 11 component) and reduced its workforce by one-third.

The financial impact of these Recovery measures will be seen beginning in 2007 with a restructuring charge of up to €1 billion ($1.3 billion), with the net cash impact for the year of about €800 million ($1 billion). The impact of the balance will be in the following two years.

In 2007, the Chrysler Group expects to further reduce dealer inventories to align with market demand, which will result in a reduction in operating profit of approximately €230 million ($300 million).

TRANSFORMATION
Key parts of the Transformation will be a greater global footprint and a shift in the product mix to smaller, more fuel-efficient vehicles.

Currently, North America represents some 90 percent of the Chrysler Group's business, and its product line-up has historically been heavily weighted toward minivans, trucks and sport utility vehicles. "Those two factors were advantages for Chrysler Group once upon a time," said LaSorda, "but the rules of the global marketplace have changed. High fuel prices and other dramatic shifts in the market have driven a shift in consumer preferences to smaller, more fuel-efficient vehicles. We must make some strategic adjustments to build off our historic strengths, but not rely on them so much so that we are put at a competitive disadvantage" he said.

"That will require a redesigned business model, with three primary areas of strategic focus", LaSorda said. "First, the Chrysler Group will add a more robust customer and brand focus while continuing to stress product leadership. In addition, we must achieve better global balance and rely more heavily on leveraging partnerships to manage costs while finding growth opportunities."

Specifically LaSorda pointed to the following initiatives:

Customer and Brand Focus
  • Continue the product offensive through 2009, with more than 20 all-new vehicles and 13 refreshed vehicles.
  • Build on its existing product strengths through new entries in the minivan, pick-up truck and select rear-drive full-size vehicles. At the same time, the company will learn to do more with less with a plan to reduce product platforms from the current 12 to seven by the year 2012.
  • Expand into new commercial vehicle segments, including entering the Class 4 & 5 truck segments for the first time.
  • Continue the shift to a car/truck mix that is less reliant on trucks.
  • Invest in powertrain with €2.3 billion ($3 billion) dedicated to new engines, transmissions and axles, in order to move toward a portfolio that is more fuel efficient. That will include a common axle program for all vehicles, plus work on a new transmission technology. Last week, the company signed a non-binding memorandum of understanding with Getrag (a German-based supplier) to develop this more fuel efficient "dual clutch" transmission technology.
  • As part of that powertrain offensive, the company has under development a new V-6 engine platform (dubbed "Phoenix"), which is targeted to reduce the number of six-cylinder engine families from four to one.
  • In addition, Chrysler Group will introduce its first two-mode full hybrid with the 2008 Dodge Durango, and is also evaluating a mild hybrid for future applications.
  • Finally, it will expand its line-up of diesel engines, including several BLUETEC-labeled vehicles, a designation emblematic of the cleanest diesel in its class.

Increase Global Presence
  • Avoid nameplate redundancies in North America and develop and introduce vehicle programs aimed at global markets.
  • Use third parties where possible to access regional products and markets where it makes economic sense.
  • Balance supplier purchasing globally by targeting €3.8 billion ($5 billion) of additional purchasing to low-cost sources to complement the company's global growth.

Partnerships
Better use of alliances and partnerships around the world, such as the Chrysler Group does currently with:
  • In manufacturing, an agreement with Volkswagen to build minivans in North America for VW's dealers.
  • In retail, such as in Mexico where it sells a Hyundai-produced vehicle as the Dodge Atos, and soon will sell a small cargo van produced in Taiwan
  • In import opportunities, such as the recently-announced agreement in principle with Chery Automobile Company of China (contingent upon approvals from the DaimlerChrysler Supervisory Board and the Chinese government) produce a small car for sale in North America and Europe.
  • And in focused partnerships, such as the GEMA World Engine project with Hyundai and Mitsubishi in Dundee, Michigan, or the DaimlerChrysler consortium with General Motors and BMW to develop hybrids.


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  • 20 Comments
      • 7 Years Ago
      Chrysler will be sold to GM!! Details late spring???
      • 7 Years Ago
      It won't be enough. It doesn't address the fact that a substantial portion of their models are completely unappealing. You need sales to make profits.

      The last fairly well executed model they released was the Nitro SUV, which is a stylish and compelling package. The new Wrangler isn't bad either, but the Commander, Compass and Patriot are huge mistakes. The Grand Cherokee needs to be restyled inside and out.

      The Avenger and Sebring are awful. The Aspen is as laughable as the Commander. The Caliber could have been a hit if the interior, fuel consumption and dynamics weren't completely horrible.

      Chrysler has a long way to go.
      • 7 Years Ago
      #10 You're right. Although I would say that the Honda study allowed them to develop cars that people wanted, and to develop them faster. What also made Chrysler go in the '90's was their design and products that were right for the market at the time. The people that made that happen are gone now. Either they left out of frustration or Daimler showed them the door.
      • 7 Years Ago
      #7 Your idea is not all that crazy. Before Chyslers last comeback a small group within the company did a study of Honda. It was from this study that Chrysler made use of platform teams that were responsible for everything from design, engineering, to marketing. They were more like Honda after that transformation. Of course Daimler thru all that away when they took over 'cause the Germans know best. Now Chrysler - a mass market auto maker - runs like Mercedes, a preemium brand that wastes more $ than almost any other maker but makes it up on the prices they charge for their cars.
      • 7 Years Ago
      Honda should buy Chrysler. Honda is excellent in small and fuel efficient cars as well as having great midsize sedans. Chrylser Corp. on the other hand is great for Full-size big engine cars and trucks, something that Honda is weak at.

      There would be great synergies between the two. They could share engines, transmissions and parts. Honda could also use Chrysler's excess plant capacity.

      Honda could use its dealers worldwide to increase the sales of Jeep products.

      Dodge could be the sportier division to Honda's mainstream products while Chrysler could focus just on large full-size sedans and coupes.
      • 7 Years Ago
      I just can't imagine that this is happening again. Wasn't Chrysler a profitable company on its own prior to the Daimler-Benz merger? It begs the question -- was Chrysler doomed to slump anyway (i.e., would we be talking about an independent Chrysler having the same problems), or did its problems worsen as a result of the merger?
      • 7 Years Ago
      This is what happens when you let Bob Lutz go to your rival.
      • 7 Years Ago
      #9 Copying Honda only made Chrysler leaner and more efficient and improved quality. However at the end of the day what sells cars are not processes for which they are made, rather the cars itself need to be appealing. ChrysCo.'s lineup is a mess.
      The Caliber is a visual disappointment. Looks kind of a baby-Aztek if you ask me. How can they compete with a Honda Civic or Toyota Corolla. In the mid-size segment, you have the Sebring and Avenger that looks like 5/6 of a Accord or Camry while the Charger does not look practical for the targeted segment of "boring midsize family car" for which the Accord, Camry, Altima and even Chevy Impala are cleaning up.

      The Durango and Aspen look badly dated vis-a-vis GM's products. So not only ChrysCo. is getting its ass-kicked by the Japanese, but also by a much improved GM and the relentless Koreans.

      Bottomline, their products with exception of niche products such as the Viper,the upcoming Challenger and the 300 (the only vehicle) in the lineup are not up to the competition. Even the minivan which they owned the market looks dated compared to the Odyssey and the Koreans are coming strong in this segment too. The Jeep Grand Cherokee does not hold its status among suburbia as it once did. (Lexus is stealing their customers).

      G-d help Chrysler.
      • 7 Years Ago
      I was just noting on my site: http://www.beyondthekm.com that DaimlerChrysler isn't the only automaker that is struggling right now. Among others, PSA Peugeot-Citroën is struggles and there is wide speculation the new CEO Christian Streiff will implement cost cutting measures.
      • 7 Years Ago
      I read on the UK's AutoCar site, that they are Diamler is seriously considering dumping Chrysler (wheteher this is rumor or truth they are reporting is beyond me, they qoute a German paper) not to mention that they say Zrtche is asking some investment banks for possibilities for Chrysler
      • 7 Years Ago
      Where's Kirk Kekorian when you need him!?!?!?!?

      Maybe they need Dr. Kevorkian instead.......

      They just need to kill half of their product line and start over. Instead of laying off people that build something that is not selling, just kill that vehicle and build what's selling. With all of that flexible manufacturing talk, you'd think it would be relatively easy to switch from the Sebring to the Caliber on the same line.

      Methinks they are consulting a ODD group of people for their focus groups for feedback.
      • 7 Years Ago
      Honda would not want the baggage that comes with buying Chrysler, I doubt Honda would want to spend the mone when they should be using the money to make Acura a better luxury brand (maybe a rwd and awd cars finally). Toyota does not need the lag on their profits, and Daimler's old partner for engines and platforms Mitsubishi has their own issues (namely shrinking North American sales). Renault-Nissan is having their own issues, since Nissans boost has slowed. VW does not need the extra baggage that would come with Chrysler. That would leave the Chinese or the Korean, and maybe the Indians.
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