The new Chrysler has the potential for a bright future. Some great new management and especially the flexibility of not being constrained by the short-term mindset of Wall Street. They can take the long view and do the right things. Perhaps they will, but in a Detroit Free Press column last Sunday Mark Phelan inadvertently brings up a potential fundamental fallacy to the dream. Inadvertently because Mr. Phelan missed one critical point.
Chrysler’s deal with Nissan last week demonstrates an important, often
overlooked fact about the struggling Auburn Hills automaker: Chrysler
does some things better than any car company in the world, and other
things far better than most. The company’s future may hinge on recognizing that truth and leveraging the clout leadership brings.
"Chrysler" and "better than any car company" and "leadership clout" in a single paragraph is something you’ll only see out of a Detroit newspaper, but in the narrow context of his intent it makes some sense.
The column goes on to discuss how Chrysler will build large vehicles for Nissan and Nissan will supply or co-manufacture small vehicles for Chrysler. This will help reduce the multiple architecture or platform problem that Mr. Phelan believes is critical to Chrysler’s long term viability.
The more different vehicles a company builds using a single
architecture, the lower its costs and higher the chance of turning a
profit. The break-even point differs, based on a variety of factors. Depending on how you count — and excluding the Viper — Chrysler has 10 or 11 architectures in production today. Does
not compute, Will Robinson. Two million vehicles divided by 10
architectures equals 200,000 per. That spells Trouble with a capital T,
and that rhymes with C, and that stands for Chrysler.
As he points out, Chrysler does have some strong platforms.
Today, Chrysler builds four or five architectures that are among the world’s best in their categories:
- Full-size pickups (Dodge Ram)
- Minivans (Chrysler Town & Country and Dodge Grand Caravan)
- Rear-wheel drive cars (Chrysler 300, Dodge Charger, Dodge Challenger)
- Small SUV (Jeep Wrangler)
- Larger SUV (Jeep Grand Cherokee)
There’s only one problem… something Mr. Phelan missed. All of those strong platforms are experiencing severe pressure from small vehicles, primarily due to the cost of gas. A strategy based on leveraging the prior strength of those vehicles could create major issues in the future.