Chrysler- “Acceleration at its best”

By, Krunal Barabde

 

Normally in sports when a player comes out of poor form, not only his team, but even opponents know that he has hit a “purple patch.” Sometimes this turnaround is due to, small timing adjustment (baseball) or a new dribbling tactic (real football=soccer).

Similarly, automobile industry is currently witnessing purple patch of Chrysler, which saw approx 14% y-o-y increase in sales in 2014. Chrysler’s Jeep brand posted record 46% y-o-y rise in sales (Jan to Nov), especially new Cherokee Jeep which recorded 24744% rise in sales (579 to 143,848). Chrysler consistently has been outperforming its rivals in the industry. Chrysler group 2014 third quarter profit surged 32%.

 

Table for Income Statement Q3 2014

Source: Chrysler financial report
Source: Chrysler financial report

Table for Income Statement June 10 2009 – December 31 2009

 

Source: Chrysler financial report
Source: Chrysler financial report

Chrysler Group LLC, an American Automobile company founded in 1925 now a wholly owned subsidiary of an Italian Auto manufacturer Fiat. Chrysler is the seventh biggest automaker in the world by production. It currently offers following brands[i]

Jeep brand

–          Compass, Patriot, Wrangler, Cherokee, Grand Cherokee

Chrysler Brand

–          200, 300, Town & Country

Dodge Brand

–          Dart, Avenger, Charger, Challenger, Viper, Journey, Caravan, Durango

Ram Brand

–          Ram P/U, Cargo Van, ProMaster Van

In 2009, Chrysler had filed for Chapter 11[ii]. However, Chrysler was quickly dragged out of Bankruptcy by government funds, and collaboration with Fiat, this collaboration set the stone for the product portfolio and operational changeover for Chrysler.

 

New CEO Sergio Marchionne and his team planned significant changes company, resulting into cost cutting measures, and management team had created a 5-year plan for Chrysler. However, based on Chrysler’s limited product development, unimpressive product portfolio, and lack of synergy between Fiat and Chrysler many analysts in Detroit had predicted end of the road for Chrysler[iii]. Ironically, Sergio had predicted double-digit growth for Chrysler by 2014[iv].

Source:  www.fortune.com
Source: www.fortune.com

Analyst’s report went for a toss as Chrysler emerged as winner. Sergio an architect of Fiat turnaround from day one at the office realized that Chrysler required organizational and operational revamp. Sergio and his team streamlined the operations, removed the layers of bureaucracy, introduced “World Class Manufacturing” (WCM) a system of complete and thorough manufacturing quality, and upgraded 16 of Chrysler models in just 18 months[v] .

Chrysler production facility at Detroit was modernized to match up with that of Fiats in Italy and the quality of product was improved, quality of materials used was upgraded. Chrysler’s product line was complementing to Fiat’s Products; Fiat was specialized in small cars and fuel-efficient engines; whereas, Chrysler was known for its Jeeps, Trucks, and Minivans[vi]

Sergio Marchionne, experienced in leading Fiat’s turnaround was on the mark right from the day one that he assumed the office. Sergio shifted CEO’s office from penthouse to the middle of engineering departments.

He realized that bureaucracy was killing the creativity in Chrysler, as each new product idea had to go through four layers with PowerPoint presentation, and by the time response percolated the energy and time to implement had phased out.

Sergio removed the layers and entrusted existing team with multiple functions; according to him overload of work reduced the decision time. Sergio gave full authority to his team to take risks without bureaucratic pressures and stay accountable for the decisions[vii].

These measures must have definitely driven the speed, performance, and infused energy in the team. Chrysler was experiencing a change in culture, new culture promoted: Chrysler would build revolutionary cars, “Imported from Detroit” and would work tirelessly to create “a positive culture can emerge for our company, our children, and humanity as a whole.”

Chryslers renewed product line backed with aggressive pricing policy, focused on delivery luxury at affordable prices. Chrysler advertising campaign since super bowl 2011 has an emotional appeal for Americans with taglines of “Imported from Detroit” and recently “Imported from America.” The advertisement has portrayed Chrysler as an underdog battling against bankruptcy[viii] and displaying American ability to develop world-class automobiles.

However, the real catalyst of the Chrysler sinusoidal turnaround is Grand Cherokee of 2010[ix] . Grand Cherokee 2010 became the most awarded SUV ever. Jeep Brands Cherokee and Grand Cherokee have defied claims of all analysts as failure in the segment. During its launch Jeep Brand President and CEO Mike Manley suggested that Jeep was relying on it loyal customers since its image has been carved since World War II as a rugged and adventurous car[x] and SUV customers where transitioning to different segment.

 

Source: http://www.detroitnews.com/story/business/autos/chrysler/2014/10/19/jeep-cherokee-making-name/17591739/
Source: http://www.detroitnews.com/story/business/autos/chrysler/2014/10/19/jeep-cherokee-making-name/17591739/

Grand Cherokee 2011 launched with revamped exterior, and interior design, which promoted luxury at affordable price range and traditional 4X4 ability with mileage of 31mpg (highway), has been huge success. Even though sales of Jeep Brand are largely associated with revised specs and design, it does not explain the radical shift in consumers demand for Jeep in the segment, which was not growing.

One of the reasons that explain this shift in demand is “innovation to surprise”. Chrysler surprised the segment with better quality and specs, which triggered excited the consumer. In product development terminology, Chrysler excited SUV lovers and exceeded their expectations. The newly evolved flat organizational structure and Sergio Marchinno’s leadership boosted ideation and product development leading to incremental innovation in subsequent models launched by Chrysler in Jeep Brand.

In highly fragmented and competitive market segment, Jeep does not carry much differentiating factors. The changed face of Jeep has seen the demand from early adopters in the market but has Jeep crossed the chasm is a big question mark. Currently, Jeep is spreading its wings globally and currently is selling in 127 countries and has delivered on cross selling.

Sergio Marchinno has led the product development map till 2018 and targets to gain the market share equal to that of Ford’s. However, to achieve its ambitious plans Chrysler will have to sustain the competitive edge in SUV segment and simultaneously focus on other brands in portfolio. Chrysler has already raised the bar of expectation and competitors can challenge an incremental innovation in the market.

Chrysler can definitely sit back and enjoy the current turnaround!



[i] http://www.chryslergroupllc.com/Investor/PressReleases/sales/ChryslerDocuments/ChryslerGroupLLC_Sales_2014Nov03.pdf

[ii] http://en.wikipedia.org/wiki/Chrysler

[iii] http://www.autoblog.com/2010/04/16/report-analyst-claims-chrysler-may-not-be-able-to-survive-in-cu/

[iv] http://www.autoblog.com/2010/04/16/report-analyst-claims-chrysler-may-not-be-able-to-survive-in-cu/

[v] http://www.cbsnews.com/news/chrysler-ceo-on-companys-remarkable-turnaround/

[vi] http://www.tutor2u.net/blog/index.php/business-studies/comments/leadership-change-sergio-marchionne-drives-culture-change-to-turnaround-chr

[vii] http://www.theguardian.com/sustainable-business/2014/jul/31/leaders-chrysler-bankruptcy-automobile-marchionne-ceo-detroit

[viii] http://adage.com/article/cmo-strategy/spot-chrysler-200-pitches-brand-s-swagger-soul/293586/

[ix] http://www.npr.org/2013/01/18/169684984/ceo-marchionne-drives-chryslers-dramatic-turnaround

[x] http://seattletimes.com/html/businesstechnology/2011650678_apuschryslerturnaroundjeep.html

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