Posts Tagged ‘Chrysler’

Fiat plays double or quits with Chrysler

November 28th, 2010 Comments off

Photo credit Familie Gevaerts on Flickr

Auto makers tend to get more focus in strategic management accounting discussions than participants in any other industry.  They also seem to take paths that have led before to failure so it is kind of like watching a slow-motion train wreck at times.  Fiat’s flirting, engagement, and soon-to-be full-fledged marriage to Chrysler could be another disaster in the making…or it could be pure genius as two borderline competitors join forces to latch onto economies of scale currently enjoyed by bigger players.

Returning to a country from which Fiat was driven out by poor quality—Americans used to quip that its name stood for “Fix It Again, Tony”—is a big risk. But the reward is to get back into one of the world’s largest markets and gain the scale that will promote Fiat from a smallish European firm (albeit with a successful business in South America) to the ranks of global carmakers. Its home market in Italy is too small, and its operations there too uncompetitive, to provide the basis for long-term survival. Merging with Chrysler will mean sharing development costs and technology, but will also mean having to turn around an ailing firm with competitiveness problems of its own. In sum, Fiat is playing double or quits.

The Economist has a nice summary of the current position of Fiat and some of the risks involved in the near-term.  With Fiat’s plans to open dealerships (inside existing Chrysler dealers) to sell the Fiat 500 next year, this will be interesting to watch in the next year or two and I’m sure the executives at former Chrysler suitor, Daimler, are scratching their heads (or perhaps laughing).

Read more at the Economist:

Carmakers: Fiat plays double or quits with Chrysler | The Economist.

Is Chrysler Destined to Repeat Errors?

November 22nd, 2010 Comments off

The Wall Street Journal today had a piece about an effort by Chrysler to market it’s new Fiat 500 model by offering so many options for customers that they may be creating excessive strategic risks as a result. 

The car, which goes on sale in January, will be available in three versions—”Lounge,” “Sport” and “Pop”—offering 14 exterior colors, 14 seat colors, six wheel styles and a range of graphical designs that can be applied to the car’s body panels, allowing customers to make their Fiat just about the only one of its kind.

All told, there will be about a half a million combinations, Chrysler says.

The title of the article includes the phrase “options overload” to describe this situation.  The decision to offer customization of the Fiat is to try to appeal to those that want a car that is an exact fit for their wants or needs.  It ignores, however, the fact that most customers want to take their new car home with them immediately.  If that were not true, car dealers would not have 500 cars each on their lots tying up capital.  It sounds like Chrysler has done a nice job redeploying an existing plant to allow for greater customization, but they will still produce cars that are not special-orders to keep the plant running and that is where the risk lies. 

Too many choices also can leave dealers holding lots of cars but not the exact one a particular customer is looking for — a recipe for losing a sale, said Mark Rikess, an auto dealer consultant based in Los Angeles. That’s because most customers don’t want to wait for the model they want to be shipped from another dealer or custom-made at the factory.

“We are an instant-gratification society,” said Mr. Rikess. “About 80% of car buyers expect to drive off the lot with their new car that day.”

For the last several years, car makers have tried hard to bundle features so they can produce a dozen or so versions of a vehicle that will satisfy most buyers. That limits the complexity on the factory floor and dealership lots.

To allow customers to order specialized models, Chrysler has retooled the plant in Mexico where the 500 is being built. Scott Garberding, Chrysler’s manufacturing chief, said the factory has been set up to move special orders to the front of the manufacturing queue.

Suppliers have be asked to keep more parts on hand so they can more quickly build a seat or interior combination and ship it to the plant within a few hours, Mr. Garberding said. The plant also will use a paint system that will allow a faster changeover in colors.

Still, some customers may have to wait 30 days or more to get their custom-ordered car.

For those who don’t want to wait, the company plans to hold a pool of the most popular versions that can be customized with features added at dealerships, such as stripes and checkerboard decals on the roof.

Read more of today’s article at:

Options Overload for Fiat’s 500 — Buyers Offered 14 Colors, Six Wheel Styles, Decals; Will It Leave Orphan Cars? Jeff Bennett. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 22, 2010. pg. B.1

Furthermore, I was reminded of a couple articles from 2007 when I read about Chrysler’s plans in today’s paper.  I managed to dig these up thanks to D2L not being purged yet from way back when.  Both of these are examples of car companies not being focused on customer wants/needs…we’ll have to see if Chrysler can execute its strategy today to avoid the errors exhibited only a few short years ago.  Read these pieces for some examples of what has happened before when car companies have tried to guess what customers wanted and “orphaned” models lingered on dealer lots as a result (to be sold only after massive discounting).

Lots of Vehicles — Big Dealer to Detroit: Fix How You Make Cars; AutoNation CEO Sees Inventories Rising Fast; The Big-Wheel Problem. Neal E. Boudette. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 9, 2007. pg. A.1

 One of the toughest problems facing the ailing U.S. car industry stems from Detroit’s century-old business model, which dates to Henry Ford’s mass production of millions of largely identical Model T’s. Rather than build cars to suit customer tastes, U.S. auto makers churn out what makes sense for their plants, and then use incentives and rebates to lure buyers.

Another piece about the auto industry not being focused on the customer.  This one is a letter to the editor that was in the Wall Street Journal in February 2007.  Same song, different day…

I Wrestle Chrysler for a Wrangler, Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 24, 2007. pg. A.5

Volkswagen to make U.S. push

October 5th, 2010 Comments off

The Wall Street Journal today has an excellent front-page article documenting some missteps made by Volkswagen in the United States market that has resulted in VW claiming a paltry 2.2% market share along with plans to turn that around in an effort to become the world’s largest automaker by the end of the decade. One of the ideas being implemented is designing, for the first time, a car to specifically meet American tastes rather than selling what works in Europe in North America in nearly identical form.  This is interesting to me because I’ve read elsewhere that Ford is taking the opposite approach trying to produce car models that are virtually identical no matter where in the world they are sold.  VW also risks, in the process, alienating the small but devoted following that it currently has.

“A lot of people worry that we are going to start making VWs for the masses,” says Mark Barnes, VW’s U.S. chief operating officer. “I like to say we’re going to bring the masses to VW.”

The retooled compact sedan marks the first time VW engineers have designed a model specifically for the U.S.

Next year, a new family-size sedan is scheduled to roll off the assembly lines at a newly built $1 billion plant in Chattanooga, Tenn. It is VW’s first U.S.-made car since the 1980s. On its heels comes a revamped New Beetle.

“I am fully aware that Volkswagen was too cautious for too long in North America,” Volkswagen Chief Executive Martin Winterkorn said at a test-driving event for the new Jetta in San Francisco this summer. His remark was a nod to the car maker’s decades-long penchant for deploying cars designed for European tastes across the Atlantic. That left its U.S. operations with models too small and expensive to go head-to-head with Asian and American rivals. Now, he vowed, “we have turned that upside down.”

Adding to the challenge is the constant change at the top in VW’s American operations:

Adding to the challenge is an unanticipated switch at the helm of VW’s U.S. operations.

In June, Stefan Jacoby, a blunt-spoken German who took to wearing cowboy boots to dealer meetings and car shows, left his post as U.S. chief to become Volvo Cars’ new chief executive. His departure came just a week after he presented the new Jetta at a splashy launch party in Manhattan’s Times Square featuring pop singer Katy Perry. VW bosses scrambled much of the summer to fill the void left by a key architect of its American comeback strategy.

Mr. Jacoby’s replacement, former General Motors executive Jonathan Browning, is new to the U.S. market, having spent most of his career at GM’s European operations and managing Jaguar under Ford Motor Co.

Some U.S. dealers complain that the revolving door of U.S. chiefs—Mr. Jacoby was the third to go in five years—reflects a culture at VW’s headquarters in Wolfsburg, Germany, that views the U.S. as a career way station, or worse, graveyard.

Assuming that the leadership and design challenges can be met, there is still the issue of getting Americans to notice.  Marketing has been ramped up to target certain demographics such as Hispanics and families, but the results thus far appear to be mixed.  Before reading this article, I didn’t even know that Volkswagen offered a minivan even though my family purchased a Toyota Sienna less than a year ago. In an interesting partnership with Chrysler, VW rabadges the American van as it’s own with some minor tweaks but production had to be halted due to low sales.

After dropping plans for a modern version of its Microbus for fear it would be too niche and costly, it signed a deal with Chrysler to modify and rebrand the U.S. car maker’s Town & Country minivan under the VW Routan name. VW tightened the minivan’s suspension, gave it a sleeker front end and kept it in the same price range as the Chrysler. With an ad blitz featuring Brooke Shields, it aimed to capture 5%, or 45,000, of the 700,000 annual minivan market.

But the Routan’s launch coincided with the auto industry’s nose dive in late 2008. So many of them sat unsold on VW dealer lots last year that the auto maker asked Chrysler, which builds them at its Windsor, Ontario, plant, to temporarily halt production. While much of the rest of the minivan market has rebounded, Routan sales have slipped 0.8% to 12,539 vans so far this year, one-seventh of the number of Town & Country sales in the same period.

VW officials argue that the Routan has enabled them to sell to a key new customer segment. The company still expects the Routan’s market share to grow as more consumers become aware of it as a minivan option.

But Casey Gunther, VW’s top-selling U.S. dealer, says the Routan isn’t what people expect from VW.

“It’s like someone trying to sell you a piece of chicken and claiming it was a steak,” Mr. Gunther says.

VW, he argues, could achieve its 800,000 sales target, “but we need to elevate the brand with products that play up our heritage,” such as the Microbus concept or VW’s sporty Scirocco, which it sells only in Europe. “There are so many people out there who love the lifestyle VW represents,” Mr. Gunther says. “I’m worried we’ve turned into a follower and not the leader.”

There are countless other great examples in this article that address things we discuss in class like strategy, international competition, product design, and more.  It is not a short piece, but is well worth the read when you have 10-15 minutes.  Seeing where things are at in 2, 5, or 10 years will be even more interesting.

Volkswagen Aims At Fast Lane in U.S.. Vanessa Fuhrmans. Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 5, 2010. pg. A.1

Cars Are Commodities

June 4th, 2009 Comments off

Cars have become commodities now that consumers have loads of pricing information at their fingertips that even ten years ago they didn’t have.  Sites like TrueCar have come online recently to make the pricing of cars even more transparent and further swing the power toward consumers.  A Chevy Aveo at one dealer is no different than a Chevy Aveo at the one 5 miles away, yet many dealers continue to cling to business models that are loaded with fixed costs and obscure pricing methods/systems that are from a bygone era.

The Economist has a good analysis of the situation on their website comparing car dealers of today with travel agencies a decade ago.

Kicking the tyres. May 22nd 2009. From

To top it off, there are reports today of dealerships that are lobbying in Washington (and politicians lobbying on their behalf) to stay open even thought General Motors or Chrysler have terminated their franchises.  Perhaps a better idea for the “new” Chrysler and GM would have been to terminate all dealer agreements and market automobiles using a new system that doesn’t have so many built-in costs…maybe we’ll get there someday (or maybe I’m way off base) but with the government now involved I expect it to be a slow process.

Globalization and Mergers

May 19th, 2009 Comments off

As I mentioned last week in class in relation to the SMA Module and the question about Kodak/Olympus in the study assignment problems, more companies are operating in a global environment than ever before.  Even companies that don’t know they are operating in a global environment probably are just by the nature of their supply chain operating at least partially overseas.  The biggest example of globalization, perhaps, is when large multi-national companies form alliances or merge such as Anheuser-Busch and InBev last year or the current Fiat-Chrysler-Opel union that is trying to form now.

Today the Economist posted a lengthy piece on their website (I’m not sure if it will appear in print as well)  about this latter merger and it is worth reading for the insight it gives into the issues faced by Fiat trying to pull this off and the input/impact of the German and American governments on the process.

THE bold attempt by Sergio Marchionne, chief executive of the Fiat Group, to use the crisis that has overwhelmed Detroit to forge a three-way merger between Fiat Auto, Chrysler and General Motors’ European arm, Opel, has been greeted both with admiration (for his chutzpah) and scepticism (about his ability to pull it off). The sceptics say cross-border mergers in the car industry have a poor record and that Mr Marchionne is biting off much more than he can chew.

Marriages made in hell. May 19th 2009. From

For a look at the downside risk of such a merger, one needs to look only at the situation a couple years ago that also involved Chrysler and one-time merger partner Daimler-Benz.

It was billed as a “merger of equals”, but in the end the participants could not make a go of it and their marriage failed. The break-up announced this week of DaimlerChrysler, a transatlantic carmaker created by the union of Daimler-Benz and Chrysler in 1998, involves the sale of 80.1% of Chrysler to Cerberus Capital Management, a private-equity group, for $7.4 billion–though once everything is accounted for, Cerberus is actually being paid to take the troubled American carmaker off the hands of the German company, which will be renamed Daimler.

Divorced. Economist; 5/19/2007, Vol. 383 Issue 8529, p67-68, 2p

Quality and Pricing in the Auto Industry

May 13th, 2009 Comments off

Today’s Wall Street Journal highlights some quality and cost/pricing issues in the auto industry, always a favorite industry for discussion in this course.

We touch on quality and cost/pricing issues throughout the course, but especially in the first week and then again towards the end of the semester.  These examples are not limited to the auto industry or airlines, of course, but those industries in particular seem to have the most impact on consumers probably because of the price paid for their products.  If a $3 spatula falls apart after a few months it doesn’t mean much, but if your year-old minivan does it is a very big deal.

Michelle Payan loves the styling and roominess of her 2006 Chrysler 300 sedan, but a defective air conditioner and transmission have turned her against the brand. “I’m not buying another Chrysler,” says Ms. Payan, a 26-year-old insurance-claims adjuster in Phoenix.

Chrysler’s Nagging Quality Issues. Kevin Helliker. Wall Street Journal. (Eastern edition). New York, N.Y.: May 13, 2009. pg. D.1

“There’s no question that you should get a screaming deal,” says Scott Painter, chief executive of TrueCar, an online service that tracks new-car purchases. He says the slump in sales has resulted in discounts so steep that new cars can sometimes be less expensive than comparable used ones.

Final Frontier: Below Dealer Cost. Jonathan Welsh. Wall Street Journal. (Eastern edition). New York, N.Y.: May 13, 2009. pg. D.1

Chrysler’s Woes Are Partly The Result of Poor Quality

April 16th, 2009 Comments off

Do you get the feeling that the auto industry is tailor made for examples of Strategic Management Accounting?  Usually in a negative way?  It does seem that along with airlines the carmakers get a lot of mention in this class.  Here is another article, this one from the Wall Street Journal today about quality.  We will talk about quality in Ch 19 so this is good timing.

Inventory Traffic Jam Hits Chrysler

April 7th, 2009 Comments off

An article titled “Inventory Traffic Jam Hits Chrysler” from the Wall Street Journal will have more relevance later in the semester when we talk about opportunity costs, pricing, and product mix.  Seeing “real life” examples might help you make more sense of what we discuss in class.

CLICK HERE to read the article at  You should not need to login to for this article.