We are the leading domestic company — according to Consumer Reports — in terms of quality. That’s not good enough. The weak spot is that there are very convincing competitors out there who, in both fact and perception, are far ahead of us.
You have to be better than not only GM and Ford but also Toyota?
Yes, at least as good as Toyota. We have to be there. Secondly, we have a weak spot in consumer perception and what customers think about us. The fact is, we’re improving, and things are coming together. The cost of warranty is coming down, and ratings in Consumer Reports show that we are moving in the right direction. But customers don’t yet perceive us in the right way.
How do you get the perception? Do you do what Hyundai did with an extended warranty? Why don’t you make your seven-year/100,000-mile powertrain warranty permanent?
We have to find out whether it is working for us. It’s in an experimental mode, and we’re not ready to make a decision on the seven years/100,000 miles. It’s not a warranty; it’s coverage we’re giving the consumer. We intentionally don’t call it a warranty. It has proved to be a good closing tool for dealers. It does not drive showroom traffic, but it may be a good instrument for us as a company to leapfrog our quality perception. From a perception point-of-view, we can gain a lot.
How do you expect to fare in the upcoming Harbour Report on cost and plant efficiency?
We’re not going to do very well. Last year was not the time to make great productivity gains. Last year was the time to adjust capacity and to get it right — to make line-speed changes and shift pattern changes. All the teams were very busy just accomplishing this. Now that we have steady operating patterns and stable production programs, we have a good foundation to increase our efforts at improving productivity.
Tom LaSorda (executive vice president of manufacturing) is leading the charge. Since we started this program late last year, we can see our efforts starting to bear fruit. In the first quarter, year over year, we have productivity improvements of 6 percent to 7 percent and some plants even show a 10 percent improvement. We still have a long way to go, and we’re not there.
You won’t see much improvement in the Harbour Report. What about the new Liberty plant? How will that score?
But it’s part of the whole equation. You won’t see huge improvement because when you have down weeks and low capacity utilization, it doesn’t help you.
Is there concern about quality at your development partner? Mitsubishi’s quality also is low. You are working with Mitsubishi on your new C and D platforms.
We are sharing platforms. The underbody, the front, middle and rear structure will be shared. We’ll have the same cost structure, but all the components that go into a vehicle and make quality in terms of reliability and durability can be different. We are now sourcing those components and very carefully selecting those components that we know will meet our high quality standards.
Are you now able to nurture relationships with suppliers even though you aren’t giving them the kind of guarantees you gave them in the SCORE (supplier cost reduction effort) program?
Yes, and that’s very important. What I just said doesn’t mean that we don’t have firm supplier relationships. Some examples: We announced our strategic partnership with AT&T Wireless, which provides phone service for our customers and us. This is not something you do on a daily basis; you do it on a strategic basis and lock in the supplier with whom you are working for many years. You build on that relationship because this is something you can only build over many years.
On the product side as well, we are awarding our new programs up front. It isn’t “You do the engineering, and we do the production.” We can’t do that. So many parts of our vehicles need to be designed and engineered in close cooperation with our suppliers. In the future, we want to award those contracts even earlier.
How many years in advance?
It depends on the complexity of the system. For instance, for the HVAC (heating, ventilation and air conditioning), the (engine) cooling system, seats and interior parts need to be defined many years ahead of time. We don’t assign them by saying, “You are the chosen one,” but by saying, “Give us your ideas.”
We’re not specialists in some areas of the vehicle. There are others out there that do it better than we do, and that requires long-term relationships. We commit to those relationships by having competition upfront.
How important is it to become the low-cost producer, and how far from that are you?
We are making great strides in getting our cost position in line. This will be an ongoing struggle. We cannot afford to be a high-cost producer, no one can. It is imperative that we are in the ballpark of the other competitors out there. It is one of many elements that we have to achieve. We have a long way to go. We are not there. On the other side, there are a lot of opportunities.
Where are the product gaps, and which brands need vehicles?
I would not say we have gaps; I would say we have opportunities. We have a Jeep brand that is one of the greatest American brands, an icon that is not fully exploited. You can do a lot more with that brand. I won’t tell you what we are going to do. But it is something we can capitalize on.
How many years will it take for you to expand the brand?
I won’t tell you. The only thing that I can tell you is that we will not go down the trampled path.
Are the C-segment cars, the Sebring/Stratus and Mitsubishi Lancer, and D-segment, the Concorde, Intrepid, 300M and Galant, as flexible as the Toyota Camry platform? What Toyota does with the platform is pretty amazing.
I agree. These platforms are extremely flexible, and that’s why we chose them. These platforms can vary in length, width and cowl height.
Is that a platform or an architecture?
It’s a gray area. The point is that you leave the front structure, and the powertrain orientation is in place, and you don’t touch it. If you change where the gas tank is, suddenly everything changes and explodes because the rear impact changes. Front, side and rear impact issues are the stuff where most of the structure development goes into a body, and these are the stakes that you have to leave in the ground. If you start messing with these, you might as well start all over. Width, length and cowl height — these are the things that define the proportions of the vehicle. You can make a lot of different shapes out of that vehicle as long as the rules are big enough.
Could you use it for more derivatives than in the comparable range today?
I will not comment specifically. One of the spending efficiencies comes at dividing derivatives from existing platforms at a much lower cost than investing everything new each time. There are lessons we can learn. With limited capital expenditure, you can get a new vehicle.
Is there a concerted effort to differentiate your brands more? With the LH cars, the differences between a Chrysler and a Dodge are fuzzy.
You will see that we are very attentive to making sure that the vehicle has an exterior and interior in mind with the brand message. There is a message behind a Chrysler, and it is a face you instantly recognize. We are migrating to that. You see it on the Crossfire and the Pacifica. On Dodges, they will have a different interior and exterior and styling cues. And Jeep uses certain colors and materials; it uses the seven-slated grille and cues that are unique to Jeep. We are going for those things very carefully in styling so that over time, we build brand definition.
We are not going to go to badge engineering. We aren’t just going to take the fascia off and put on another fascia and say, “This is a Chrysler” and “This is a Dodge.”
Even with the minivan?
I am not going to answer that question.
We have a strong understanding on what our brands stand for, and we are going after what we think are the strengths.
Is Chrysler a bit more upscale and Dodge more volume?
On the pricing side, they will be in the same ranges. It isn’t a pricing differentiation; it’s a flavor.
Will they move within the segment?
We are not saying that we are moving Chrysler up and Dodge down. If you like elegant styling and refined styling in the exterior and interior, then you are a Chrysler person. If you like the capability and functionality of a vehicle and the practical stuff — still beautiful or expressive — then you go for the Dodge.
No price point differences in the brands?
Not necessarily. You cover the whole range with very different vehicles. c
Will one brand appeal more to people who also might consider European brands?
Chrysler will definitely be that, and Jeep also. Dodge is pure all-American. That is the core of the brand, and we will preserve that.
But won’t Dodge get vehicles that Chrysler won’t and vice versa?
Yes. There will never be a Dodge version of the Crossfire; it would never work. There will never be a Dodge version of the Pacifica. Its style is so uniquely Chrysler in the exterior and interior that you can’t mess with that.
Will Chrysler have a Neon-sized car?
I don’t know. The existing Neon will never be a Chrysler.
Do you like the brands all being called Chrysler in Europe?
No, I don’t.
Will it be changed?
I don’t know. But I hate that there is a Chrysler Viper in Europe. It is a sore spot.
What is the stopgap for your sales? You should have done better during the industry highs last year than you did.
With all the uncertainty in the business and because of the uncertainty of our dealers, you get some hesitation. As dealer confidence is back, and we are lock step and synchronized, we’ll see some traction on the sales side of the business. We see that as we compare quarter to quarter. Even in the first quarter there is a steady improvement in market share. We are trying to keep that going as we move forward.
Have you ended your marketing plan to eliminate retail rebates?
Dieter (Zetsche, Chrysler group CEO) always said if you want to go from a push to a pull strategy, it doesn’t start when you stop pushing. We are part of a system. We cannot say we’re not playing; we would be out of business. We need to be competitive with out dealers, and if our dealers need incentives, we’ll give them.
But not on every vehicle?
Not on every vehicle because they don’t need it on every vehicle, and they don’t need it at the same amount on every vehicle. We are going to be very selective about what we do. Our dealers appreciate that. Consumers appreciate that. We look to exploit all the opportunities in the market. It’s not just about market share, but at the end of the day, we are committed to the bottom line of the company. Short term, it doesn’t pay to go for market share. Long term, of course, you have to do that. But you do it with product and unique stuff and capture new segments and new customers — younger ones, affluent ones, certain age groups and for certain functions.
In the short term, we need to be competitive, and we will continue to incentivize our vehicles.
As long as the competition does?
Of course. With all my might I can tell you we are increasingly active and increasing our position of strength. In the first quarter, in a fiercely competitive market, we were in the middle of the ballpark in terms of incentive spending. We are turning a profit. You have to be competitive and deliver a profit too. We are a player, a serious player, and we are not whining.
What do you think the U.S. market will be for the rest of the year?
The first quarter beat everybody’s expectations after the 9-11 disaster. Our estimates were 15 million to 16 million. The first quarter leads us to believe that it will be a lot better. We think that it will be a 16 million SAAR (seasonably adjusted annual rate) this year. If we continue, the market could be a good year. With a strong dollar, a weak yen and a weak euro, the outside competitors have a strong advantage and they will continue to pound all of the Big 3 in the coming year. We need to be prepared. The turnaround is not over yet. We are not even halfway through. It is time for all of us — supplier, employees and dealer — to work hard and to build that positive momentum that we have seen in the first quarter. Our team and our employees and the supply side and dealers are committed. We cannot allow this company to return to the old ages.
How much time do you spend with your dealers?
Dieter and Jim Schroer (executive vice president of global sales and marketing) spend a lot of time with them. My side is the product side and operations and the vehicle before it leaves the company.
What are you going to need from the unions, from the CAW this year and the UAW next year, to keep this momentum going?
We have the determination from both the CAW and the UAW to see the operational improvements, such as quality improvements, that we need to be competitive. It’s a common objective to do everything we need to do in order to become a competitive manufacturer. We will move forward together to meet those targets.
What kinds of things can you do? Work rules? A shift of the logistics of parts and materials coming into the assembly plant? How much leeway do you have?
There is so much we can do within the framework of the (union) agreements. We just have to do it.