Chrysler's Lasorda: Making Hard Decisions

Chrysler's vice-chairman discusses overseas joint ventures, cutting costs, boosting sales, and trying to turn the struggling automaker around

There is a cloud hanging over Chrysler. Detroit's automakers are having a terrible year, struggling under the weight of years of mismanagement, which have collided with rising fuel prices and a housing meltdown that have hammered sales of pickup trucks and SUVs.

General Motors (GM) and Ford (F) are struggling under record losses and market share drops. But Chrysler, perennially the most fragile of the three U.S. auto companies and acquired a year ago by Cerberus Capital Management, may be the one most likely to tumble. Some 70% of its lineup is pickups and SUVs. Residual values of its models have fallen so fast that it has had to stop writing leases. Dealers are in revolt over Chrysler's moves, the falling market share, and incentives they complain are not enough to keep the metal moving out of their lots. Their profits from new car sales have evaporated, too.

It's hard to know just how bad a spot Chrysler may be in. Cerberus is a private equity firm, and Chrysler therefore doesn't have to file detailed financial statements to the public. Because of the speculation surrounding Chrysler, it has volunteered that it has $11.7 billion in cash and that it reported $1.1 billion of earnings in the first half of the year before interest, taxes, depreciation, and amortization. That is voluntary information, not scrutinized by Wall Street firms or the Securities & Exchange Commission, so the public has no way of knowing how Cerberus arrives at the numbers.

Thomas Lasorda is vice-chairman of Chrysler. He was CEO when Cerberus acquired 80.1% of Chrysler for $7.4 billion in 2007 from what was formerly called DaimlerChrysler. Today, while former Home Depot (HD) CEO Robert Nardelli holds the title of CEO, Lasorda's responsibility centers on the automaker's manufacturing plants, labor relations, and scouting joint ventures across the globe that are becoming increasingly important to Chrysler's future. Lasorda has guided joint product-development deals with Nissan (NSANY), Chinese automaker Chery, and he has recently been in talks with automaker Fiat (FIA) about building vehicles for the Italian automaker in the U.S.

Lasorda talked with senior correspondent David Kiley about managing the company in such tough times and in a shroud of secrecy that prompts so much speculation about whether Cerberus and Chrysler will weather the economic downtown as an independent company, or be acquired by another foreign player. The interview took place at the Management Seminar in Traverse City, Mich., held annually by the Center for Automotive Research in Ann Arbor.

There is much talk about you following up the deal you have with Nissan, where they are making small cars for you for North and South America, with another deal to make midsize cars for you. We have also heard about talks you have had with Fiat. What can you tell me about that?

We have an internal project leader on that car. He is looking at various options including an all-new platform inside the company that would give us a midsize car as well as several other vehicles. So, it's erroneous to say that we are going out with another deal with Nissan. We have three deals with Nissan, the ones you mentioned, plus we are going to build a pickup truck for Nissan off our Ram truck. We have no discussion right now for them to build a sedan for us.

Are you leaning toward doing the car yourself, or leaning toward another joint venture?

We are studying both. Right now, our project leader is spending most of his time looking at developing our own. When you are looking at a project like that, few companies are willing to give up their engineering platform to another automaker. And there is no company in Europe that has capacity to build it here for us. Japan doesn't have capacity for a midsize car either.

Look at where the market is going—to more innovative designs and drivetrains of small and midsize cars. If you go ahead and farm out your midsize car, as well as your small car, I start to lose the unique selling proposition for Chrysler. Where is your innovation going to come from if you outsource so much? What will make Chrysler a Chrysler?

First off, Chrysler will not turn over all its product platforms to others, nor will it just become a contract manufacturer for other companies. No one talks about Toyota's (TM) platforms that go from Toyota to Lexus (where they use the same engineering platform for a Camry as they do a Lexus). Or with Renault-Nissan. They are sharing platforms. Fiat and Suzuki are sharing platforms. Look around the world, and you find companies are making cars for one another. When you buy a Jeep Grand Cherokee, you want to know that it has a nice Chrysler Hemi engine. But when you get into small cars, powertrains are not the signature of those cars. The interior and exterior of the car is what consumers are looking for and judging.

I get that on the engine sharing. But I have never seen one of these deals work out in the U.S. for the company that didn't make the car it is selling under its brand. GM sells a Toyota Matrix (, 12/4/07) as the [Pontiac] Vibe (, 3/28/08), and it doesn't historically sell well. It sold a Subaru Impreza as a Saab. That bombed. Even when Chrysler sold Mitsubishis as Dodge Colts, that was a snooze. Mitsubishi has been selling a Dodge Dakota. Nobody buys it. On and on.

Take for example in Mexico where we sell the Atos. That is a Hyundai (HYMLF) vehicle that we distribute as a Dodge. We also distribute Mitsubishi (MMTOF) in Mexico. We are doing great for both those product lines.

Is it a different equation in developing markets? Because it doesn't seem to work in the U.S., and you are going to sell a Nissan Versa (, 9/25/06) here as your own and you seem to be considering selling a Nissan Altima (, 3/6/07) as a Chrysler here as well.

This new small car Nissan is going to make for us in Japan is going to be a home run. Mark my words. The car will be totally 100% different from the Nissan Versa. It is not going to be a situation like with Toyota Matrix and Pontiac Vibe where the cars look essentially the same. Every part is different except for the underlying platform.

Just how tough is the U.S. for you?

This market, at 12.6 million vehicles this year, is a disaster. It's hard to win in that kind of a marketplace. It will rebound. We think by 2010, and into 2011, it will come back strong. In the meantime, we are going to do all the things that make sense in terms of where we put our capital. The good news is that we have some terrific products that will be hitting at just that time when we think the market comes back.

I've always heard that an auto company is so capital intensive, it takes $9 billion in cash just to keep the lights on. You have $11 billion plus. That seems like not enough to me.

No. That's not true anymore. It's significantly lower for us. GM and Ford may need that much. But we are smaller.

Where is the innovation at Chrysler coming from? What vehicles? What powertrains?

We announced we are putting $1.8 billion into our Jeep Grand Cherokee plant. That includes expanding the plant, improving its efficiency and environmental impact, and a new engineering platform that is car-based for the next Grand Cherokee, as well as several other vehicles we have planned. We have integrated our GEM neighborhood electric vehicle business, which is the biggest maker of those vehicles in the world, into our overall electric vehicle program. We have a hybrid Chrysler Aspen) coming out soon, as well as a clean diesel light-duty Ram pickup. We drove an electric car prototype in the last two weeks. We are very competitive.

Are you too focused on your problems in North America as far as the future goes? You talk an awful lot about opportunities overseas in India, China, Southeast Asia, and South America.

I think people are missing that because they are too fixated on trying to figure out what our numbers are in North America. Our investor/financial statements leaked out, and people have been surprised to find that what we have said about our numbers is true.

If you take a look at what we are doing, my job is to go out and get the products [Vice-Chairman] Jim Press needs for his markets. If I can't find a good way to do it ourselves, I go out and see if we can do a deal.

Can you do more exporting to boost sales?

It's very difficult. A lot of these countries like Russia and India have stiff tariffs. You have to build it locally. Plus, with the cost of shipping with energy so high, the vehicles would be way too expensive. We'd have to sell a Jeep Grand Cherokee in Russia for $100,000 to make a profit. So, what's our approach? Pour a lot of capital into these regions or work with somebody. We have to work with someone.

You had also announced a plan to develop a small car with Chinese automaker Chery for South America. What has happened with that deal?

The car that we were looking at did not meet our standards. Our engineers have had to coach them through a lot of the work for meeting emission and safety standards. We aren't going to put our name on a car that doesn't meet a high standard. We believe we will be able to start building them in 2009, but not yet for the U.S.

The speculation is that you are making a number of moves, like getting out of leasing and not starting up too many new vehicle programs that will drain capital as a way of preening the company for a sale.

[Cerberus Chairman] Steve Feinberg has never said anything like that to me. The only thing I have heard is "fix it and make it profitable," and that he is in this business for the long term. I don't know what happens in three years or what he says in five years or whatever, but those discussions we don't get involved in. We're busy enough trying to turn the place around.

It's not just the company facing a tough time, it's your dealers. A huge percentage are unprofitable, and that's not good for your business or your future in the U.S.

I think just over 60% are profitable. In this market, you don't hear about the ones who are doing well. I would think that all of the companies losing share like we have are having the same problem.

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