Wrestling a Wrangler dilemma
Jeep could sell more; can't get them built
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TOLEDO, Ohio -- Chrysler Group built almost 200,000 Jeep Wranglers last year, more than it ever has before.
But it still wasn't enough, not even close. Despite record production, Jeep brand boss Mike Manley ended the year with 15,000 unfilled Wrangler orders and the ability to sell 50,000 to 100,000 more globally -- if he could just get them built.
"We've never filled the demand for that vehicle," said Manley. "If we were able to bring on potential different versions off of that vehicle, a diesel version or a pickup for example, you're certainly going to be north of 250,000 units."
The solution seems simple: Just make more of the highly profitable 4x4, a direct descendant of the vehicle that helped the Allies win World War II.
But reality is more complicated. The problem has its roots in the way Chrysler's Toledo Supplier Park, the sole Wrangler production site, was built seven years and several owners ago.
To save money, Chrysler in effect traded sole control of its ability to adjust Wrangler production in exchange for the hundreds of millions of dollars it would have cost to build a modern Wrangler plant. Toledo Supplier Park is operated by suppliers, with Chrysler responsible only for final assembly and -- beginning late last year -- the paint shop.
A new approach
Toledo Supplier Park got its name because of the way Wranglers are assembled there by suppliers, an arrangement unique in the U.S. auto industry.
Chrysler builds the 3.6-liter Pentastar V-6 and transmissions that power the Wrangler elsewhere, then sends them to Mobis North America in Toledo Supplier Park, where they and other powertrain parts are combined with the vehicle's chassis.
Next door, German supplier KUKA Systems puts together Wrangler body parts, starting with the floorpan and climbing up in a shower of sparks from more than 2,400 welds resulting in a body-in-white.
The bodies-in-white are sent to the plant's paint shop, which until last year was owned by Chrysler but run by Magna International. Chrysler took over daily operation of the paint shop in November in an effort to boost Wrangler production. Local plant officials said the paint shop has a capacity of 38.5 jobs per hour, while the supplier-operated areas of the plant can run at 43 or even 50 jobs per hour.
Strong demand
Meanwhile, Chrysler dealers worldwide are selling record numbers of Wranglers, with few incentives. Dealers want Wrangler variants that Chrysler has no capacity to build.
Wrangler sales in growing overseas markets such as China have soared by triple digits and show no signs of slowing. Even in the depressed economies of Europe, Wrangler sales have held up as sales of other vehicles have fallen sharply.
"We need more," Chrysler-Fiat CEO Sergio Marchionne said when asked in November about Wrangler production.
Manley said his boss has tasked Chrysler's "manufacturing guys with how can we push the envelope even more to get even more Wrangler production."
While plant and union officials say further expansion is theoretically possible on the landlocked site, it would be costly and likely to result in lower per-unit profits. And building a second plant for Wranglers would make the profit picture even worse.
Also, Marchionne has promised repeatedly that all Wranglers will continue to come from Toledo.
It's not as if Chrysler hasn't been pushing the Toledo plant. The 2012 output was more than twice the total in 2009, when Toledo Supplier Park was among the first Chrysler plants to return to work after the company emerged from bankruptcy. The total also was 25 percent higher than in 2007, the pre-recession production high for the Wrangler.
The 2012 output figure is impressive, since Toledo Supplier Park originally was designed to build 120,000 Wranglers a year.
A creative solution
Toledo Supplier Park is configured as it is out of necessity.
In 2003, former DaimlerChrysler executive Tom LaSorda needed a plant to build a four-door Wrangler.
But he had a $900 million problem: His employer didn't want to spend the money to build one.
So LaSorda hatched a plan for suppliers to build the plant. His hand-picked suppliers -- KUKA and what was then Hyundai Mobis among them -- got a bigger cut of the profits from one of Chrysler's most stable vehicle lines.
DaimlerChrysler got hundreds of millions of dollars in freed-up capital to spend on vehicle development for the four-door Wrangler. The local union got hundreds of jobs that allowed its members to retire from Chrysler on a Friday, collect a pension, and go back to work for one of the new suppliers the following week.
"It was a win-win-win for everybody," LaSorda told Automotive News.
The idea was cutting edge at the time and paid immediate dividends.
Toledo Supplier Park was named the most productive assembly plant in North America in 2008 and 2009 by Ron Harbour, of Oliver Wyman's Harbour Report, besting plants run by both domestic and foreign automakers.
At the time, the report found that workers required 13.57 worker-hours of labor to produce a Wrangler in 2007 and 12.69 worker-hours of labor to build a Wrangler in 2008. Toyota and Chrysler required an average of 30.37 hours to assemble a vehicle in 2007, the 2008 report found.
At the time, Chrysler's productive approach to vehicle assembly was believed to be the start of an industrywide trend. While a few other plants worldwide have similar operations, the trend never developed in the United States beyond Toledo Supplier Park.
The reason, says Dave Cole, chairman emeritus of the Center for Automotive Research, is labor -- specifically, the 2007 contract between the UAW and the Detroit 3 that set up a tiered wage structure.
"What the UAW saw was these subsuppliers coming in as a competitive threat," says Cole. The tiered wage structure agreed to in 2007 relieved the competitive pressures that could have driven more automakers into similar supplier agreements, allowing them to handle assembly and subassembly in-house more cheaply. Cole says a similar dynamic occurred with the transplants, who didn't want to introduce lower-wage workers into their plants.
More doors, more sales
Four Wheeler magazine said adding the extra two doors to the Wrangler for the 2007 model year was "one of the smartest product moves any automotive company has ever made."
The numbers bore that out. Of the 141,669 Wranglers sold in the United States in 2012, about two-thirds were the more expensive four-door Wrangler Unlimiteds.
The decision also appears to have kicked Wrangler's historically steady sales rate into another gear. Before 2006, Wrangler sales ranged from 60,000 to 85,000 units a year for decades, according to the Automotive News Data Center.
LaSorda said he and other DaimlerChrysler executives knew what was happening.
"People were walking away from the Wrangler when they got kids because of the back seat" and the lack of room in the smaller two-door Wrangler, LaSorda said. "We thought the sales would run 60-40 in favor of the two-doors, and maybe one day get to 50-50. But we had no idea how popular the four-doors would become."
Jim Edmund, general sales manager of Helfman River Oaks Chrysler-Jeep-Dodge-Ram in Houston, says the four-door Unlimited has more customers considering Wrangler as a primary vehicle. The dealership sold more Wranglers in 2012 than any other U.S. dealership, according to Chrysler, averaging more than 70 Wranglers a month out of a monthly average of 200 new vehicles. He said he would take 1,000 more Wranglers a year if he could get them.
"It's a big part of our business," Edmund said. "People love them and people accessorize them, spending money after the sale on accessories. It's a pretty cool deal."
Reaching more
To reach Manley's goal of at least 250,000 units, Chrysler and its on-site suppliers have a few options. But the first priority is the paint shop.
Chrysler manufacturing boss Scott Garberding said the company implemented two line speed increases recently to boost Wrangler output by six units per hour. Chrysler also began what it calls strategic buffering -- stacking up jobs to ensure some areas never wait for work -- in its body-in-white, paint and general assembly areas, and the company eliminated the summer shutdown.
But Garberding said there is only so much that can be done to the Wrangler plant without expanding its paint shop, which is limited by space and current equipment.
"After the line speed increases, any future capacity improvements will be focused on paint," Garberding said.
Chrysler's cooperative relationship with the local union soured late last year after the company began running the paint shop on its own and fired scores of longtime employees who had been working for the previous contractor. The fired employees -- all Jeep retirees who had been recruited to retire from Chrysler in 2006 to go work for suppliers making Wranglers -- were not allowed to cease their Chrysler pension payments and return as active employees.
The plant could also add a third shift, local UAW officials say. But such a change would require spending on robots and other equipment to reduce the plant's regular maintenance requirements.
Mobis North America last year spent $10 million in equipment and additional personnel to increase its production capacity in the Wrangler plant from 43 to almost 50 jobs per hour, up from 35 jobs per hour when the plant opened in 2006, said Mobis plant manager Tyson Stoll.
The chassis plant now produces 750 to 760 vehicles per day across its two 10-hour shifts, Stoll said. It has 267 workdays planned for 2013 to keep up with current production demands at that rate.
But, he adds, some of his suppliers would be hard pressed to meet higher production levels.
"I would have to potentially extend my line to get to 940 cars a day," Stoll said. "We probably could figure out a way to make it happen, but I don't know that the whole supply chain could make it happen. We'd be excited to do it, believe me."
But if Chrysler wants to use the Wrangler as an emissary to expand into global markets, it's going to have to find ways around the obstacles at Toledo Supplier Park.
| A record is not enough | Steady gains | |||
| Jeep Wrangler production set a record last year. But Jeep says it needs more. | U.S. sales of Jeep Wranglers set a record last year. | |||
| 2012 | 196,308 | 2012 | 141,669 | |
| 2011 | 165,166 | 2011 | 122,460 | |
| 2010 | 144,685 | 2010 | 94,310 | |
| Source: Automotive News Data Center | ||||
You can reach Larry P. Vellequette at lvellequette@crain.com.
