Chrysler Parts Crisis

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Chrysler Parts Crisis

Chrysler is an American automobile manufacturer that has independently been producing automobiles since 1925 and from 1914 under the Dodge name. From 1998 to 2007, Chrysler and its subsidiaries were part of the German based DaimlerChrysler AG after an arduous deal dubbed a “Merger of Equals” in 1998. Prior to 1998, Chrysler Corporation traded under the “C” symbol on the NYSE. Under DaimlerChrysler, the company was named DaimlerChrysler Motors Company LLC, with its U.S. operations generally referred to as the Chrysler Group.

On May 14, 2007 DaimlerChrysler AG announced the sale of 80.1% of Chrysler Group to American equity firm Cerberus Capital Management, L.P., although Daimler continues to hold a 19.9% stake. Chrysler LLC is the new name. The deal was finalized on August 3, 2007.

On August 3, 2007 after the announcement of the spin-off of Chrysler to Cerberus, the Detroit Free Press announced that Chrysler LLC or “The New Chrysler” will unveil the new company logo on August 6, 2007 at the company headquarters. “The New Chrysler” launched its new website with a new variation of the previously used Pentastar logo. The Wall Street Journal reported on August 5, 2007, that Robert Nardelli will become Chairman and CEO of Chrysler under the ownership of Cerberus.

In auto industry downturns, Chrysler was always the weakest of Detroit´s Big Three automakers (GM, Ford and Chrysler). Founded in 1930s by Walter P. Chrysler through a series of mergers with smaller companies such as Dodge and DeSoto, Chrysler prided itself on superior engineering, especially in engines and suspensions. In the 1940´s and 1950´s, Chrysler grew into a small, highly centralized firm with very little vertical integration. Unlike Ford and GM, Chrysler relied on external suppliers for 70 percent of its major components and subassemblies, becoming more an auto assembler than a huge vertically integrated manufacturer such as GM. Although Chrysler did not develop a global market for its cars to cushion domestic downturns, its centralized and smaller firm could potentially move faster and be more innovative that its larger competitors. During the late 1980s, Chrysler lost several hundred thousand units of sales annually because it did not make improvements in engine development and in its mass-market cars the small subcompacts and large rear-wheel drive vehicles.

There was no new family of mid-priced, mid-sized cars to rival Ford’s Taurus or Honda Accord. Customers could not distinguish Chrysler’s key car models and brands from each other, and thus migrated to other brands. By the early 1990’s, fierce price cutting had upped Chrysler’s breakeven point (the number of cars the firm had to sell to start making a profit) to 1.9 million units, up from 1.4 million.

By facing the stock crises Chrysler studied Japanese auto industry inventory system. After studying Honda Motor Company, Chrysler started to cut $1 billion a year in operating costs arid began to rethink virtually everything it did, from designing engines to reporting financial results. Chrysler overhauled its top-down autocratic management structure. It replaced its traditional rigid departments, such as the engine division, with nimble Honda-like “cross-functional platform teams.” The teams combined experts from diverse areas such as design, manufacturing, marketing, and purchasing together in one location and were given the power to make basic decisions ranging from styling to choice of suppliers.

Chrysler directed most of its information systems budget to corporate-wide communications systems and just-in-time inventory management. Just-in-time (JIT) inventory management is obviously critical to a company that has 70 percent of its parts made by outside suppliers. (JIT sup plies needed parts to the production line on a last-minute basis. This keeps factory inventory levels as low as possible and holds down production costs.) During the 1980s, Chrysler achieved a 9 percent reduction in inventory and an increase in average quarterly inventory turnover from 6.38 times to 13.9 times. A single corporation-wide net work connects Chrysler’s large and mid sized computers from various vendors and gives engineering workstations access to the large computers. This makes it easier to move data from one system, stage of production, or plant to another and facilitates just-in-time inventory management.

A Just in Time (JIT) inventory system was created with parts suppliers. The annual report was printed sans color, using a plain and shorter report instead. They even sized new model cars so they fit economically into freight cars (176 inches long was the new K car). More cost cutting: Cut salaries (Iacocca made a very public admission of taking $1 per year salary). Wage concessions took worker salaries from $20 to $17 and then lower again. There were mass firings of the white collar staff-saving $500 million.

To raise cash, Chrysler sold assets that were not part of there core business-even ones that were making money (the strategy was to focus back on the car business. It even sold valuable assets such as prime dealership property in Kansas-they needed immediate cash. Chrysler sold off all European operations. Still needing money, Chrysler looked to private money (a possible strategic entity), but nothing worked out mainly because Chrysler was in such bad shape.

Chrysler had decided it needed a centralized pool of computerized CAD specifications that was accessible to all stages of production. In 1981, it installed a sys tem to provide managers in all work areas and in all nine Chrysler plants with the same current design specifications. Tooling and design can access these data concurrently, so that a last-minute change in de sign can be immediately conveyed to tooling and manufacturing engineers. Chrysler created centralized business files for inventory, shipping, marketing, and a host of other related activities.

All this centralized management information makes scheduling and inventory control much easier to coordinate. Chrysler’s cars and trucks share many of the same parts. Chrysler set up electronic links between its computers and those of its suppliers, such as the Budd Company of Rochester, Michigan, which supplies U.S. auto companies with sheet metal parts, wheel products, and frames. Budd can ex tract manufacturing releases electronically through terminals installed in ail work areas and can deliver the parts exactly when Chrysler needs them. A new enhancement verifies the accuracy of advanced shipping notices electronically transmitted by suppliers and helps Chrysler track inventory levels and payment schedules more closely.

Works Cited

Jerry Flint, (2003), “Chrysler’s Crisis”

Schmid, John, (2007), “Daimler-Benz Takes Over Chrysler as VW Acquires Rolls-Royce”

Chrysler’s foray into the Japanese market – its challenges and successes are documented in Terry Sanders’ film The Japan Project: Made in America.

Steve Jeffreys, (1986), “Management and Managed: Fifty Years of Crisis at Chrysler”

David K. Hurst, (2002), “Crisis & Renewal: Meeting the Challenge of Organizational Change”, page.no.151.