Deal Or No Deal, Chrysler Has A Plan

By From forbes| Apr 19 2007
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Chrysler Group Chief Executive Thomas LaSorda is putting in 20-hour days, fueled by a drawer full of bite-sized chocolates, in an urgent bid to reshape the smallest of the struggling U.S. carmakers.

His vision: transform the regional manufacturer of trucks, SUVs and minivans into a larger global player through a series of partnerships with companies like China’s Chery Automobile Co.

The new business model, he says, will reduce vehicle development costs and allow Chrysler to expand internationally.

But will any of LaSorda’s plans matter if Chrysler changes hands in a few months? Its German parent, DaimlerChrysler AG (nyse: DCX - news - people ), is in active discussions with several potential buyers, including Canadian parts-maker Magna International (nyse: MGA - news - people ) and private equity funds Cerberus Capital Management, Blackstone Partners and Centerbridge Partners, all of which can be expected to make substantial changes if they take the wheel.

LaSorda says he can’t worry about whether his strategy, endorsed by DaimlerChrysler’s management board, will pass muster with one potential owner or another.

“You absolutely can’t second guess your plan,” the fourth-generation Chrysler employee said in an interview Tuesday with Forbes.com.

“We cannot sit back for one day or one week and speculate. We have to deliver, regardless of what option is ultimately picked.”

So even as DaimlerChrysler moves to sell the company out from under him, LaSorda is pushing ahead with his transformation strategy.

On Wednesday, he is to announce $1 billion worth of investments in a new axle plant and a new engine plant in Michigan. Both are part of a $3 billion initiative to speed more fuel-efficient vehicles to showrooms — what LaSorda calls a “missing link” for Chrysler.

“We are proceeding as if nothing is happening,” insisted LaSorda. “If I wait, and there’s a miss in the marketplace because we sat back on our heels and wouldn’t make decisions for three to six months, that’s huge in today’s marketplace.”

LaSorda has already announced plans to cut $1.5 billion in material costs, reduce production capacity by 400,000 units and eliminate 13,000 hourly and salaried jobs at Chrysler, which lost $1.5 billion in 2006. His goal is to return to profitability by next year and achieve a modest 2.5% return on sales by 2009.

But LaSorda’s long-term vision for Chrysler has been largely overlooked, mostly because it was announced the same day his boss, DaimlerChrysler CEO Dieter Zetsche, stunned the industry by putting Chrysler up for sale.

LaSorda’s strategy is twofold: reduce Chrysler’s dependence on gas-guzzling trucks by adding more fuel-efficient cars to its lineup, and use strategic partnerships to expand its presence beyond North America, where 90% of its vehicles are currently sold.

Though Chrysler’s overseas presence is still small, it is building sales momentum in foreign markets. Last year, Chrysler’s international sales rose 15% to 207,000 vehicles. In China, where vehicles sales are expected to rise 18% this year, Chrysler recently started selling locally produced versions of its 300C and Sebring sedans.

LaSorda is spending much of his time trying to identify other opportunities for international growth. “We need to get into markets like Russia,” he said. Last year, Chrysler sold 5,500 vehicles in Russia; LaSorda envisions sales of 40,000. To get the most from limited resources, it recently sold some of its older factory equipment to a Russian partner, GAZ, which will begin producing the Chrysler Sebring and Dodge Stratus sedans, using older designs that have been updated for North America.

Because Chrysler is relatively small (one-third the size of General Motors (nyse: GM - news - people )), it must rely on global partnerships to ignite international growth, LaSorda said.

The tentative deal with Chery is an example. The fledgling Chinese automaker will produce a mini-car that will be sold under the Chrysler and Dodge brands in North America and Europe.

Another Chinese partner, China Motor Corp., is producing a small cargo van in Taiwan that Chrysler will sell in Mexico starting this fall. Also in Mexico, Chrysler is selling a small Hyundai-produced car called the Dodge Atos.

In Europe, Chrysler will produce a version of its next-generation minivan for Volkswagen (other-otc: VLKAY - news - people ). A German company, Getrag, is producing a new fuel-saving, dual-clutch transmission for Chrysler.

Such partnerships are going to become more common across the industry, predicts LaSorda, because automakers can’t afford to chase every market opportunity by themselves.

And no matter who ends up owning Chrysler, LaSorda says its joint engineering programs with Mercedes to develop fuel cells and diesel engines will continue.

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