Chrysler Aims to Double International Sales by 2012—Interview

Chrysler LLC wants to double its international sales from the 2006 level of 200,000 units over the next four to five years, according to an interview with Thomas Hausch, Chrysler's vice president of international sales. Hausch sat down to talk with Global Insight at the 2008 North American International Auto Show in Detroit last week, discussing what has been driving the company's successes internationally in the past several years, and how the company is developing a strategy to keep the momentum building in international markets. Hausch is proud of the accomplishments that Chrysler has made in its international sales programme. "If you analyze our last three years, and you look at the background of why we have grown, I think you can analyze our future plans very credibly," he told GI. "From 2004 to 2005, we grew 9%; from '05 to '06, we grew 15%, and from '06 to '07 we grew 15% again. Which if you compound it, is nearly 50%." Chrysler had its best international sales year ever in 2007, selling 238,218 units outside the NAFTA region (see United States: 8 January 2008: Chrysler Announces 15% Rise in 2007 International Sales).

That growth is no accident, according to Hausch, but is part of a strategy that really started in 2001 when the then-Chrysler Division of DaimlerChrysler was developing a new batch of vehicles for North America. "[Chrysler's international growth] is based on a pure product offensive—by making cars that we would do anyways for the North American market very smartly, and developing them for international markets," he said. "Two, three, four years before we launch the vehicle, we know it's going to be right-hand-drive, it's going to be diesel. So [modifying] the engine mounts, [protecting for] the necessary crash configuration for the engine bay so that it will withstand the Euro NCAP [safety] tests as well as the U.S. tests… we achieved, for not a lot of money, a huge increase in the portfolio from six to eighteen cars for our international dealers." That increase in available vehicles homologated for European sale has led to a lot of interest in Chrysler-brand vehicles in other markets as well, according to Hausch. "We went from nine to twenty cars homologated for Europe, and if you do this, it's almost automatically homologated for Japan, Australia, Eastern Europe, Russia, South Africa… the U.S. rating is only important for the U.S., the Middle East, and a few Latin American countries," he opined. "So for doing the U.S. and Europe, Chrysler literally covers the world."

The Challenge of Being An American Brand

Chrysler has built its international brand image on its uniquely American image, according to Hausch. But the fact that the cars themselves may or may not be American is not driving buyers to showrooms, said Hausch: "We have been successful by using our American brand identity." Chrysler is following a global strategy of modifying cars to meet local tastes, but still relying on the basic American design and architecture of the vehicle to appeal to buyers looking for unique design. The example Hausch gives is the 300C Touring, a station-wagon version of the popular 300C rear-drive large sedan that is not even sold in the United States. "It uses a Mercedes V-6 diesel, European suspension settings, it has lots of modifications," said Hausch. "But you ask a German, French, or South African customer: is this a South African car? They'll say no, that's an American car! So the answer here is that the image is clearly the American archetype, which we will continue to use internationally. We are not hiding this at all."

Expansion in a Weak Dollar World

Chrysler exports are up, and the weak U.S. dollar is helping. The company's international sales hit a record, bigger even than 1997's record year, according to Hausch. But Chrysler's most popular international model, the Caliber C-segment compact, is shutting down its third shift at the plant in Belvidere (Illinois), eliminating 1,100 jobs at the plant. With the U.S. dollar trading at record lows, one might expect Chrysler to try and export as much as possible from the U.S. market and undercut competitors around the world with inexpensive, price-leader offerings. But such is not the case for Chrysler, which instead is largely pursuing a strategy of build-where-you-sell, as a natural hedge against currency fluctuations. "We have put our [international] business on a strategically very sound basis that is not too dependent on exchange rates," said Hausch. "Because we source from the European region and we sell in the European region, we… do benefit overall a little bit, but we think that once the dollar gets strong again, we are not afraid because we have a balanced business." That mix of local production and imported American-built vehicles has raised the question of price disparity between markets as well, with the case of the popular Caliber compact as a favourite subject from the media. "I get questions from journalists often, 'You sell the Caliber in the U.S. for US$13,000, why is it not so in the EU?' " laments Hausch. "But you can't. It costs a couple thousand dollars for transportation costs, you have to pay a ten percent duty for the European Union, twenty percent VAT… we are the most price aggressive for euro-per-horsepower, however. You cannot get more horsepower-per-euro than the Dodge Caliber."

The price discrepancy is also a result of equipment for various markets. For the United States, the Caliber is considered an entry-level vehicle, with base-models featuring crank windows, manual door locks, even a lack of standard air conditioning. European-spec Calibers, according to Hausch, are much better equipped due to their mid-size, family vehicle orientation. No Caliber has crank windows in the European market. Every 300C has electronic stability control. "Without any judgement over the markets, the needs are just different," said Hausch. "There's a lot of standard equipment in Europe that the average consumer in the U.S. does not get."

The Biggest Challenge: Picking the Right Opportunity

From 2001 until now, Hausch said that the biggest challenge for him was getting Chrysler's international network ready to grow, which it has over the past three years. But now, the biggest challenge facing the company is picking the right opportunities for expansion, said the executive. "On the quality side, initial quality scores, problems-per-thousand… we have kept the quality increasing despite the complexity increasing," he said. "The next challenge is to examine that the huge potential growth opportunities and decide which one to pick. We're strategically tackling them in sequence, to make sure our growth continues year over year."

Outlook and Implications

Considered on its own, Chrysler's international sales percentage increases look impressive. A 50% jump in sales over three years would be enough to thrill almost any car company, but when placed in context, Chrysler's international sales are but a drop in the ocean for most of the markets in which it operates. Total market share on the European continent is below 1.0%, and in the company's biggest market outside NAFTA (Italy), it does not even register among the top 20 most popular car brands. Chrysler sold nearly as many cars and trucks in Canada alone in 2007 as it did in the rest of the world outside NAFTA. That number is increasing internationally from the admittedly simple and cost-effective strategy employed by the company, in which minor modifications to vehicles early on in their development to allow for localised international tastes and regulatory compliance are designed into the product. With more products to sell, overall appeal in international markets has increased. But with the total numbers not making much of a dent in foreign markets, is the cost and expense of trying to maintain an international dealership and marketing campaign really worth the trouble?

The answer is that Chrysler may have little choice in the matter. The company's biggest competitive deficiency is not its processes, procedures, or even its latest designs (which some would argue do not measure up to even the domestic competition in terms of interior material quality, regardless of international competitors). In broader terms, Chrysler's biggest competitive disadvantage is the scope of its operations. The vast majority of Chrysler's sales come from the North American market (United States, Canada, and Mexico), which accounted for 2.440 million units in 2007 versus 238,218 units outside that region. International sales account for just 8.9% of Chrysler's total global volume by that measure, a huge difference than that seen for GM and Ford. GM's international sales are expected to approach 60% of its total for 2007, for instance. But the true benefit of this kind of scope does not come from just revenue generation, it comes from having the kind of volume needed to amortise costs for high technology and new platforms development over hundreds of thousands of vehicles globally, instead of just tens of thousands of vehicles locally. Ford is able to develop a global B-platform car and introduce it to the U.S. market because that vehicle will sell hundreds of thousands of units globally, even if it only sells 60,000 in the United States. Toyota developed the expensive Synergy hybrid drive system, but has spread the cost out over one million global units over the past ten years. Chrysler does not have this ability; a small, cost-critical vehicle developed for Chrysler's domestic market (by far its largest) is therefore at a natural disadvantage to the global platforms that it now sees facing it in that home market. A focus on international expansion in order to try and increase demand overseas and build up other markets in which new vehicles could be sold, thereby allowing for greater distribution of costs, is something that Chrysler simply has to do if they are to remain an independent automaker.

But the strategy may simply be too little, too late. The developed auto markets outside the United States are either fragmented and stagnant (Western Europe) or insular and contracting (Japan). Thus, the choice of Western Europe and Japan as export markets is somewhat confusing. However, the developing nations like China and India are already reaching saturation points as well for new players; there are few real viable joint-venture partners left in China that are not already working with Western partners, and India has a number of strong domestic contenders as well. Chrysler may have already missed the boat in terms of trying to set up significant operations in the developing nations.

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