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Chrysler Boss Predicts Worsening Sales in Internal Memo
19 Jun 08
Chrysler CEO Robert Nardelli has admitted that sales have been worse than expected, but it is unclear what action the company will take to address this.
Global Insight Perspective | | Significance | Chrysler LLC Chief Executive Officer Robert Nardelli has reportedly sent an email to company employees admitting that sales have been 20% lower than expected during the first half of the year, and that the outlook for the rest of 2008 is less than spectacular. | Implications | Chrysler is struggling badly in the difficult U.S. market, with the company's truck sales down 24% for the year and car sales down 7.3%, and this trend is accelerating. Those products responsible for the majority of the company's revenues—trucks, SUVs, and minivans—are simply not selling well in an environment in which fuel is costing US$4.00 per gallon. | Outlook | Nardelli is reportedly attempting to instigate a rapid and sweeping shift towards a corporate culture that mimics that at General Electric, the executive's former stomping ground. Whether he has time to effect such a change before Chrysler’s private equity owners lose patience and cut their losses remains to be seen. |
Chrysler LLC Chief Executive Officer (CEO) Robert Nardelli has sent an internal email to employees expressing concern about the company's performance over the last several months. According to the memo, which has been brought to light by several news sources, Chrysler’s sales results for the first half of this year have been 20% lower than the company had anticipated. Nardelli had stated at the New York Auto Show in March that Chrysler expected the U.S. market to come in at under 15.5 million units in 2008, with no rebound in the second half of the year. But the worse-than-expected economic situation in the United States, combined with completely unanticipated fuel price rises to above US$4.00 per gallon of gasoline (petrol), has meant that the sales results for its truck-heavy line-up have been worse than the company had planned. Nardelli has not said what changes might occur as a result of the worse-than-expected performance; the company has already decided to reduce production, including a five-week hiatus of Dodge Ram pick-up production, which will double as the model-year changeover to the new 2009 version takes place. A recent report in the Wall Street Journal told of how Nardelli is finding his role as an agent of change within the company, instituting a management style reminiscent of his days at General Electric, with mixed results. According to the newspaper, he has just embarked on a programme to re-educate a significant portion of executives within the company, leading a three-day training session this week that will hopefully refocus the company on customer-centric processes. This was the first of four or five sessions planned for nearly 300 top executives throughout the year. While Nardelli is busy reworking the company's processes and structure, reports indicate that top sales boss Jim Press is busy reworking the product line-up, tweaking Chrysler's existing products and pushing hard for new ones. The two have reportedly been working closely to change Chrysler's mindset, having arrived to find a company that promoted more on the grounds of seniority than accomplishment, and which operated according to unrealistic sales and production plans that ultimately led to incentives and overproduction. Both executives have stated that private equity owner Cerberus Capital Management has been extremely supportive, with evidence that the wide range of experts available to Chrysler management through Cerberus is being put to good use through the inclusion of outside suggestions to improve the business. Outlook and Implications Chrysler has experienced a 19.5% fall in sales since the beginning of the year, a sales decline that is accelerating, with the most recent data showing a 25.4% year-on-year (y/y) loss in May. The company's marketing programmes are not having the desired effect, with AutoObserver.com reporting that its latest sales idea—offering gasoline at a guaranteed price of US$2.99 per gallon for three years—has barely moved the needle in terms of monthly sales. Nearly 70% of the company's line-up is made up of trucks, and of those the majority are large body-on-frame pick-ups and sport utility vehicles (SUVs). Sales of these types of vehicle have positively plummeted: sales of the Dodge Ram pick-up are down nearly 27% for the year, while sales of the company's SUVs, such as the Durango, Grand Cherokee, and Commander, are down 44%, 26%, and 48%, respectively. But this is not unique to Chrysler, as the rest of the industry has been facing similar drops in volume as fuel prices skyrocket. What is more troubling for Chrysler is the fall in its passenger car sales. The company's cars are simply not resonating with consumers, despite mild increases in sales of the Caliber compact and a more substantial increase in sales of the Jeep Patriot crossover utility vehicle (CUV). Sales of the Sebring sedan are down 16% in the year through to May, while sales of the big Charger fell 7.8% and those of the ageing 300 sedan declined a full 30% for the first five months of the year. But more troubling is the slump in sales of the company's new minivans, traditionally Chrysler’s bread-and-butter income generators along with the big trucks. Dodge Caravan sales are down 35% for the year, and Chrysler Town & Country sales have fallen 13% as well. With Global Insight forecasting the current U.S. economic slump to last at least throughout the rest of this year, there simply is no other way to say it: Chrysler is in serious trouble. Unfortunately, Nardelli's efforts to instil a GE-like corporate culture at Chrysler have yet to produce anything other than a stream of departures of talented personnel. Jason Vines, the company’s outspoken public relations director, and Mark Donoughe, the top engineer for the company's critical D-platform project, both left after reportedly clashing with the top executive's style. However, a change in culture cannot occur overnight, despite the dire urgency of the situation, and the GE-style system has an arguably successful track record, having worked quite well at that global powerhouse. Whether or not the system will successfully translate to an automaker remains to be seen, but the more pressing question is simply whether or not Chrysler has enough time to try it. With truck sales faltering and the company's minivans not finding the kind of reception the company had anticipated, the question of how much longer Cerberus will tolerate the kind of cash burn currently being seen becomes quite relevant. Add to this the fact that the products that might help Chrysler to turn around its North American fortunes are still nearly two years away, and one cannot help but think that Cerberus may soon be looking at its options for Chrysler. Nardelli's memo to employees admitting that sales have been worse than expected opens the door to the possibility of deeper production cuts, or, as some fear, more serious personnel reductions.
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