Chrysler – The OM Blog by Heizer, Render, & Munson

OM in the News: Detroit’s Last Car Plant Standing

The last auto plant in Detroit generates $2 billion in annual profit for Chrysler

There is a section of Detroit that sums up the city’s decline, a grim landscape of boarded-up stores, abandoned homes and empty lots that stretch all the way to the river. And in the middle of it stands one of the most modern and successful auto plants in the world. More than 4,600 workers staff Chrysler’s sprawling Jefferson North factory nearly around the clock, writes The New York Times (July 16, 2013), making one of the most profitable vehicles on the market, the Jeep Grand Cherokee.

“Everything is aligned there,” said one auto analyst. “You have a hot-selling, high-profit vehicle, a flexible labor agreement and a facility that the company has invested in instead of abandoned.” Annual production has skyrocketed from fewer than 100,000 vehicles a year in 2009 to more than 300,000. And a work force that had dwindled to 1,300 people has more than tripled. In June, Grand Cherokee sales rose 33%, as buyers paid as much as $50,000 for the model.

The profits and productivity at Jefferson North put it on par with the most efficient luxury car plants in Germany and the best factories operated by Japanese automakers in the southern US. Today, Jefferson North stands as the last auto assembly plant in Detroit’s city limits, which once had nearly a dozen of them.

The company has taken advantage of the groundbreaking 2007 labor agreement with the United Automobile Workers union, to bring on new employees at an entry-level wage under $16 an hour, compared with the $28 earned by longtime union workers. Since its bankruptcy, Chrysler has hired two full shifts of new workers, over 2,200 people, at the lower wage.

Discussion questions:

1. Why is this plant successful?

2. What operations decisions have helped Chrysler?

OM in the News: Building a Reputation for Quality No Easy Task for Chrysler

As we discuss in Chapter 6, quality can take on a wide range of attributes. For auto makers, and their customers, these attributes range from safety, to the choice of interior materials, to the way parts fit together—all of which affect perceptions of a brand. The Wall Street Journal (May 10, 2012) reports the bad news for Chrysler–that through bailouts and bankruptcy, there is one liability that the automaker hasn’t yet managed to shed: its reputation for lousy quality. “You can lose your reputation in a year, but it takes five to 10 years to rebuild it,” says the director of the Consumer Reports.

Despite surging sales, the auto maker remains dogged by a long trail of recalls, customer complaints and poor ratings on quality surveys. In 2008, the London Times proclaimed Chrysler’s now-discontinued Sebring “almost certainly the worst car in the entire world.” The Journal quotes Chrysler’s quality chief, Doug Betts, as saying: “We were building cars that were functional, and other than that, they were boxes you got into that hopefully kept the rain off your head.”

But today, dealers, customers and independent reviewers say Chrysler’s efforts are starting to pay off, with better finishes and higher quality scores on new models such as the Jeep Grand Cherokee SUV and 300 sedan. Last year, the brands earned their highest ratings in years in Consumer Reports’ annual reliability survey, rising from the bottom of the pack to the middle. That year, Betts used his new authority to delay a restyled Chrysler 300 after inspection of a prototype found a right rear tail light that wasn’t flush with the body. The one-millimeter projection was hardly visible, Betts said, but it was enough to “catch a rag if someone was hand-washing” the car.

Discussion questions:

1. Why is a quality reputation easy to lose, but hard to gain?

2. What caused Chrysler’s reputation to drop?

Good OM Reading : Once Upon a Car

If you are looking for a fast-paced, riveting story of the near demise of the US auto industry, read Once Upon a Car: The Fall and Resurrection of America’s Big Three Auto Makers. Author Bill Vlasic started following GM, Ford, and Chrysler in 2008, about a year before GM and Chrysler filed for bankruptcy.

We attend a secret meeting between Rick Wagoner (GM’s CEO) and Bill Ford (the great grandson of Henry Ford), in which the GM team proposed a merger with Ford. Desperate to stave off bankruptcy and burning through more than $1 billion per month, GM needed Ford’s $30 billion bank account. Savings would be huge and synergy phenomenal. As GM’s vice-chairman Bob Lutz had argued, “It could be one large, enormously powerful global auto company.You could shut one proving ground, one finance department, one tax department, a bunch of plants, get rid of a lot of engineering”. But Ford was angry with GM’s arrogance in wanting to be the senior partner and would have none of it.

The overture, though, was also disturbing. If GM went bankrupt, a big part of the auto supply chain would go with it. And that would definitely hurt Ford. (You may recall that some 15 years earlier, GM won a major lawsuit against VW, only to realize that if destroyed VW, its own supply chain would be severely damaged. It settled for $100 million in cash and VW’s promise to buy a $1 billion in parts from GM per year).

To protect his flank, Ford courted the future president, Barack Obama, who was excited about Ford’s plans to create smaller, fuel-efficient cars. On the other hand, Wagoner’s outsized control of his board and his political maneuvering killed a potential partnership with Renault-Nissan. In the end, he was forced out by Obama as part of the $50 billion bailout. And as to Chrysler, we learn that it didn’t have a chance in the game. Daimler-Benz, its German owner, wanted to dump Chrysler for years and had long starved its R&D budget. UAW union head Ron Gettelfinger does not escape blame either. Outsized demands and the infamous union job bank did little to help his autoworkers.

OM in the News: Chrysler’s Gamble with Mass Customization

The year was 1973. Jay and I were both teaching at Boston U.’s brand new European MBA program, just outside of Pisa, Italy. The most popular car on the Italian road was the “Cinquecento”, a midget of a vehicle that could easily fit in the back of a Chrysler minivan. The Cinquecento had all the power of about 3 Vespa motorscooters, my vehicle of choice in college. When I left Italy I never thought I would see one again.

So yesterday’s Wall Street Journal article (Nov.22,2010) announcing that Chrysler was bringing the Cinquecento to the US–and planning to sell 50,000 of them in 2011–was a bit of news. The car will be called the Fiat 500 and be manufactured at a retooled Chrysler plant in Mexico. Five feet shorter than a Chevy Impala, the 500 will retail for $15,500. But the reason you may want to bring this topic to your class is Chrysler’s risky strategy of mass customization (Chapter 7). Where the Japanese mastered the global auto market by limiting production options (a typical Honda might have 2 transmission options, 6 paint choices, 2 interiors, etc.), the Fiat 500 will provide a dizzying array of features to choose from.

With 3 versions of body style, 14 exterior colors, 14 seat colors, 6 wheel styles, and so on, there will be about 1 million combinations of the new car. Chrysler hopes the chance to customize the 500 will draw a wide range of customers who may want a “one of a kind”. In the past, US auto makers learned the risks of mass customization: too many choices leave dealers with lots full of cars, but not the exact one a customer may want (and 80% of US customers want to drive their car off the lot the day they buy).

Further, suppliers are being asked to keep more parts on hand so they can more quickly build a seat or interior combination , then ship it to the plant within a few hours.

Discussion questions:

1. How interested are students in a unique, customized car that will take 30 days to deliver?

2. Why is Chrysler taking this approach?

3. What are the competing products and how do they fare?