Weakened Chrysler Fights to Catch Up With Rivals
For Chrysler, 1990 may be the year of living dangerously.
Over the past decade, Lee A. Iacocca’s car company rose, phoenix-like, from near death to become immensely profitable; Chrysler’s recovery was perhaps the biggest business success story of the 1980s. Iacocca became a national hero as a result.
Yet today, as Chrysler confronts the harsh realities of a new decade, its ability to remain competitive is being tested more severely than at any time since the recession of the early 1980s.
To a far greater degree than either General Motors or Ford--which have healthy overseas operations that can offset losses at home--Chrysler is vulnerable both to Detroit’s current sales slump and the ever rising tide of Japanese products flooding the U.S. car market.
“These are not funny times we’re in today in this business,” Bennett Bidwell, chairman of Chrysler’s automotive operations, said in a recent speech. “They’re tough times, and they’re probably going to get tougher for a while.”
Chrysler’s problems were underscored this week when, under withering fire from the imports and its larger cross-town rivals, the auto maker announced that it had suffered its first loss in seven years during the fourth quarter of 1989. Industry analysts expect the red ink to continue to flow during the first three months of 1990.
The company has moved quickly to respond to its slump by slashing $1.5 billion from its costs since last summer--closing two assembly plants, cutting thousands of white-collar jobs and eliminating 1989 executive bonuses and profit sharing for hourly workers.
Chrysler executives now say that they believe their tough actions have helped position Chrysler for the rest of the 1990s.
“We started the decade (of the 1980s) scrambling, and we’ve come out of the decade in real good shape,” insists Chrysler Corp. Vice Chairman Gerald Greenwald, heir apparent to Iacocca when he retires at the end of 1991. “We pride ourselves on getting ahead of the wave,” he said in an interview Thursday.
Iacocca said this week that the company’s strengths in minivans, light trucks and convertibles--the Chrysler LeBaron is the best-selling convertible on the market--will provide the cushion that Chrysler needs while it rebuilds its passenger car lineup for the early 1990s.
“Our job is to get back into the real bread-and-butter business,” in mass-market passenger cars, especially in the subcompact sector, Iacocca said.
But while most analysts agree that Chrysler’s truck line remains strong, they argue that Chrysler’s weaknesses on the passenger car side may be more serious than Iacocca wishes to believe. They see Chrysler as saddled with uninspiring cars that have failed to ignite much interest from younger, more affluent buyers.
“The bottom line is that they are a much better truck company than a car company,” noted William Pochiluk, founder of Autofacts, a Paoli, Pa., automotive research firm. “They have some good products, but their car line is not fully competitive in all segments,” added Chris Cedergren, an automotive analyst with J. D. Power & Associates, an Agoura Hills research firm. “They are in a product drought on the car side right now.”
As a result, Chrysler finds itself heavily dependent on its popular minivans and Jeeps at a time when those products are facing more foreign and domestic competition than ever before.
To be sure, Chrysler’s minivans are still dominant, controlling more than half of the market. But over the past year, stylish new vans have emerged from General Motors, Mazda, Toyota and Nissan, forcing Chrysler to offer cash rebates on its vans for the first time since they were introduced six years ago.
Those rebates worked--Chrysler’s January minivan sales of nearly 64,000 for the Plymouth, Dodge and Chrysler nameplates combined set an all-time record--but still squeezed the company’s margins on one of its most lucrative product lines.
Its Jeeps face the same kind of increased pressures from new four-door utility vehicles like the Ford Explorer and the Nissan Pathfinder.
Now even Chrysler’s status as America’s third-largest car company is in doubt. In December, for the first time ever, both Toyota and Honda briefly outsold Chrysler in the passenger car market.
While Chrysler regained the No. 3 spot in January, thanks to its heavy sales incentives, Chrysler executives have clearly gotten a wake-up call from Tokyo.
As a result, Chrysler has been forced to refocus its attention on cars. It is in the process of selling off many of its non-automotive operations--including Gulfstream Aerospace, which went for $825 million this week--and is pouring the proceeds back into new product development in its core car and truck operations.
To bolster its sagging lineup, Chrysler is now in the midst of a five-year, $15-billion product program that should make it more competitive on the passenger car side in the mid-1990s.
The centerpiece of that program is the so-called LH project, the code name for a new family of intermediate-sized cars--equipped with advanced, multivalve engines--due to be introduced during the 1993 model year. In 1994, the LH will be joined by the LX, modern replacements for Chrysler’s luxury car lineup.
To fill the gaping hole in the subcompact field left by Chrysler’s recent decision to drop its aging Dodge Omni and Plymouth Horizon models, the company is now considering producing a new small car at its Diamond-Star joint venture with Mitsubishi.
Now, as the future product strategy unfolds, most analysts are praising Chrysler for at least attempting to address its key problems.
“Chrysler does have a good management team, and you have to give them credit for taking some aggressive steps,” Cedergren said.
Iacocca clearly finds the challenge of restructuring Chrysler refreshing. After several years in which he was relatively uninvolved in the company’s day-to-day operations, Iacocca is clearly in the driver’s seat once more. And he plans to stay there for a while; he said this week that he doesn’t plan to leave until his contract expires at the end of 1991.
“Things are tough right now, but I’m sort of enjoying it,” he said. “It’s a complete redo of the company, so I certainly wouldn’t leave now.”
CHRYSLER EARNINGS 1989 profit (loss) by quarter
First: $351 million
Second: $341 million
Third: $331 million
Fourth: ($664 million(
Source: Motor Vehicle Manufacturers Assn.
GM, FORD PROFITS PLUNGE: Incentive programs are cited for dramatic drops in earnings. D4
