August 8, 2007
BY JEWEL GOPWANI
FREE PRESS BUSINESS WRITER
TRAVERSE CITY -- It's a business goal that sounds simple enough: make money on the products you sell.
It's also the biggest and most obvious challenge that lies ahead for Chrysler's new Chairman and CEO Robert Nardelli, the former GE executive and Home Depot chief who took charge of Detroit's No. 3 automaker on Monday.
The size of his challenge grew substantially last year, according to a study by Laurie Harbour-Felax, who recently joined consulting firm Stout Risius Ross.
Her analysis, released Tuesday at the Management Briefing Seminars in Traverse City, found that Chrysler lost $1,111 for every vehicle it sold in North America last year, as the company continued to churn out fuel-thirsty SUVs that sat on dealers' lots. In 2005, Chrysler made $144 per vehicle, according to Harbour-Felax's study.
To turn those losses around, Chrysler should start with labor costs in current contract negotiations with the UAW, she said.
But there's more it must do to find ways to improve efficiency, according to Harbour-Felax.
"They need to refocus. They need to get started on commonizing platforms," she said, referring to using similar parts across several vehicles. Chrysler should also look to get more efficient in design and engineering, she said.
Chrysler would not confirm Harbour-Felax's figures, but acknowledged the report is "directionally correct" and reflects, in part, the difference in legacy costs when compared with Japanese automakers' North American operations. The Auburn Hills automaker started a restructuring earlier this year that will cut 13,000 jobs over three years and invest $3 billion to make more fuel-efficient vehicles.
Chrysler also acknowledges that it managed inventory poorly in 2006, requiring a costly correction -- but one that has been achieved.
"The dealer inventory reduction was accomplished by working with our dealer partners and also by providing consumers with competitive lease, financing and incentive offerings," said Darryl Jackson, vice president, U.S. sales. Since June 2006, Chrysler has cut its inventory by 28%, he said.
Aside from inventory headaches, the situation is similar for each of Detroit's automakers. Last year, the three automakers lost an average of $1,073 per vehicle in North America, while their top Japanese rivals -- Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. -- made $1,593 per vehicle.
That's a gap of $2,666 per vehicle. The difference is even bigger -- $3,800 -- when counting one-time losses.
Ford, like Chrysler, did worse in 2006 -- it lost a record $12.6 billion last year -- than in 2005.
GM is on a better path.
Not counting special items, GM lost $1,271 per vehicle in 2005. Last year, GM lost $146 per vehicle.