Next-generation 300 sedan an expensive decision: Marchionne
Last Updated: Thursday, November 05, 2009 | 08:02 PM EST
Financial Post
TORONTO -- It’s one decision Sergio Marchionne probably wishes he could undo.
Chrysler Group LLC is planning to build a completely revamped version of its once-popular 300 full-sized sedan at its Brampton, Ont. factory next year. But if the company’s new chief executive had his way, the replacement likely never would have seen the light of day.
“I won’t even tell you the amount of money that the [new] 300 platform costs,” Mr. Marchionne told reporters and analysts gathered Wednesday to hear his five-year plan to revive one of America’s iconic automakers. “You’d be shocked out of your pants. But it’s done and life will move on.”
One of the main ways he is going to try to achieve a US$3-billion net profit by 2014 at Chrysler will be to squeeze more model offerings from the vehicle development budget.
His goal is to build 21 different Chrysler and Fiat SpA models on only seven basic vehicle platforms by 2014, four fewer platforms than in 2010. By boosting the average number of models per platform to three from 1.9, and the volume of vehicles sold per platform to 305,000 from 125,000, the automaker saves on engineering and development costs for all models.
A platform is generally a vehicle underbody, suspension and other components. The idea is to spin off models along the same platform and cut down on costs. For example, the Toyota Motor Corp.’s Matrix and Corolla cars share the same underpinnings.
Mr. Marchionne’s major surprise when he became involved in Chrysler’s restructuring was that the car company was spending too much development money without thinking about whether there was sufficient return, he said.
“The proliferation of architectures in this organization, which has been my pet peeve forever, has just caused an incredible strain on the organization,” he said. “I mean, we’ve got cars here based on a single platform that are not used for anything else. You can’t make money doing this.”
He singled out the next-generation 300 for being expensive.
“If you asked me today would I go out there and reinvest in that architecture without [thinking about] all the potential deliveries of that architecture and finding out what additional volume I could drive off [that] architecture in the United States, the answer is probably no,” Mr. Marchionne said. “Architectures are expensive animals.”
Investment in the new 300 sedan was partially made before Chrysler filed for bankruptcy protection. The current version of the 300 platform, known as the LX, is also used for the Dodge Charger and Challenger cars.
Chrysler built 190,000 units of the 300 sedan when the model was at its peak around 2005. By contrast, the new version is only expected to sell 80,000 units a year. That makes the cost of developing a new version less justifiable on a per-unit basis, said Doug Shepard, an analyst with supplier consultancy AutomotiveCompass LLC. “It gets expensive.”
Chrysler is spending US$23-billion in development to refresh its product lineup and add new models. It is aiming to sell 2.8 million vehicles worldwide by 2014, more than double today’s level.
