Turnaround time at Chrysler ... again?

By David Welch

updated 8:19 p.m. ET Sept. 20, 2006

DaimlerChrysler Chairman Dieter Zetsche was surprisingly frank in a presentation Tuesday to European analysts and investors. He called Chrysler's expected $1.5 billion loss this quarter "unacceptable."

Sales at the company have fallen 10 percent in the first half of 2006, which is even worse than the industry average of 4 percent. Zetsche said he and Chrysler's U.S. management didn't move quickly enough to slow production or make necessary cuts when sales slowed down and trucks and sport-utility vehicles piled up in dealer lots early in the year.

This summer's employee pricing deals didn't slash inventories the way he and his deputies had hoped. So he will cut production by 16 percent and take a big loss in the second half. That amounts to approximately 135,000 units for the second half of 2006. Says Zetsche, "We had to bite the bullet."

The cuts underscore the fact that even Chrysler, which has avoided the financial crises of Ford Motor Co. and General Motors Corp. thanks to cost cutting and some hot models launched several year ago, is not immune to troubles roiling the domestic auto industry. In Zetsche's conference call, one analyst even questioned if Daimler may want to spin Chrysler out at some point if the company can't stay consistently profitable.

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While Zetsche says he has no such plans, he and Chrysler Group Chief President and CEO Tom LaSorda both accepted blame for Chrysler's woes. What they didn't offer was a radical plan to cut plants and jobs in the way proposed by rivals General Motors and Ford. Neither executive was prepared to say that the company's turnaround has been short-lived and that Chrysler, too, will make permanent cuts.

While Zetsche and LaSorda didn't rule out another round of restructuring, right now they have pinned their hopes on a time-honored Detroit tradition. The cavalry is coming over the hill in the guise of the new models coming out now and next year. In a conference call with reporters Tuesday, LaSorda said, "Of all the products we'll be selling in 2007, one-third will be less than a year old."

That may be true, but for Chrysler to get back on track without another round of job cuts, the company will have to beat some of the problems that have long plagued Detroit's carmakers. Chrysler will have to find a way to boost sales and make profits with something other than the pickups, SUVs, and minivans which make up 70 percent of its volume. Its new compact cars and family sedans will have to win in an import-dominated passenger car market. "Dodge cars have no credibility in the market and Chrysler's brand isn't much better," says John Wolkonowicz of Global Insight.

It's hard to blame Chrysler executives for wanting to see how their cars will do before whipping out the ax. Leaders of the United Auto Workers union have already been worked over by GM and Ford. In fact, they won't even give Chrysler the cuts to health-care plans that their cross-town rivals got.

In fairness to Chrysler, it is the one U.S. company that has historically resurrected itself with hot new designs like the minivans of the '80s, Jeeps of the '90s, and the Chrysler 300 of a few years ago. Its new Dodge Caliber compact is selling well. New models like the Caliber and the similarly-sized Jeep Compass are smaller and more efficient, giving Chrysler hope that the company can appeal to American buyers who are quickly downsizing their everyday rides.

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