Chrysler's credibility challenge

The carmaker has to convince suppliers, dealers, and customers that it can be competitive again. Good luck.

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By Alex Taylor III, senior editor

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NEW YORK (Fortune) -- An auto company high executive who shall remain unnamed chuckled when asked about the competitive prospects of Chrysler:

"What's their market share, 7%? And what do they have to sell for the next two years besides the Ram [pickup truck] and the minivan? Their first new car after that will be the Fiat 500? How many of those are they going to sell? Fiat hasn't sold so much as a bicycle here for 20 years."

Though harsh and a bit off the mark (Chrysler's market share is closer to 9% nine percent), the executive's comments neatly summarized the challenge faced by CEO Sergio Marchionne and his executive team as they try to reestablish Chrysler as a credible choice for consumers in the U.S. market.

It won't be easy. Turning around car companies takes time -- three years to develop a new model -- and money -- up to $1 billion for a new car or truck and the tools and machinery to build it with.

Chrysler has little of either.

Former owner Daimler hollowed out Chrysler's technical capabilities and scrimped on its products to meet corporate financial targets. Then its last owner Cerberus severed critical operations and crammed distribution channels with unwanted vehicles in a desperate attempt to generate cash and stave off bankruptcy.

Marchionne, who spends half his time in Italy running Fiat, Chrysler's 20% owner, is said to enjoy the challenge of putting Chrysler's pieces back together. He has promised to unveil a five-year plan for Chrysler in November.

That's no small task -- especially since Chrysler sometimes seems to be confused about what it wants to do. At the same time that workers were protesting the decision to close the plant where the underwhelming Chrysler Sebring and Dodge Avenger are made, reports were published that Chrysler now intends to give the cars a facelift and keep the plant open for another two years.

Chrysler will also need a more convincing story in order to convince suppliers to do business with it and dealers to stock its cars.

But the atmosphere currently is one of mistrust. Suppliers have taken a beating lately because industry volumes have been so much lower than anticipated. Making fewer parts with the same overhead crushes profit margins.

And dealers got burned in the weeks before bankruptcy when Chrysler begged them to keep taking more cars in the face of slumping sales. Some dealers did so, only to see their franchise agreements terminated, leaving them with lots full of unsold merchandise.

At least Marchionne appears to be a realist. He's admitted to being surprised by how little product development had been done at Chrysler in the two years before he arrived in June.

And he promised that his five-year plan will show "how we're going to come out of this." The whole auto industry will be watching. Including one particularly skeptical high executive. To top of page

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