A Bold Plan for Chrysler

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Jeep does have potential overseas. In many markets, it is a distinctly American name that stands for rugged SUVs and has a fun image. "It's an iconic brand on a global level that has been hugely squandered," says IHS Global Insight analyst John Wolkonowicz. "They need to develop products that are worthy of the brand."

That's the trick. Chrysler plans to build three new Jeep-brand vehicles using passenger-car platforms from Fiat. That means compact and subcompact Jeeps. Chrysler recently has failed with small, car-based Jeeps like the Compass and Patriot. "The Fiat-based Jeeps could water down the brand," Wolkonowicz says. "The sales targets look optimistic."

Upscale Chrysler Models

Chrysler needs to improve its other brands, too. The namesake Chrysler brand will get the most aggressive overhaul. Olivier Francois, the president and CEO of the Chrysler brand, a suave Frenchman who helped fix Fiat's upscale Lancia brand, is trying to add a heavy dose of sex appeal to Chrysler.

First, Chrysler will get six new models over the next five years that will be pushed upscale. They will be styled to give their owners "comfort and glamour." With the advertising, Francois has a brand commercial featuring tattooed, leggy models. The cars appear to be coming off a runway. The commercial has lines such as "Looking like $1 million was a birthright" and "Let's design cars people want to make out in."

The campaign is quite powerful, says Hall of 2953 Analytics. The imagery is striking. It's also a turn of the head for a brand that currently sells the Sebring, a basement bargain among midsize cars, and the low-priced retro PT Cruiser, which will go away in late 2010.

Marchionne may have trouble convincing the world Chrysler will hit its lofty sales targets. But his CFO, Richard Palmer, made a firm case that the company has enough money to get through the current tough times. He said Chrysler will break even in 2010 as the car market recovers. Sales will rise from 1.3 million vehicles this year to 1.65 million next year. Revenue is projected to grow from $42.5 billion this year to $67.5 billion next year.

Fast Start Needed from Fiat-Engineered Cars

Even if vehicle sales fall 20% below 2011 targets, Palmer said, Chrysler will still have a cash balance of $3 billion. That's the bare minimum Chrysler would need to survive, but the company could be able to pay its bills. The company borrowed $5.7 billion from the U.S. government, $1.5 billion from Canada, and has another credit line for $2.3 billion. Says Palmer: "We are confident we could weather another storm."

One big risk to Marchionne's plan is it depends on a fast start and success selling those Fiat-engineered models. Fiat's engineering works will help bring Chrysler its first new car models, but they have to hit sales targets and generate enough cash flow to boost new-product spending from $3 billion a year on average to about $4.5 billion a year.

If the new vehicles don't hit targets, "we'd rationalize capital spending," Marchionne says. "The whole thing about us being able to spend $23 billion depends on us being able to generate the cash flow."

That's the trick. Meeting his bold targets for both sales and profits will generate the cash to add to the model lineup and grow sales as quickly as Marchionne demands. If he does all of that, he will pay off the U.S. government's $5.7 billion loan by 2014 and make upwards of $5.2 billion in operating profits. If not, Chrysler won't escape its crisis. Says Marchionne: "This thing needs to earn its right to survive as a competitive American carmaker."

Welch is BusinessWeek's Detroit bureau chief.

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