In a recent one-on-one interview with Leftlane, Jim Press, now president of Chrysler LLC after 37 years with Toyota, defined Chrysler’s new vision to become “not the biggest, but the best” automobile manufacturer in the United States, developing and building cars and trucks – including alternative energy vehicles – that enthusiasts will buy in sufficient volumes to sustain the privately-held company.

Press acknowledges that it’s going to take at least five years for this vision to gain traction and longer for it to be realized. In our view, the vision fits Chrysler’s current financial structure and capabilities; we just wonder if Cerberus Capital Management, the new owners of the company, will have the patience to allow the vision to be achieved.

Background

After 73 years of independent operation, in 1998 the Chrysler Corporation was bought by Mercedes-Benz AG, creating DaimlerChrysler AG. Though this acquisition was billed by Mercedes as a “merger of equals” it turned out to be a complete take-over, with German management soon installed in Michigan, and the Chrysler organization restructured so that each function reported to a separate manager in the parent corporation in Germany.

For a variety of internal and external reasons, the merger was a financial failure, and in 2007, 80.1 percent of the Chrysler Group was sold to a private investment firm, Cerberus Capital Management, with DaimlerChrysler, re-christened Daimler AG, retaining 19.1 percent ownership.

The U.S. company, now Chrysler LLC and referring to itself as “the New Chrysler,” installed Robert Nardelli, formerly of Home Depot and General Electric, as Chairman and Chief Executive Officer. Jim Press, former president of Toyota Motor North America was hired to take charge of marketing and sales, and given the title of vice-chairman and president. Thomas LaSorda, who had been with Chrysler since 2000 after 23 years with General Motors, took on responsibilities for manufacturing and suppliers, with the same title of vice-chairman and president.

Near-term prospects

We interviewed Jim Press before his presentation in South San Francisco to the Western Automotive Journalists on September 3, where the automaker displayed its latest wares: Dodge Challenger R/T and SRT8, the Chrysler Aspen Hybrid, Dodge Journey and Ram.

When asked to describe the most important near-term challenges facing Chrysler, Press responded that he is working hard to help change the company’s structure and culture. Pragmatically, the company needs to shed unproductive assets, scale back its manufacturing operations, and reorganize management responsibilities. Press calls this the challenge of “getting real” for a company that was structured to produce four million units and was actually selling about a fourth of that number.

Culturally, the company is justly proud of its engineering achievements and the quality of its people, but Press is intent on introducing a decision-making process that starts with what the customer wants to buy, rather than what the company wants to build; he says this is a challenge that is common to all three U.S. auto manufacturers.

Press is optimistic about the prospects of succeeding in meeting these challenges, noting that Chrysler has the same amount of cash on hand now as they did at the beginning of 2008, suggesting that the restructuring has been managed so far on a break-even basis. In addition, he noted that since the company is now privately-held, it no longer has to report quarterly earnings, constantly worry about its stock price, or try to please a diverse base of shareholders. He also noted that they’ve had good success in restructuring their relationships with the unions, a critical factor that has been the Achille’s heel of the U.S. auto companies.

We asked whether the announcement that the Viper brand is for sale might suggest any financial desperation, and Press was quick to provide a different explanation. While the Viper has been good for Chrysler’s reputation as a builder of high-performance automobiles, he noted that the very small volume – tens of units rather than thousands of units per week – defined an operation that could easily be taken over by a small company but was difficult to sustain when loaded with the financial burdens and decision-making processes of a full-line auto manufacturer. He is confident that the brand will continue, and that the acquiring company can have a close relationship with Chrysler, but he believes the Viper is more likely to succeed within a small specialist manufacturer.

Medium-term view

Press, a real gearhead in his own right, was proud to describe the company’s vision for the products it is now promoting, and the new models to be introduced in the near future, as cars, vans, and trucks that will “appeal to the visceral and emotional desires of buyers who don’t want a transportation appliance, but rather are looking for a vehicle that will connect them to the driving experience.”

As examples, he pointed to the four vehicles in the restaurant parking lot. A crimson Challenger R/T with automatic transmission illustrated how a practical coupe could be given an evocative appearance inside and out to satisfy the owner who took pride in what the car said about the driver, but wasn’t intent on super-high performance.

In contrast, the bright red Challenger SRT8 sitting next to it, distinguished externally only by a few trim details and the vivid black racing stripes, offered more power, bolstered sport seats, a pistol-grip manual transmission, taut suspension and Brembo brakes, would appeal to the owner who didn’t want to apologize to anyone for the car’s capability.

At the other extreme, the 2009 Dodge Ram, with crew cab, built-in “Ram Box” storage in the sides of the bed and fittings in the cab for multiple power outlets – both 12 volt and 110 volt – looked like the perfect vehicle for a hard-working building contractor or anyone whose job is in the field. Nevertheless, the coil-spring suspension and balanced ride quality make the truck immensely more comfortable than its predecessor.

Next to the truck was the Chrysler Aspen Hybrid, which Press offered as a tangible example of Chrysler’s immediate response to environmental and energy challenges. Though he acknowledged that it seemed a little strange for Chrysler to be incorporating hybrid power plants into full-size SUVs, he noted that the relative improvement in fuel efficiency and reduction of the vehicle’s carbon footprint was significantly greater in an SUV than, for example, it would be between a Prius and a Toyota Corolla.

Chrysler has been in the forefront of the minivan movement since its inception, and the fully-loaded Dodge Journey with all-wheel drive and ultra-flexible interior was described by Press as a “playroom on wheels,” a vehicle in which both children and their parents could enjoy long trips. The Journey isn’t a minivan, per se, but it certainly fills that role in many buyers’ minds. And in Dodge’s eyes, the Journey replaces the short-wheelbase Caravan.

In passing, Press did note that offering the same basic minivan with both the Dodge Grand Caravan and Chrysler Town and Country nameplates was one of the cost-producing problems that Chrysler hoped to solve in the medium-term. His comment fitted with his description in another context of the effort now underway to consolidate Chrysler, Dodge, and Jeep dealers into common stores. If Chrysler can succeed with this initiative, it has the potential for improving dealer margins. At the same time, it would reduce the costly redundancy of badge-engineering which in the past has been Chrysler’s response to dealer pressure.

Longer-term challenges

Press was quick to acknowledge that the current fuel crisis is not going to go away. He stressed that there is active research underway within Chrysler’s ENVI division, which is focusing on electrification and hybrid development, and that Chrysler is a lot further ahead than anyone outside the company would probably give them credit for. He said, however, that we shouldn’t expect any Chrysler electric car prototypes at auto shows in the near future, stating that they are reserving development capital for active research, rather than for “publicity stunts.”

He acknowledged that the major challenge for Chrysler, as for everyone else in the industry, is improving the efficiency and reducing the environmental impact of batteries, but noted that the funding for domestic electric car research supported by both Republican and Democratic presidential candidates would go a long way towards solving this problem. Lest we thought that he was looking for some sort of government dole, Press stressed that if all the United States accomplished with the introduction of electric cars or plug-in hybrids was to switch from dependence on foreign oil to dependence on foreign batteries, we would be no further ahead than we are now.

Our views

Overall, the near-term structural changes, medium-term focus on smaller-volume, higher value-added products, and long-term research that Press articulated makes complete sense. As a privately-held company, Chrysler had considerably more latitude to make such sweeping changes than the two big U.S. companies. With this focus, and the necessary investment capital, there’s also no reason why the company can’t keep pace with foreign car companies. Certainly this is a model that has worked for BMW, now rated by Dow-Jones as the most financially sustainable automobile company in the world.

The only uncertainty is whether the owners of the company share the vision and understand how long it might take to realize it. Press said more than once that it has taken the U.S. auto industry decades to reach the condition it’s in right now, and so Chrysler can’t be expected to get back to sustainable profitability and a healthy return on its owner’s investment in a much shorter time frame. Only time will tell if Cerberus Capital Management fully understands this statement.

Words and photos by Gary and Genie Anderson

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