Under Cerberus ownership, Chrysler’s new executive team announced sweeping plans to restructure operations, slashing production by eliminating shifts at five plants in North America and phasing out four models. Shifts will be cut at Belvidere, Jefferson North, Sterling Heights, Toledo North and Brampton in 1Q 2008 as the company moves aggressively to align output with natural demand. By the end of 2008, Chrysler will phase out the Chrysler Pacifica, Dodge Magnum, PT Cruiser convertible and Crossfire coupe imported from Germany. Though unconfirmed, build-out of the Pacifica may occur as soon as year-end 2007. The overall short-term impact will be severe as nearly 200,000 units of volume is eliminated in 2008.
Belvidere: Since launching the PM/MK effort, production has continually outpaced demand. Despite a weak US dollar which has helped exports to Europe, Caliber [PM49] sales in the core US market have fallen well short of internal targets. Jeep Compass [MK49] and Jeep Patriot [MK74] have stretched the Jeep brand perhaps too far. Ending September inventories exceed 120 days supply, driving the need to reign in output. The Jeep Compass [MK49] is not expected to be replaced at the end of its lifecycle.
Vehicles Affected: Dodge Caliber, Jeep Compass, Jeep Patriot
Jefferson North: Grand Cherokee [WK] and Jeep Commander [XK] have faced a difficult market, which has prompted sustained incentive spending in excess of $6,000 per unit. As Cerberus moves aggressively to cut costs and increase profits, lower output will help scale back incentive spending.
Vehicles Affected: Jeep Grand Cherokee, Jeep Commander
Sterling Heights: The Dodge Avenger [JS41D] faces superior competitive entries which highlight its low cost execution and material choices. The Chrysler Sebring variants are further plagued with design by committee styling, resulting in an extremely high fleet allocation for the tandem of nearly 40%. A one shift scenario is not tenable going forward and may result in further capacity consolidation among C/D platform facilities.
Vehicles Affected: Dodge Avenger, Chrysler Sebring, Chrysler Sebring convertible
Toledo North: Despite rampant growth in CUV segments, the Dodge Nitro [KA] has failed to garner strong consumer acceptance due to a weak value proposition and polarizing styling inside and out. Incentives have remained in check, yet the entry is being undermined by aggressive incentives available on other volume offerings within the larger Chrysler group.
Vehicles Affected: Jeep Liberty, Dodge Nitro
Brampton: The shift reduction at Brampton reflects Chrysler’s desire to reduce costs and more importantly distribute the impact of such actions across its UAW and CAW labor force. Production of the Dodge Magnum is expected to end prior to the launch of the Challenger in April 2008. By cutting a shift at Sterling Heights and ending production of the Magnum, Chrysler will free up capacity to bolster output of the Charger and Challenger models to drive output of a richer mix of vehicles and increase profitability.
Vehicles Affected: Dodge Magnum, Dodge Charger, Dodge Challenger, Chrysler 300
Powertrain Impact: The effect on powertrain operations will largely mirror the vehicle volume reductions associated with the loss of five production shifts in the region. The elimination of the third crew at Mack Avenue (3.7, 4.7L) reflects weaker demand for the engines at the affected assembly facilities and more importantly optimizes labor requirements.
Summary: As previously stated, the ‘Cerberus Effect’ would be felt quickly as Chrysler moves to address the fundamental disconnect between massive over production and weak sales results across its product range. Following the sudden downtime in October, these aggressive steps address high inventories and excessive incentive spending. These changes highlight the dynamic nature of private equity ownership and have been facilitated by the recent ratification of its UAW contract. Though drastic, these product/plant actions are an initial step of a more comprehensive profit-centric strategy that continues to unfold.
VIEW CHART: Net Volume Impact - Due to Chrysler Announcement versus October 2007 Forecast
For questions regarding the Update contact Mike Jackson +1 248 465 2833 (mikejackson@csmauto.com)
