Troubled automakers; Leyland Skids Chyrsler hangs on; US company whacks at staff, plant costs in last-ditch effort
Is Chrysler Corproration headed for failure after all? Not, it is clear, without a determined effort to stay in business. The company is going to great lengths in its last-ditch effort to stay alive.
The beleaguered carmaker has been whacking away unmercifully at its staff and plant in order to qualify for another infusion of US government-guaranteed money. Over-head has been cut to the bone -- clearly far below the level that would enable Chrysler to continue to operate in the old-fashioned way. Now, there is one person working where two were working before.
"They've reduced their work force to the point where almost everybody has to answer his own phone," says one worker, "except Lee Iacocca, the chairman."
In addition, the break-even point has been lowered dramatically says Arvid Jouppi, a Detroit-based industry analyst with John Muir & Co.
This puts Chrysler in position to cash in early if car sales revive down the road.
Twelve months ago the break-even point was about 1.4 million cars and trucks ayear. In more recent times it was down to 1.2 million. Now it is below 1 million units. At the sma time Chrysler has been drawing about 10 percent of a severely reduced car market.
"In my view," asserts Mr. Jouppi, one of the most respected market analysts in the business, "there is no reason why the company, would go out business."
Nonetheless, Chrysler's problems still are monstrous. Bulging car inventories, nagging money problems, and a question-prone pubic won't go away.
Yet, when the market rebounds, Chrysler will have to start rebuilding its work force. "They've cut themselves so far," says Mr. Jouppi, "that when they again get up to break-even in sales, they are going to sart calling people back. Simply, they've cut costs under their income so they can make a profit. Now, as soon as they begin to make a profit, they will have to start calling people back."
Helping Chrysler is chairman Iacocca's boundless enthusiasm and hard-headed attitude which reports Mr. Jouppi, "is holding the whole thing together."
Even the workers are enthusiastic, he says, because the one who are left all value their jobs. And the high seniority of those still on the job results in a higher quality level of performance.
Observers agree that Chrysler has done about everything possible to save its own skin. Yet everything seems to have gone against it right from the start.
A stronger car market this fall would have helped immensely. Instead of selling 20,000 k-cars a month right now, Chyrsler might have come closer to its earlier projected target of 40,000-plus. Chrysler had expected to sell t least a half million K-cars -- Dodge Aries and Plymouth Reliant -- in the first 12 months. Mr. Jouppi now estimates the figure will be no more than 400,000.
Because of lagging sales, Chrysler has shut down all its assembly plants till Jan. 12, a week after the rest of the US auto industry returns from its yearly holiday shutdown. Because of bulging dealership inventories, some Chrysler plants won't open til even later in the month.
The company's early 1981 marketing decisions didn't help sales by any means. It loaded the early-issue cars with high-priced options, pushing the price beyond the reach of numerous consumers in an inflation-wracked economy.
High interest rates and steep prices, plus consumer fears of what they lie ahead, not only for the economy but for Chrysler as well, have put the troubled carmaker at a disadvantage.
Now the company has asked for another installment of $400 million from the Chrysler Loan Guarantee Board, the federal agency overseeing the $1.5 billion rescue fund which the US Congress voted a year ago to keep the sagging carmaker afloat.
Even if the request is approved, Chrysler will have only $300 million left because it earlier had drawn down $800 million.
And while staff and plant cutbacks are saving money, some of the company's future product programs may be in jeopardy. Planning and design for future models will be put on hold while Chrysler reassesses its priorities and adapts to the nearer-term realities of the car business.
Even so, the firm's down-the-road cars will all be derivatives of the K-cars and the Omni-Horizon subcompacts. Looking ahead, the company has nothing fundamentally new coming out in the foreseeable future.
Chrysler probably will continue to manufacture a full line of passenger cars, but produce only a token number of larger, models. It plans to hold on the existing Imperial, all-new for 1981.
The company also will phase in some light trucks. And before the mid-1980s it will have a two-passenger car along with all the other US auto manufacturers.
Everything Chrysler is doing is predicated on getting the profit from the product the way it now exists.
Actually, the struggling automaker is getting a competitive advantage because of its slimmed-down operation plant and low over-head. When the market finally breaks open and consumers are in a car-buying mood once again -- probably in the spring; for sure in the fall, say the experts -- the company will be able to make money.
Chrysler, in fact, has been able to cut costs to a far greater extent than Ford would even attempt. Ford, for example, has just borrowed $725 million for the short term.
In short, Chrysler Corporation has bitten the bullet, and, with a little cooperation from the economy and car buyers, it can still stay in business.