Global Insight Perspective | |
Significance | The departure of embattled sales and marketing executive Joe Eberhardt has forced chief executive officer (CEO) Tom LaSorda to assume the role in order to take a hands-on approach to solving the company's inventory, manufacturing, incentive, and sales problems. |
Implications | This is probably the last chance LaSorda has to save his job, with pressure mounting for his dismissal and VW brand chief Wolfgang Bernhard waiting for an opportunity to return to Chrysler in the United States. LaSorda will have help from two well-respected sales and marketing executives, Mike Manley and Steven Landry. |
Outlook | LaSorda will face two main challenges: to repair dealer relationships and to reduce inventory to manageable levels. Beyond that, getting the company back on track to shifting its manufacturing mix towards smaller, more fuel-efficient vehicles needs to become the priority. |
Chrysler Group chief executive officer (CEO) Tom LaSorda announced last week that he would take on the responsibilities of departed sales and marketing chief Joe Eberhardt, making himself responsible for sales and marketing in North America. In a meeting with 600 dealers, the new CEO announced his position and that he would be relying on his two top executives to help turn Chrysler around. Those two executives are Mike Manley and Steven Landry, and LaSorda has given them their brief: to repair relations with dealers in revolt and to reduce inventory, especially the controversial sales bank of unassigned vehicles.
The moves come as rumours about the security of LaSorda's job continue to circulate. Many publications have openly speculated about LaSorda being replaced as the head of Chrysler and the sudden departure of embattled marketing boss Eberhardt only gave fuel to that fire. Rumours persist about DaimlerChrysler (DCX) chairman Dieter Zetsche's possible desire to replace LaSorda with Volkswagen (VW) brand chief Wolfgang Bernhard, who has been reported as falling out of favour at VW after its own chairman, Bernd Pischetsrieder, was ousted last month.
Dealers are welcoming the move and are eager to progress on a number of areas. Of particular contention are the volume-based performance reward system, which has been derided as difficult to achieve and potentially financially risky, and the sales bank of vehicles. The sales bank, in which vehicles are produced to Chrysler production schedules instead of dealer orders, has been a source of serious relationship damage between the Chrysler dealers and corporate headquarters. With inventories earlier this year of the sales bank running over 100,000 unassigned vehicles, dealers were being pushed to accept vehicles that they did not want and could not sell. As a result, incentives are the highest in the industry, with some vehicles like the Ram pick-up now featuring nearly US$10,000 in sales incentives. Despite these high incentives, Chrysler Group sales are still running nearly 7% below year-ago levels.
Outlook and Implications
This is quite likely the only thing LaSorda could have done to save his job and, even so, he is far from guaranteed success. LaSorda is a manufacturing engineer; he does not come from a marketing background. Still, one does not become the head of an automotive company without knowledge of how to sell cars, and LaSorda has strength in his two deputies, Manley and Landry. Both of the executives are well respected by the dealer body and should face decent cooperation, as long as they avoid the pitfall their predecessors could not.
Chrysler's current predicament is quite puzzling. As little as four months ago, most analysts were giving Chrysler high marks and had high hopes for the carmaker as the company rolled out smaller, more fuel-efficient vehicles, new small crossover-utility vehicles (CUVs), finished launching 10 new models, and introduced new mid-size sedans to compete in the huge mid-size segment. The picture today, however, is very different. The shift away from big trucks and sports-utility vehicles (SUVs) has not taken place and, in fact, production of those vehicles has even been running overtime. This ill-reported sales bank of vehicles (Chrysler does not publish exact inventories for the sales bank) has forced unpopular vehicles on dealers instead of the smaller vehicles that Chrysler needs to be selling. Production problems have plagued the small-vehicle launches, with production of the Caliber and Compass CUVs featuring difficulties, and the last of the trio, the Jeep Patriot, only starting production last week. The new Sebring sedan has debuted to lacklustre reviews, and incentives on other models have reached all-new highs.
Chrysler's new-found woes have not resulted from having the wrong product line-up, rather they have come from building the wrong vehicles in that line-up. Had the company put more emphasis and effort on building the vehicles that the market obviously wanted, instead of the ones that nobody wanted, its current profitability situation may have been different. The challenge now will be to get that production plan on the right track, and the combination of LaSorda's manufacturing expertise and Manley & Landry's sales and marketing savvy are the best chance Chrysler has of turning things around in the next few months.