Case Study: The Best-Laid Plans: Chrysler Hits the Wall
Judger Churches, the CEO of the combined companies, told shareholders to “expect the extraordinary’ and went on to ay that Daimler Chrysler “has the size, profitability and reach to take on everyone”. The grand scheme proved extraordinary, but for all of the wrong reasons In 2006, Chrysler saw its market share fall to 10. 6% and the company announced that it would lose $1.
26 billion. This shocked shareholders, who had been told a few months earlier that the Chrysler unit would break even in 2006.
What went wrong? First, Churches and his planners may have overestimated Chrysler competitiveness prior to the merger. Chrysler was the most profitable of the three U. S. Auto companies in the late asses, but the U.
S. Economy was very strong and the company’s core offering of pick up trucks, Subs and minivans were the right product for a time of low gas prices. After the merger, the Germans discovered that Chrysler factories were in worse shape than they had thought, and product quality was poor.
Second, sharing design and engineering resources, and parts, between Dandler’s Mercedes Benz models and Chrysler proved to be very difficult. Mercedes was a luxury car maker, Chrysler a mass market manufacturer, and It would take years to redesign Chrysler cars so that they could use Daimler parts and infinite from Daimler engineering. Nor did Dandler’s engineers and managers seem enthusiastic about helping Chrysler, which many saw as a black hole into which a profitable Mercedes Benz line would poor billions of euros.
To be fair, the new cars that Chrysler did produce, including the ICC sedan and the APT Cruiser, garnered good reviews. Sales of the ICC were strong, but not strong enough to shift the balance of Chrysler business away from the small truck segment. Despite several years of financial struggle, by 2004 it looked as if things might finally be turning round at Chrysler. In 2004 and then again in 2005, the company made good money. The company actually gained market share In 2005.
Dieter Sketches, then Chrysler German CEO, hoped to capitalize on this with the introduction of a new 1 OFF sub, ten seven seat Jeep commander.
Launched In mom 2005, ten telling AT ten Commander could not have been worse. In 2005 the price of oil surged dramatically as strong demand from developed nations and China combined with tight supplies (which were made worse by supply disruptions caused by Hurricane Strain). By mid 2006 oil had reached $70 a barrel, up from half that Just 18 months earlier, and gas ricers hit $3 a gallon.
To make matters worse, Ford and General Motors, who themselves were hemorrhaging red ink, were engaged in an aggressive price war, offering deep incentive to move their own excess inventory, and Chrysler was forced to match prices or lose much share. Meanwhile, Japanese manufacturers, and particularly Toyota and Honda, who had been expanding their U. S. Production facilities for 15 years, were gaining share with their smaller fuel efficient offerings and popular hybrids. In September 2006, Chrysler announced that due to a build up of inventory on lealer’ lots, it would cut production by 16%, double the planned figure announced in June 2006.
In addition to slumping sales, the new CEO, Thomas Lassoed revealed that the company was facing sharply higher costs for its raw materials and parts, some of which were up as much as 60%. Chrysler was also suffering from high health care costs and pension liabilities to its unionized workforce.
Scrambling to fill the gap in its product line, Chrysler announced that it might enter into a partnership with China’s Cheer Motors, to produce small fuel efficient cars in China, which would then e imported into the United States.
Chrysler woes, however, continued, and in February 2007 Chrysler announced a dramatic restructuring plan, including the closing down of a factory and laying off 13,000 employees. Executives at Daimler concluded that its plans for Chrysler had failed and announced that the company might be sold. This transpired in May 2007, when Chrysler was purchased by Cerberus, a private equity group, for $4. 7 billion. Cerberus bought in a new CEO for Chrysler, Bob Narrated, formally CEO at Home Depot and before that at senior executive General Electric.