Sep 25 2009
Will Suppliers Foil The New Chrysler?
The Wall Street Journal reports that suppliers are not at all amused with Chrysler's plans to revamp its vehicles so to transform its brand image. It explains the problem:
Some smaller suppliers that are under financial strain themselves are hesitating because they are unsure whether the vehicles will sell in high enough volumes for them to make money, they said.
If suppliers don't go along, Chrysler might not survive.
To recap, Chrysler, who the U.S. government recently saved from bankruptcy, needs to find a way to be a successful auto company. In doing so, it's working to develop a new line of vehicles, which include:
. . . updated versions of existing Chrysler cars and Jeeps and early versions of new compact and midsized sedans to be based on components developed by Chrysler's alliance partner, Fiat SpA . . .
New models, of course, require new parts. That will require parts suppliers to make significant capital expenditures on equipment to create those parts. Yet, those suppliers aren't convinced that will be a good investment. Perhaps they've looked at Chrysler's market share direction:
(from the NY Times used in this post earlier in the week about Hyundai)
As you can see, their current models aren't exactly conjuring up much excitement these days. And then there are the new models, which:
Without modification, those underpinnings would yield a midsized sedan that would be smaller than the top U.S. sellers in that segment, the Toyota Camry and Honda Accord.
Suppliers are likely worried that Americans might not be too interested.
Here's the sticking point:
In most cases, these people said, Chrysler is declining to guarantee certain production volumes, a change from what it and other car makers have typically done.
Clearly, it's a lot safer bet for suppliers who are guaranteed a certain production volume from a manufacturer. If you don't know a definite volume, it's hard to figure out whether it's worthwhile to invest in the infrastructure to produce the new parts.
So Chrysler isn't exactly helping its own cause. Yet, it probably realizes that it has no clue how well its new vehicles will sell either. Consequently, it's uncomfortable declaring a production value that it must stick to in the event that it doesn't sell as many vehicles as anticipated.
This puts Chrysler in a difficult situation, because it's going to have a hard time convincing suppliers to go out on a limb. But also doesn't want to lose money living up to guaranteed production agreements with suppliers if its sales come up short.
Article Link:
Will Suppliers Foil The New Chrysler? - The Atlantic Business Channel
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