Already-Lean Chrysler On Streamlining Quest
Carmaker's market share rises along with productivity Carmaker's market share rises along with productivity
AUBURN HILLS, MICH. — He may run one of the world's leanest, most profitable car companies, but Chrysler Corp. chairman Robert Eaton isn't satisfied.
So the head of the nation's No. 3 automaker is on a crusade to reduce costs and improve productivity. The payoff is proving enormous. Profits doubled in the third quarter. And Chrysler is learning to build more cars without new factories - to the tune of 190,000 new units next year alone. It's identified ways to save hundreds of dollars for every car and truck it builds.
"The only constant around here is going to be change," Mr. Eaton says. "You've got to get better each day."
Wall Street says there's no other choice. Despite years of promise from the domestic automakers, the auto industry has yet to break free from the cyclical swings of the US economy - uncertainty that depresses stock prices of car companies.
Chrysler thinks it deserves better. So, in a "deep dive" briefing, Eaton and other top executives recently gave the media a look at the automaker's inner workings and core strategies.
Cutting costs is a fundamental concept. And it begins when designers first lay pen to paper - or at Chrysler, start sketching on a computer-aided design system.
Chrysler's 1993 mid-size sedans, such as the Concorde, took 38 months to go from concept to customer. "Lead time" for the '98 updates will be 31 months. A new Dodge sport-utility vehicle also set for debut next year will arrive in just 28 months.
"Our goal is to very consistently create vehicles in less than two years," says Francois Castaing, Chrysler's top engineer.
Industry observers say faster is not only better - keeping a company in closer touch with its customers - but cheaper.
Still, cutting lead time isn't easy for a company like Chrysler that has slashed its engineering base over the years. Work the company once would have done in-house is now handed off to suppliers, allowing the automaker to remain competitive, even though it devotes just 2.7 percent of its revenues to research and development. By comparison, Ford Motor Company spends 6 percent, and even lean Toyota devotes 5 percent to engineering.
"We're leveraging our supply base," explains Thomas Stallkamp, Chrysler's top purchasing executive.
Suppliers are not only coming up with new technology, they're offering ideas to save money as part of Chrysler's SCORE program. Often, the savings come in nickel-and-dime increments, but a redesigned antilock brake system from ITT Automotive may cut $70 a vehicle.
The strategy isn't without risk. Skeptics say Chrysler is losing "core competencies." It no longer engineers its own brakes, for example, but must rely on the expertise of suppliers such as ITT Automotive. But Mr. Stallkamp insists the payoff is worth it.
Not all costs can come down. Prices for some raw materials like steel have been on the rise. So have labor rates, which will rise about 4 percent annually over the next three years, estimates Chrysler president Robert Lutz. But he predicts new job guarantees won by Chrysler workers in the United States and Canada won't limit future productivity gains.
In 1991, the automaker's plants rolled out an average 28.4 vehicles for every employee. This year, it's 33.7 vehicles per worker, and the target is 42.5 by 2000.
That translates into more cars and trucks from the same number of factories - from a little over 2 million vehicles a year in the late 1980s to 3 million today with no new plants. Chrysler plans to bring that to 4 million in the next few years with a minimal addition of new "brick and mortar."
New plants are planned in Argentina and Brazil, and America's oldest automotive assembly line, the Jeep factory in Toledo, Ohio, will be replaced.
Chrysler's car-and-truck market share has climbed from 14.6 percent to 16.2 percent so far this year. Cautiously, Eaton says "18 percent to 20 percent is not unrealistic," though he stresses it's not a target.
The Latin American plants represent a modest return of overseas operations abandoned in the early 1980s, when Chrysler required a federal bailout to remain in business. "It's quite conceivable Chrysler can sell over 1 million cars a year internationally within a decade," says Tom Gale, who heads international operations.
This renewed emphasis on overseas expansion is being driven, in part, by Chrysler's largest investor, Las Vegas billionaire Kirk Kerkorian, who launched a failed buyout attempt in 1995. To make peace, Chrysler agreed to move to bolster its stock price. Among other steps, the company has been buying back billions of dollars of its stock.
Mr. Kerkorian appears to be happy - as were most investors - with Chrysler's unexpectedly strong third-quarter earnings of $680 million.
And Joe Phillippi, an auto analyst at Lehman Brothers, says that among the Big Three US automakers, Chrysler has the best shot at achieving Wall Street's dream: to remain in the black-and keep funding both its product development program and investor dividends - even in recessions.