Wolfgang Bernhard, COO of the Chrysler group, says component sharing by Chrysler, Mercedes, Mitsubishi and Hyundai is a fact of life at DaimlerChrysler. He was interviewed April 2 in Auburn Hills, Mich., by Executive Editor Peter Brown and Staff Reporter Mary Connelly.
TALK FROM THE TOP: WOLFGANG BERNHARD: Component sharing makes sense at DCX
We already had programs in place for five years, 0 percent. For us it is not a big change. We had a fairly aggressive plan in place already in March and we don't have to do many adjustments.
This is the way you conduct business in this time. Two or three years ago, the structure of the industry changed fundamentally with overcapacity and everybody trying to defend market share. With all vehicles that are (in the market), that is the way you do business.
It is just adjusting your business system to it. We will be just as aggressive as anybody else in the market.
That is still in place. Of course you try to hold back and get in a position where you have more demand than supply. You will see for the (2004 Chrysler) Pacifica that we are going to have very, very strong demand. It is the kind of good emotion you want to have around the vehicle.
I get calls from dealers who tell me that they don't have enough already. They've got one on the show floor on Sunday. They sold it on Monday. They've got three customers pissed at them because they couldn't test drive.
We are not yet at full capacity. We are still ramping up. It is a three-to-four-month period of time.
We are very pleased with the business in the press. It is very good, very favorable. They understand now what we have been talking about for two years. What the flavor is, what we are looking for, what the new Chrysler is. They are starting to understand. The (2004 Chrysler) Crossfire is the same.
With those new products we are on the right track. Once the advertising kicks full in and we get more vehicles out there and we get more presence in the market we will be in good shape.
Chrysler is still a volume manufacturer. We are not going for a luxury segment, like Cadillac does, like BMW does. But within that volume segment, we would like to have a premium. Premium means you work on the brand recognition of the Chrysler brand and at some point in time you put the Chrysler badge on it and suddenly you get $1,000 more because that badge is on it.
We have a couple of brand attributes we are looking for and that we want to put as main ingredients into the Chrysler brand. Chrysler is expressive, refined, stylish.
When we started looking at this situation two years ago we asked, 'What is our first priority on the quality side?' You try to go after what hurts you most. That is warranty.
So you go through the warranty costs. Not necessarily on conditions per hundred. You go for those problems that cost the customer and that cost you the most money and are the most hassle.
All of the external data such as J.D. Power have a one-year lag time. That is the first thing. Second, they look for conditions per hundred. They look for incidents.
We were going for warranty costs. We were going for those things that are very expensive and that cost us and the customer the most money.
This is something we have to attack and do first. So we go for warranty on powertrain, powertrain issues, electrical issues.
J.D. Power on top of it measures stuff like wind noise. You have an A-pillar shaped in a certain way that you cannot change on an existing model. You can do something around the sealing but it has no warranty costs associated with it. J.D. Power is talking about, let's say, an issue with noise of AC controls, the blower inside the AC unit. That is something you can do something about but it is not a high warranty cost.
We are going for things gone wrong. Make sure the vehicle is reliable, that the vehicle holds out, never breaks down. You can trust it.
As a second priority we are going after those things gone right. Make sure that things go right. All the little details that are much more difficult to go after because sometimes you cannot change them on existing models.
As an example, we are reducing the warranty costs by 20 percent on model year 2002 over model year 2001.
We are looking for the warranty costs coming down model year 2003 over 2002 in the same magnitude. We are five months in service right now. We have to wait another half year until the final numbers come out. But the direction we are getting is that we are looking again at a very strong double-digit improvement, which the company never had before.
We always tried to do it. Some of our old timers said, 'We always set out to do that and we couldn't even get close to these numbers. Not even anything like it. We always wanted to do that. We said, 20 percent we've got to get it. Got to get it. We never could get it done.' So this is very good news for us.
That is the warranty side of it. The second side is the incidents per hundred. J.D. Power measures some of the warranty stuff we are capturing. But on top of it, it also captures problems that are not warranty related. So these are the delight factors or the little nuisances in the vehicles that the customer is not happy about.
We know, for example, customers said the Grand Cherokee in the 2001 model year had too much wind noise on the A-pillar. We studied what we could do to improve the sealing on the gap in the A-pillar. We found out there is a much better way to seal it off. Now the wind sweeps over it much more smoothly.
Electrical and powertrain. Across the board, transmission, engines.
If you have electrical or powertrain problems, this is where the customer really gets affected. The customer walks. If the powertrain breaks down, the vehicle sits on the side of the highway, you gotta walk. If you have a little fit and finish problem in the interior at least you don't have to walk home or look for a replacement vehicle. We got the most in improvement where it matters most. It is not a little paint dipple, which is not good, but at least you don't have to walk as a customer. These things are where it matters most to the customers and that is where we have made the most progress.
We never disclose our warranty costs in dollars.
That is right. On the other hand, there are so many things we will do and have to do even in the mass market. The mass market is not just bad quality anymore. The bar from the competition is set higher and higher. If you don't come up to that and if you don't try to lead that then you are out of it.
Even just little things so you know what I am talking about. Look at the interior. For example, a parting line on the glove compartment. You can execute it so the customer sees the parting line all the time. Or you can hide it so you don't see the parting line. These are nice little details. It doesn't cost anything.
Attention to detail. You go after each little thing. We haven't done that. It was always good enough. That is not good enough anymore.
These are thousands of things you need to do to make sure the vehicle holds out better, to make sure it looks better, it is better executed. You open the door and look inside a vehicle. At first glance everything looks okay. But then you drive it for half a year and you discover these subtle details on it. What you want is that even if you look at the subtle little details, you still discover everything is beautifully done. People unconsciously have an eye for that. Believe me, they sense it. Everything is nice here. Everything. They took care of things.
Our preferred way would be to improve the fuel efficiency of existing models. We think just changing the mix is inferior strategy.
What you have to do in these cases, every manufacturer does, is make the vehicle lighter. Weight is a big issue. The fuel effeciency of the whole powertrain with all of its parasitic losses. Engine efficiency. These are things you look at. We do that constantly across the board.
Of course it is going to be a struggle. However, we always said that it is also one of our targets and objectives to be environmentally responsible. We will meet those targets.
Compared to our competitors, we have the least trucks that are frame-based, apart from the pickup trucks. We have only one truck that is a frame-based SUV, the Durango. The Jeep Grand Cherokee is unibody. The KJ is unibody. So we have some advantages here to start with. For us it is not so difficult.
If you want, the Pacifica is one of those vehicles. We say you get the utility of a sport-utility. But at the same time you have good entry and egress, you have a very nice styling, great safety. This is one of those vehicles.
I will not discuss our future product plans.
From a customer point of view, yes. We do not approach our business from the standpoint that now we have to find something for CAFE, or everyone is going there so let's also go there. That's not the way we do it.
What we are doing is saying, 'This is our customer. This is the customer we would like to capture.' We are looking at ideas from proportion and design studies from our design department. And then we look at what really stirs the emotions of people. What is the size, the shape of vehicle that gets people excited? Then we try to find how do your realize that and stay within certain targets such as fuel efficiency. But it starts with the product.
It does not start with, now we have to do a car-based SUV. Now we have to make this CAFE fighter. That is not the way it works for us. We have a different approach. Our approach is we start with the customer, we start with the emotion. And then we figure out what are the technical underpinnings to make that work within the restrictions.
We started out two years ago with a 15 percent cost reduction target. This is an ongoing quest even beyond the 15 percent. Many of our suppliers have met the target. We are now reaching beyond that. And we have to.
In a world where on the sales side of the business you have negative pricing and you own less than 50 percent of the cost base, if you don't get negative pricing on the supply base you are done.
So the same pain inflicted upon us on the sales side of the business, we have to pass through to the suppliers and tell them, 'Hey guys, that is the kind of world we are living in. Share with us.'
That is not to say we are less aggressive on our own costs. We are just as aggressive on our own costs and we are making headway there.
So far we have re-sourced some business. I would say 5 to 10 percent of the business but primarily due to quality problems.
We had some suppliers that were not reliable because of quality issues. They had a long track record of not being able to fix it. That is where we had to step in and say, 'This is now the end of it, my friend. We don't trust you anymore. We don't believe in your abilities to fix it. You have been trying this now for five years and you could not get it done. We just can't do it anymore. Sorry. You might get another chance some time in the future. But for the time being this next program is not going to go to you no matter what price you are offering. Forget it.'
I would say 5 to 10 percent of the annual buy we re-sourced primarily for quality reasons. We are in the process right now of eliminating some of the programs for certain suppliers that are not able to follow us on the corrective prices we need as we go forward in the future.
There are some who are great. We have suppliers who come forward and say, 'We are the world leaders in so-and-so component and whatever it takes we are going to be in the forefront of providing you the best cost and the best quality. And we are going to get there.'
They just put their stakes in the ground on future programs. And they get the business because they are the best. We like that attitude. Instead of whining about it, they say, 'We have our pride. We think we are the best and whatever it takes we are going to get this business and we are going to get it done.'
This is all future programs. Five to 10 percent of the annual buy changing hands by 2005 compared to 2001.
The annual buy.
We buy roughly $40 billion. Now take 5 to 10 percent. So $2 to 4 billion dollars in annual business roughly.
I don't understand all of it yet. I understand some of Toyota's culture and the way they conduct business.
What I see is they are very much focused on production processes and the product itself. They don't make many changes in the fundamental design of things. Fundamental design principles are kept the same.
We, on the other hand, drive to capture some excitement in design and we sometimes need to make changes. We cannot just rely on the same principles of interior and exterior for years and expect it will carry design excitement as we move forward.
So we have to make changes. These guys, the Toyota guys, as far as I understand it, they are able to have a very stable, basic product design and a very basic production process. Those parts are very much the same over many years. What they do is diligently work day and night on it to optimize it. That is the primary focus of their work. They don't do much else. They are very good at it.
We have more changes as we go from old to a new model. We are changing interior trim parts, exterior and so forth.
We don't spend so much time with a supplier in order to go through production and optimize. Doing that takes two to tango. It takes us getting our people out to work with the supplier and it also takes the supplier to be willing to share with us their production sites, their production processes, open their books, open their doors and do it together. We have that with many of the suppliers.
But others say, 'This is our business. Keep your hands off.' We don't even go there.
This is one element.
Another element is that Toyota has a very strong manufacturing culture. They extend their principles of manufacturing to their suppliers. We find, for example, supplier plants working for us and supplier plants work for Toyota - even under the same company - have completely different operating principles.
If you go to some of the big suppliers you will find they have one plant that supplies Toyota and some plant that supplies to us and they have different operating principles. They work different production systems, even within the same supplier.
Our suppliers are at least 50 percent of our own success. At least.
We have to have this kind of relationship. It is vital for us. Of course you would like to have a very good and strong relationship with your suppliers.
I want them to live just as much as I want to live because we are mutually dependent. I want them to have fun in the business just as much as I want to have fun in the business. And make some money and get the job done.
That is a target for us absolutely.
In the last two years it was a matter of just making a living first of all. It was a matter of survival.
As you move out into the future, we have to raise our sights. It is not just survival anymore and the short term and how we will get the costs down in the next year.
Now, we have to raise our sights and ask ourselves within each component team, 'What is the next big step? What is the technology doing in my particular component area? What are the good ideas that we see for the customer, for production? And what is going to give us the next competitive advantage as we move forward?'
There continue to be cost issues, of course. But there are also innovation and technology issues. There are quality issues. There are customer issues such as, 'What is the next interesting seating feature that we might offer in a smaller car? What is the textile fabric that is innovative? What is the next design? What is the next way to make an instrument panel that is just as beautiful or even more beautiful and introduces a good feeling at a lower cost?'
These are the questions we need to push now. Getting out of the day-to-day, next 5 percent. Getting to, 'How do we get 30 percent with better quality, better appearance, better look. How do we do that?'
There are limitations in what we can take in terms of delaying the product or not making the decision. In the month of April we basically have to call the shots.
I would not discuss in public where we are right now in negotiation with the government.
The government is the only issue. We have suppliers that are excited to do this with us. Many. And we have people lined up who would like to do this with us. We have the CAW (Canadian Auto Workers) and a contract that makes it possible. It is very inventive and groundbreaking.
We have the product plan in place. The product more-or-less defined. The missing piece is the government support that we need.
Then we have to move on.
We don't know yet.
Ask them. I don't know. I would not speculate.
Component sharing will be part of our life as we go forward in the future. It is part of the way of doing business within our group. Not only Mercedes. It is also Mitsubishi and Hyundai.
It is our way of being the most interesting OEM out there for the suppliers. Because now we are not only asking for 250,000 of one certain component, we are asking for 1.4 million.Now you have a 500-pound gorilla and somebody in the market who says, 'You cannot walk by me anymore. I am so big, if you don't do business with us, you're not a player.'
This is going to be the normal way of doing business within our company.
No. I would not put any numbers to that. This is very dangerous. Do you know why?
To give you an example, if Bosch (Bosch GmbH) or Nippendenso (Denso International America Inc.) supplies fuel injection systems do you think the fuel injection system that BMW and Mercedes share is in any respects different? Do you think that a fuel injection system that Volkswagen or GM has is any different when they get it from the same supplier?
Delphi (Delphi Corp.) is doing business with many OEMs and making let's say a heat/AC unit. There are motors in there. Do you think these motors are different from OEM to OEM? They are not. They are all the same.
We will share components where the customer is least concerned, where we don't have a brand value attached to it, where we don't have brand interaction.
We always said right from the beginning that we are going share components, engines and transmissions. That is what we have always said we are going to do.
What we said we are never going to do is, we are not going to take a Chrysler platform, put a Mercedes star on it and rebadge it. Change the front fascia, change the rear fascia and put on a Mercedes star and say it is now a Mercedes.
That is not what we are going to do. The kind of rebadging that we did between Dodge and Chrysler in the past we are not going to do anymore in the future. That is something we are not going to do with Mercedes and also not with Mitsubishi.
We will make different vehicles separated not only by the fascia.
We always said we will share transmissions, engines. We have these engines, Mercedes engines, in our vehicles and that is no problem.
We always said Mercedes is the diesel center of competence within in our company. One of the major reasons we said it makes sense to get together is because we don't have to invent the diesel engine anymore. It has been invented already in our company.
Yes, very much. You will never see that in the future again.
Vastly different. It's going to be sheet metal. It's going to be interior.
Yes. And the underbody. But what the customer sees, touches or feels will be different.
It has never been really defined. It has never been clearly, explicitly defined that this is what Dodge stands for.
Bold, powerful, capable.
That means you have to have a stand-out design. It has to stand out from the crowd. Not just another truck. It has got to be an in-your-face truck, an in-your-face Viper, an in-your-face Magnum.
Bold. Capable. You can do more with it. It is not just a vehicle that does what the other guys are doing. It has more towing capability. It has doors that open 90 degrees in the rear. It has more storage space. It is powerful. It has a strong engine. These are the things we are looking for.
Wait and see. You will be amazed. You can do that.
When we do it.
You start with the customer and your start with your brand message. You find something that says this is what the brand stands for, this is what the customer looks for. Then you ask how can we make it work. It is an approach that starts from the customer point of view, from the emotional point of view. For me the brand is also emotion. This is what you have to capture in new vehicles. That is how we do product development everyday. You have to support and strengthen the brand not only for a year or two but for many, many years, 10 years or 20 years. Then you come to the point where the brand has recognition and stands for something. That is what the Japanese did in this country for many years successfully. They are harvesting it right now. They are getting the benefit of it right now. Consumers have this perception in their heads of what Toyota or Honda stands for. That is what we have to work on.
And it is a long battle. It is not something you do with a short sprint. It is a marathon. Many, many years.
That is what the most successful European brands did in the last 100 years. Look at Mercedes. It is a 100-year mission. BMW for the last 70 years. That is what makes them strong, their history and their consistency. Consistency is so important.
Over time, when you're famous for good products and quality, if you have the most outrageous, in-your-face truck out there that visually blows everything else away but holds up, and is very practical, you can do all kinds of things with it. Then you have the recognition that customers are willing to pay for. Higher price or less incentives. I like it either way.
Potentially yes. But there are no plans right now to share manufacturing capacity. At this point in time there are no plans of sharing. But the potential is there.
We have shared manufacturing capacity now. The C (sized) coupe is manufactured in Normal, Illinois, by the Mitsubishi guys. So we do that already.
It is very simple now for us to get a Mitsubishi vehicle into one of our plants and do it, or the other way around. We have now this flexibility. When the market demand is slow and the other one is better we can offset that. It is a much more flexible manufacturing structure and that is very essential for the future.
That is a big advantage. Not only savings, but also market opportunities.
If you find out your customer is crazy about a certain vehicle and you have plant capacity available, that is also revenue, not only savings. Which is more important in the long run, revenue.
The first approach is that everybody has its home base. Every one of these vehicles gets its home base.
So our small and medium vehicles get a home base. Mitsubishi will have a home base. Some of it has got to be in Japan. Some of it has got to be here.
Then on top of it, if we find out we cannot cope with the demand we were expecting for a certain vehicle we can knock on the door and say, 'Hey guys. How about you get 20, 40, 50 thousand vehicles annually on top.' We are not at this point yet. But this is possible.
These vehicles have a very strong home base where we expect the majority of vehicles will be manufactured.
If we have some space left, we can offer capacity between small and medium vehicles within our company or with Mitsubishi. We can say, 'Hey guys you need more of that car and that car. We can do it.' Then we do it.
But it is approached more from where the opportunities are rather than a centrally planned approach.
I have no expectation. I just wait for whatever is going to happen. It will come how it comes.
I am not going to speculate. We will wait it out and see what happens.
No. A little bit but not what we were afraid of. It is not as dramatic as we were afraid of.
It changes with the wind.
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