Turning Chrysler Into Toyota

By cutting models and dealerships, Chrysler aims to be a leaner, more productive, and more profitable business

by David Welch

When private equity firm Cerberus Capital Management put Robert Nardelli in charge at Chrysler LLC, the promise was that business as usual would be a thing of the past (BusinessWeek.com, 8/6/07).

Nardelli's right-hand man, former Toyota Motor (TM) executive James Press, is making that happen, mainly by trying to emulate the efficiencies of his former employer. At meetings with Chrysler's dealers this week, Press revealed the beginnings of a plan to overhaul the troubled automaker's lineup, trimming its 28 existing models to something in the neighborhood of 16 and adding new ones to fill existing gaps.

Press also told dealers he also wants to accelerate consolidation of the company's bloated dealer body, resulting in a smaller retail network that sells Chrysler, Dodge, and Jeep brands under the same roof. The moves come on the heels of two major restructuring moves announced by Chrysler in the last 12 months that cut more than 700,000 cars worth of production at several plants and took out about 23,000 jobs.

"We'll get the company sized right for the market we'll be in," Press told reporters after the dealer meetings on Feb. 8. "We'll be the best damn little car company there is."

Sacrificing Short-Term Sales?

Press' emerging retail strategy is what Chrysler needs, but putting it into practice will be a big challenge. The company has to get rid of some of its look-a-like models sold by different brands and put more marketing muscle behind the remaining nameplates. But the plan also risks sacrificing market share and buyers as the company trims its offerings. Plus, getting dealers to buy one another could take years as the company will need to play matchmaker with buying and selling entrepreneurs.

"They will lose sales," says John Wolkonowicz of Global Insight's North American Auto Forecasting Group. "When they get rid of one model, they may only get back 20% of those buyers with their remaining cars.

Press told dealers he wants to eliminate models sold by one Chrysler brand that are basically clones of a car sold by a sister division. His logic is that, with fewer models, Chrysler can put its marketing dollars behind one car in every market segment and create more noise with its advertising. "Press said they need fewer products so we can really get behind every one of them," says one dealer who attended the meeting.

Eliminating Redundancies

Press did not tell dealers which models are on the block. But it's easy to see which cars might be killed. Instead of the Dodge Caliber and Jeep Compass, only one compact car might survive. Ditto for the Dodge Avenger and Chrysler Sebring midsize cars. Chrysler also may get rid of either the Chrysler Town & Country or Dodge Caravan minivan and sell just one. The company wouldn't need two large sport-utility vehicles either.

In all, Press told dealers in San Antonio on Feb. 6 that he envisions that the three brands could sell something like five passenger cars, three SUVs, two crossover SUVs, one minivan, one full-size van, and a family of pickup trucks. But Press stressed during a speech at a dealer convention in San Francisco on Feb. 8 that he doesn't have a specific number of models in mind yet and that the company will look for new models to build. "We don't know how many models we're going to have," Press said, according to Chrysler's media web site. "Nobody knows that."