A Bold Plan for Chrysler

CEO Marchionne believes he can make $5 billion in operating profit in 2012—and double Chrysler's sales by 2014

By David Welch

After five months of near silence, Chrysler CEO Sergio Marchionne finally delivered his plan to fix the struggling automaker. It's a bold one.

Marchionne, who is also the CEO of Chrysler's controlling shareholder Fiat Group (FIA.MI), projected that Chrysler will break even in 2010 and will make $5 billion in operating profit in 2012. He expects Chrysler to more than double its sales, from 1.3 million vehicles this year to 2.8 million in 2014.

If he pulls it off, Marchionne will not just have orchestrated the miracle of saving Chrysler, he will have created a global power that combines Fiat and Chrysler into a moneymaking player. He might also be paraded down Detroit's Woodward Avenue. "This is a new day for Chrysler," Marchionne said in his customary guttural monotone. "This plan is comprehensive and it's ambitious."

That's an understatement. To come back, Chrysler needs its American brands—which have had waning success in the past and few victories lately, selling mostly SUVs, minivans, and pickup trucks—to win over passenger-car buyers. Marchionne also needs a healthy comeback in the U.S. economy. And Chrysler must become successful overseas, where it has never been a major player.

Recovering U.S. Market Share

First, Marchionne's plan requires the U.S. market to grow from today's levels of about 10 million cars sold this year to 14.5 million in 2014. That doesn't seem unreasonable given that the U.S. market sold more than 17 million cars and trucks in 2000. But the economy is still weak and the job market keeps getting worse.

That could easily undercut Marchionne's plan. "Their targets are higher than their sales will be," says James N. Hall, principal of Detroit-area consulting firm 2953 Analytics. "There is no such thing as a jobless recovery for car sales."

Marchionne is counting on stealing major market share from his rivals. He thinks Chrysler can grow from less than 9% of the U.S. market to more than 13%. That means he will double U.S. sales volume to 2 million. "We are going to recover some of the market share we lost in the past. It reflects an increase in market share and an increase in volume in the U.S. market," Marchionne said. "The U.S. is too big of a place to maintain volumes of this [low] level."

How on earth will he get there? Give Marchionne credit for one thing—he is investing in this business. He plans to double what the company spends, per car, on marketing. He has also jacked up Chrysler's capital budget to add new models. Under the control of its previous owner, Cerberus Capital Management, Chrysler spent less than $3 billion a year to engineer new cars. Marchionne will increase that level to $4.1 billion next year and $5.7 billion in 2012. Between now and 2014, Marchionne says he will spend $23 billion on new models. "There's a huge amount of cash being consumed by this business," Marchionne said. "It's being done with the objective of gaining market share."

Jeep's Export Potential

Chrysler's plan calls for about 16 new or heavily freshened models for Dodge, Chrysler, and Jeep by 2014. There are also some new commercial trucks and new pickups coming for the Ram brand. Says Hall: "Their market share targets are probably pretty reasonable."

But make no mistake, Chrysler faces a monumental task. The company wants to grow exports from 144,000 vehicles this year to 500,000 in five years. That's largely on the strength of Jeep, says Michael Manley, CEO of the Jeep brand and the executive in charge of the company's overseas expansion.

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