Chrysler in Trouble

Case Study Analysis

Presented on October 4
th
, 2012
In Partial Fulfillment of MG495 Business Policy
Park University

Instructor: Paul Norstrud

Presented By:
Corey Q. Cornett

Table of Contents
I. Introduction......1
II. Analysis of the Situation..2
a. Human Resources....2
b. Life Cycle.3
c. Management.3
d. Marketing.........5
e. Technology..........6
III. Recommended Strategy...7
IV. Works Cited.....8



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I. Introduction
Chrysler has been suffering from financial troubles intermittently, since their inception in
1921. After surviving through The Great Depression, the oil crisis in the 1970s demanded higher
efficiency vehicles, driving consumer demand toward smaller and more fuel efficient Japanese
vehicles. Still struggling from losses throughout the 1970s, which forced Chrysler to take a $1.5
billion federal loan, Chrysler began to rebound from the crisis. In the 1980s, Chrysler repaid the
federal loan seven-years ahead of schedule. In January 2009, Chrysler received another federal
loan for $7 billion, following the deep U.S. economic recession that began in 2008. Despite aid
from the federal government, Chrysler Motors LLC filed for bankruptcy protection under section
363, Chapter 11, of the United States Bankruptcy Code in April 2009 (Wheelen 17-9).
While Chrysler has managed to stay afloat over the years, this has been in part, due to
significant financial assistance from the federal government. Despite many financial challenges
and several failed mergers, Bankrupt Chrysler announces their alliance with Fiat, making the
new company the worlds sixth largest car manufacturer. With this alliance Chrysler and Fiat
would have access to each others market (Wheelen 17-11).
In 2012, Chrysler Group LLCs net second quarter income was $436 million, a 141%
improvement over the Adjusted Net Income of $181 million a year ago. The Chrysler, Jeep,
Dodge, Ram Truck, and Fiat brands each posted year-over-year sales gains in September
compared with the same month a year ago. The Fiat brands 51% increase marks the largest sales
gain of any Chrysler Group brand for the month. September marked Chrysler Groups 30th-
consecutive month of year-over-year sales gains. Fiat brand sales were up 51 percent in
September, the largest year-over-year percentage increase of any Chrysler Group brand. The
Fiat 500 set an all-time sales record in September 2012 (Chrysler Group LLC).
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II. Analysis of Situation
A. Human Resources
Human resource strengths include a strong and diverse unionized workforce composed
mostly of the UAW. The International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America (UAW) are one of the largest and most diverse unions in North
America, with members in virtually every sector of the economy (UAW-Who We Are).
Likewise, the heavily unionized workforce also contributes to many of Chryslers weaknesses.
Well-compensated union workers contribute to high labor costs, cost that are then passed
on to the consumer, resulting in low sales and profit margins for Chrysler. Additionally, they
reserve the right to collectively bargain for increased compensation at the termination of their
contracts. High labor costs strangle most United States and international automakers. While
unions offer generous compensation and benefits packages which attract quality employees,
increased human lifespans resulting in depleted pension funds, are a serious issue for Chrysler.
The pension fund issue further compounds Chryslers financial struggles.
In 2011, The United Auto Workers and Chrysler Group LLC reached a tentative
agreement on a four-year labor contract that would pay workers smaller bonuses than unionized
workers at Chryslers largest competitors, General Motors and Ford. (Woodall). The contracts
include provisions which start workers at a lower base salary and bonus program tied to profit
sharing. In turn, this should motivate workers to increase production and improve product
quality. This agreement has contributed to Chryslers 2012 increased profits over years past. The
UAW currently has 2,500 contracts with some 1,700 employers in the United States, Canada and
Puerto Rico (UAW-Who We Are). If Chrysler wants to remain competitive in the global auto
industry, they must control the cost of their labor.
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B. Life Cycle
As an auto manufacturer specializing in car and light trucks, history shows that if
Chrysler remains a learning organization and adapts to market fluctuation, they can remain
successful for hundreds of years. Chrysler brings in average annual revenue of $40 billion,
respectively. If Chrysler continues to progress as they have in more recent years, they could very
well see that figure increase, drastically. Product life cycles vary based on a products popularity,
but generally need refreshed every few years. Adding aggressive new vehicles such as the Fiat
500 to Chryslers line up have aided in extending Chryslers life cycle. As Chrysler is constantly
learning, evolving, and improving, the corporation could remain in existence until the need for
automobiles ceases to exist. This will not occur in our lifetime.
Product planning starts with identifying market trends and opportunities, aligning them
with the four brands, determined optimal use for each platform, ensured they could stay
within the capital plan, and providing market support at all steps of the product lifecycle
(The Chrysler Five Year Plan).
C. Management
The Chrysler Group is managed by a nine-member Board of Directors that provides
oversight to the Company with one director appointed by the UAW Retiree Medical Benefits
Trust. The board, led by Sergio Marchionne, CEO of both Chrysler Group and Fiat, oversees the
organizations performance throughout their 2010-2014 business plan, which was established on
November 4, 2009. The comprehensive plan incorporates environmental and social performance
with economic performance (Chrysler Group LLC).
Chrysler Groups day-to-day operations are managed by a highly skilled and motivated
management team of true professionals. As part of management overhaul, experienced leaders
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were drawn from both Chrysler Group and Fiat, and the organizational structure was flattened to
allow for better communication. Chryslers commitment to quality and quality improvement
processes is essential to growth and prosperity. Employees should strive to exceed customer
expectations, both internal and external, and continuously improve the quality of Chrysler
products and services (Integrity Code).
To facilitate collaboration and enhance speed of decision-making, two management
committees chaired by CEO Sergio Marchionne, meet regularly to consider significant
operational matters. The Product Committee oversees capital investment, engineering and
product development, while the Commercial Committee oversees matters related to sales and
marketing. Chryslers leadership believes this structure further fosters cooperation, information
sharing and timely decision-making (Chrysler Group LLC).
Over three years ago, when Marchionne decided he would attempt to turn around
besieged car manufacturer Chrysler, he knew very well that turning Chrysler around was a long
shot. One of his crucial first steps was to cut out the layers of Chrysler's bureaucracy, a known
cause of laziness among Detroit's Big Three. He upgraded 16 of Chrysler's models in a mere 18
months. Then, he began to combine the efficient technology that Fiat factories were using with
the retooled Chrysler plants.
Marchionne worked vigorously to drastically transform Chryslers customer appeal and
tapped into market segments which they were not previously engaged in, namely, the micro and
small car segment. This particular segment has proven to be popular among consumers based on
Chryslers competitions sales in these segments. One noteworthy accomplishment of
streamlining of the managerial process will be a new Dodge Dart that costs under $16,000 and
gets 40 miles per gallon (60 Minutes).
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D. Marketing
The Chrysler Sales and Marketing Plan is overseen by Chryslers Commercial Committee.
Chrysler is moving to a multi-dimensional marketing approach focused on fuel savings, mostly
due to the recent merger with Fiat. Chryslers ambition is being different, remembered, and
aspirational, not mimicking another automaker; and having an integrated image across the board,
in their products, merchandising, showrooms, auto shows, advertising, catalogs, and web sites.
Everything must reflect their aspiration. Brochures should be aspirational and very elegant (The
Chrysler Five Year Plan).
Chryslers ambition is to be distinctive at every level. The new attributes must be
established. Refined, balanced performance, provocative styling, intuitive innovation,
craftsmanship, pride in their brand, overall value, efficiency and responsibility, as well as
mileage (The Chrysler Five Year Plan). Chrysler recognizes the need to expand their portfolio,
improve total quality, and create exciting designs, in order to remain competitive. Their greatest
threat is fierce external competition.
Mainstream shows and events are expensive and have low visibility, so innovative
marketing is the key. Chrysler has upgraded and redone their showrooms, produced higher
quality brochures and other marketing materials. Dodge has undergone a complete repackaging,
completely overhauling branding, marketing, positioning, and their point of sale experience.
The car and truck brands are being separated to amplify the youthfulness of the Dodge
brand. Additionally, trim lines will be changed to match the lifestyles of potential consumers,
with groupings such as sweet/simple; fun/practical; uptown/luxury; thrill-seeker; cool/extrovert;
and SRT, ultimate-performance. The Chrysler and Dodge SRT badging will continue to be
marketed as the brands ultimate performance sport level (The Chrysler Five Year Plan).
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E. Technology
Chrysler led the way early on, with many technological innovations. These include the
first hemispherical-head V8 engine (HEMI) in the 1950s, which still remains a popular name
among consumers today. Chrysler is also famous for creating power windows and steering, the
alternator, and electronic fuel injection (Wheelen 17-2). Chrysler has since lagged behind its
major competitors such as General Motors, and Ford Motor Company. Chrysler's financial
challenges interrupted the companys initial drive to reduce its fleet wide gasoline consumption
through greater use of electric-drive and alternative fuel vehicles.
In 2009, using a $6 billion loan from the U.S. Treasury, CEO Sergio Marchionne began
to refurbish factories and to improve the quality and efficiency of producing Chrysler vehicles
(60 Minutes). Chryslers main threat fueling recent technology enhancements have been due to
demand by the federal government to meet EPA standards, and further fueled by consumer
demand due to high gasoline prices.
Chryslers latest fuel economy efforts include an eight-speed transmission designated for
the 2012 Chrysler 300 and Dodge Charger. The transmission enables these full-size sedans V6
engines to average more than 30 highway mpg, a significant improvement over just a few years
ago. Last spring, Chrysler deployed its first plug-in hybrid in a test fleet of Ram PHEVs and will
build a demonstration fleet of 140 of the pickups for testing over the next three years (King).
Now, Chrysler has full access to all Fiat designs and technologies. Fiat technologies,
including smaller turbo engines, MultiAir, start/stop systems, and direct injection will be added
rapidly. Around 270,000 cars will be made by Chrysler for Fiat to sell under its various brands
(The Chrysler Five Year Plan). Like Chryslers competitors, efforts focused on electric vehicles,
hybrids, and high efficiency gasoline vehicles will be Chryslers focus moving forward.
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III. Recommended Strategy
Chrysler has done everything needed to be successful since Chryslers reorganization in
2009, under the leadership of CEO Sergio Marchionne. In order to keep costs down and
maximize profits, Chrysler must continue ongoing negotiations with the UAW to reduce union
worker compensation and pensions for retired workers. This is crucial as worker pension plans
have nearly bankrupt several major auto manufacturers in the past. Moving more to a
performance based compensation system which pays bonuses for performance rather than a large
base salary will encourage employees and management to perform. If Chrysler wants to remain
competitive in the global auto industry, they must control labor costs.
Chryslers management is on the right track currently, having recently removed layers of
corporate bureaucracy, increasing communication and transparency. The current leadership must
continue these trends and avoid becoming complacent. Staying globally competitive and tapping
into large markets in various countries will keep Chrysler on par with global competitors. By
spreading Chryslers market segmentation internationally, this allows any one suffering segment
to be offset by a particularly robust segment. Any transition back to the pre-2009 operations will
result in a downward spiraling Chrysler and once again, Chrysler will be in need of financial
assistance. In the future, the federal government may not be as apt to step in and assist Chrysler.
Chrysler must remain innovative in their marketing techniques and continue to improve
the fuel efficiency of their product line. Their new attributes must be established. Their merger
with Fiat has proven to be a huge asset and will continue to be, as Chrysler uses Fiats innovation
and technology to improve their entire product line. By identifying market trends early, and
staying ahead of the curve, Chrysler can continue to offer more reliable and efficient vehicles,
and rebuild its lacking customer loyalty base.
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IV. Works Cited
60 Minutes. 23 March 2012. 2 October 2012 <http://www.cbsnews.com/8301-18560_162-
57403476/chrysler-ceo-on-companys-remarkable-turnaround/>.
"Chrysler Group LLC." 2 October 2012. Chrysler Group LLC Reports September 2012 U.S.
Sales Increased 12 Percent; Best September Sales in Five Years. 2 October 2012
<http://www.chryslergroupllc.com/Investor/PressReleases/sales/ChryslerDocuments/Chr
yslerGroupLLC_Sales_2012Oct02.pdf>.
Chrysler Group LLC. 2012. 3 October 2012
<http://www.chryslergroupllc.com/company/leadership/Pages/Management.aspx>.
"Integrity Code." June 2009. Chrysler Group LLC. 3 October 2012
<http://www.chryslergroupllc.com/company/CodeofEthics/Documents/Integrity%20Cod
e.pdf>.
King, Danny. Chrysler Turns To Fiat To Meet Mileage Standards. 7 September 2011. 2 October
2012 <http://www.autoobserver.com/2011/09/chrysler-turns-to-fiat-to-meet-mileage-
standards.html>.
The Chrysler Five Year Plan. 2012. 3 October 2012 <http://www.allpar.com/corporate/chrysler-
group/five-year-plan.html>.
"UAW-Who We Are." 2012. UAW. 2 Ocotober 2012 <http://uaw.org/page/who-we-are>.
Wheelen, Thomas L. Strategic Management and Business Policy: Towards Global Sustainability.
Boston: Prentice Hall, 2012.
Woodall, Deepa Seetharaman and Bernie. Reuters. 12 October 2011. 2 October 2012
<http://www.reuters.com/article/2011/10/12/us-chrysler-uaw-
idUSTRE79B2LA20111012>.