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Publicis Marketing Intelligence: Chrysler

Publicis Marketing Intelligence: Chrysler Â

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Publicis Marketing Intelligence: Chrysler

Table of Contents

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Then and Now: A Snapshot!

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The New Chrysler: A Q&A!

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New Organizational Structure!

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Marchionne始s Philosophy, Management Style!

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The Key Challenges Facing Chrysler!

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Life After Bankruptcy !

8

The Toll on Dealers!

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Changing Dealer Relationships!

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Tackling Three Challenges!

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Not So Fast: Second Life for PT Cruiser!

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Forthcoming Innovations!

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Selling the Government on Future Prospects!

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Current Chrysler Model Lineup With Base MSRP!

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Current Jeep Model Lineup with Base MSRP!

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Current Dodge Model Lineup with Base MSRP!

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2010 and Beyond!

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Product Pipeline Lacking!

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The Electric Company: What始s in the Works!

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Sharing Resources!

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What Goes Around, Comes Around: The Dodge Challenger!

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And the Dodge Charger . . .!

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Thoughts on Ad Strategy !

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First Post-Bankruptcy Ads!

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BBDO on the Firing Line!

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Experts Chime In!

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Perceptions: How Chrysler Stacks Up!

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Taking a Chance: Tweaking Successful Formulas!

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The Influence of Fiat!

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Chrysler Marketing and Sales Organization Staff, July 2009!

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The Auto Crisis and Consumer Perception!

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Additional Insights!

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Selected Sources!

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Publicis Marketing Intelligence: Chrysler

Then and Now: A Snapshot In its 83-year history, Chrysler has come close to failing more than once. In 1979, the company went bankrupt before its chief executive at the time, Lee Iacocca, persuaded the government to guarantee $1.5 billion in loans. ! The Chrysler of yore was a swaggering place—agile and unafraid of taking chances. In 1998, Daimler (DAI) bought the company and over the next nine years managed to squelch much of the Chrysler esprit de corps. Two years ago Cerberus Capital Management gained control. Faced with a far worse market than anyone had predicted, Cerberus cut and cut— and then cut some more. ! Cerberus got Chrysler in a $7.4 billion deal. It then named former Home Depot executive Robert Nardelli as CEO. He succeeded Thomas LaSorda, who was named vice chairman and president. ! Recent sales figures offer the best clues to what will be saved or sacrificed. Chrysler is the nation's third-largest seller of light trucks (a category that includes minivans) behind General Motors and the Ford Motor Company. But it is now seventh-largest in cars, with half the market share of Hyundai.1 ! Nardelli left Chrysler as it came out of Chapter 11 to return to Cerberus. 3

In his goodbye e-mail to employees, Nardelli said: "What I have learned along the way is that Chrysler people have the resolute heart of a scrappy underdog; This is a company that has been knocked down many times, but never knocked out."2 ! Nardelli was succeeded as CEO by Fiat CEO Sergio Marchionne, whose first act was to reorganize Chrysler's management on a vast scale. C. Robert Kidder, the former chairman and CEO of Borden Chemical and Duracell, has become chairman of the newly restructured Chrysler. ! Chrysler's Chapter 11 bankruptcy reorganization allowed the automaker to get rid of 789 dealership contracts in one fell swoop, cutting its network to 2,400. ! Marchionne has said in interviews that with the right products, Chrysler could make money on its 11 percent share of the United States market, even if industry sales remained depressed. ''We are not asking for anything from Chrysler,'' Marchionne said. ''We're not going to take any of its money. We're offering platforms, engines and a distribution network outside of North America, in exchange for an equity position. Really, the risk is all on us.''


Publicis Marketing Intelligence: Chrysler

The New Chrysler: A Q&A Who owns Chrysler? Ownership is primarily divided between the health care trust for retirees of the United Automobile Workers union, which has 55 percent; Fiat, which has 20 percent, and the American and Canadian governments, which hold 8 percent and 2 percent, respectively. Eventually, Fiat's holding will grow incrementally to 35 percent. But it cannot take majority control of Chrysler until it repays money borrowed from the federal government. What is Chrysler called? The new name is the Chrysler Group L.L.C. It was previously Chrysler L.L.C. Who is running Chrysler? Fiat has management control of Chrysler, even though it is not the majority owner. Fiat's chief executive, Sergio Marchionne, is the chief executive. Robert L. Nardelli, Chrysler's previous chief, has left the company. The situation is similar to the relationship between Nissan of Japan and Renault of France, in which Carlos Ghosn, who was a Renault executive, took charge of Nissan. He serves as chief executive of both companies.Chrysler will also have a nine-member board, with three directors to be appointed by Fiat, four by the 4

Treasury, one by the Canadian government and one by the union health care trust. Robert Kidder will act as chairman. Will Chrysler sell stock? That is not clear. Ron Gettelfinger, the U.A.W.'s president, said recently that he wanted to sell the health care trust's holding as soon as possible, but whether actual shares will be available to the public has not been determined. Will Fiat sell cars in the United States? Mr. Marchionne told Chrysler employees that his company would soon begin moving technology, engines, transmissions and other components into Chrysler plants so that it can build smalland medium-size cars in North America. The company is working on bringing its Fiat 500 to the United States. What happens if I buy a Chrysler car now? The federal government backed the warranties of Chrysler vehicles while the company was in bankruptcy protection. That responsibility now falls to the Chrysler Group. Warranties on Chrysler models that were purchased before Chrysler filed for bankruptcy will also be honored, until the warranties expire. Consumers whose dealerships have closed can have warranty work done at another Chrysler dealer.3


Publicis Marketing Intelligence: Chrysler

New Organizational Structure

• Under Marchionne, there will be managers in charge of each brand, which is the usual style for Fiat. • The brand heads will act as customers to the other parts of the organization: engineering, manufacturing, sales and marketing and so on. Marchionne believes in removing layers of management and giving executives cross-functional responsibilities.4 • Further, Chrysler's three brands now have their own design heads. All report to Ralph Gilles, senior vice president of product design. The changes reflect the Fiat emphasis on design and strong brands. Further appointments in the three brand organizations are imminent, said a source familiar with Chrysler's planning. The three design heads are: Joseph Dehner, Dodge; Brandon Faurote, Chrysler; Mark Allen, Jeep • When Marchionne took over, he announced that Gilles would report directly to him, a change from Chrysler's previous setup. Under previous owner, Cerberus Capital Management LP, design had been a part of the product development organization and Gilles reported to Frank Klegon, the nowretired executive vice president of product development. • There is a practical element to Marchionne's new office digs as well. The dual-CEO wants to be near the product development group and accessible to his 23 top managers. Morale seems to be higher among salaried workers, who are energized by the new blood and have a better view of the speed of decision-making at the top of the company.5 • New Chrysler chairman Robert Kidder is chairman and CEO of 3Stone Advisors LLC, an investment firm that focuses on clean-tech companies. He holds an M.S., Industrial Economics from Iowa State University and a B.S., Industrial Engineering from the University of Michigan. He resides with his family in Columbus, Ohio.

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Publicis Marketing Intelligence: Chrysler

Marchionneʼs Philosophy, Management Style • Marchionne is not a micro-manager, but one area where he gets deeply hands-on: marketing, a discipline that Chrysler desperately needs to get right. Marchionne personally approves every ad and already has been meeting with BBDO, the automaker's longtime advertising agency.6 •As Marchionne bluntly put it in an interview with trade magazine Automotive News last December: "The world of today will not give (automakers) a single inch of room. Time is up." •An ex-Fiat executive said Marchionne hates two things: overlong slide presentations and needlessly detailed descriptions of a problem. At one Fiat meeting, Marchionne told an executive who had proudly finished an elaborate slide presentation: "I see you are good at PowerPoint. So what?" • Marchionne becomes Chrysler's new CEO while remaining CEO of Fiat Automobile and the Fiat Group that owns it. In an upbeat e-mail to employees, he said the challenges facing Chrysler are similar to those he faced—and overcame—at Fiat after he took over the company five years ago. • Fiat "was perceived by many as a failing, lethargic automaker that produced low-quality cars and was stymied by endless bureaucracies," Marchionne said. "But most of the people capable of remaking Fiat had been there all the time." • ''We're not doing this because we're good Samaritans,'' Marchionne told The New York Times. ''We're willing to take a risk on investing technology and time to help Chrysler come back to life and bring value to Fiat shareholders.'' • Whenever Sergio Marchionne talks about his latest calling, he likes to talk about Apple. • Since he took over as chief executive of Italy's Fiat in 2004, the chain-smoking Canadian Italian has used Apple as a model, focusing on the way Steve Jobs transformed it from an also-ran computer company into a global icon of cool. He encourages Fiat managers to take a close look at Apple's branding prowess and even asks them to benchmark their activities against the company. • His biggest success at Fiat is the 500—a tiny, very cool 21st century version of a 52-year-old Italian icon once driven by movie stars such as Marcello Mastroianni and Sophia Loren—which Marchionne calls "our iPod." • In a first-person account of the Fiat turnaround published in  Harvard Business Review, he talked about how he had abandoned the "Great Man” model of leadership that long characterized the Italian firm. Fiat's Great Man was the late Gianni Agnelli, grandson of founder Giovanni, whose family was nothing short of Italian industrial royalty and still controls the firm. • He's not a flashy dresser, sporting casual, open-necked shirts and spending his free time quietly with family by Lake Geneva.” • So what's his strategy? Marchionne is likely to hew closely to the playbook he used to revive Fiat. On June 10, the day Fiat sealed the deal, he announced a thorough organizational revamp. He reached deep into the ranks, bypassing the engineers and putting a younger, energetic generation of managers with marketing experience in charge of the brands. "That's a mirror image of what he did at Fiat," says a longtime Fiat executive. Next up: installing Fiat production platforms at Chrysler plants and using Fiat's sales network to sell Jeeps and other Chrysler models around the world. 6


Publicis Marketing Intelligence: Chrysler

The Key Challenges Facing Chrysler • Scale: Chrysler cannot afford to dedicate enough R&D to each product platform to maintain competitiveness, suffers from having a smaller supply purchasing base and amortizes its significant fixed costs over a much smaller base of vehicles than its competitors. • Quality: While the company is committed to improving quality, its current quality scores significantly lag competitors. Chrysler admits improving quality and brand perception will take a number of years. • Product Mix: Chrysler does not have product to cover the smaller car segments which are projected to grow in share of the overall car market and will struggle to meet proposed fuelefficiency standards. • Manufacturing: Chrysler has not invested significantly in common architectures and flexible plant manufacturing capacity, which will be critical to long-term profitability. Concentration: Unlike •Geographic many of its competitors, Chryslerʼs business is heavily weighted to North America, which makes the company more vulnerable to local economic fluctuations and less able to take advantage of developing markets. • Since the formation of Chrysler LLC, there has been a renewed effort to increase the quality and interior content of vehicles, although quality often takes many years to significantly improve and the perception of quality can lag still further. Importantly, current market research by independent experts does not suggest any significant improvement in customersʼ perception of Chrysler product quality. • Chryslerʼs scale limits its product development budget overall, and particularly limits the amount the company can spend developing each platform. Chrysler currently dedicates only 50% as many engineers to each platform, on average, as GM does. • Quality Ratings: Chrysler has low quality scores across all of its brands, and perceived quality lags the bestin-class OEMs (2008 IQS of 147 for Chrysler versus 105 for Toyota). Moreover, every single one of Chryslerʼs brands are in the bottom quartile based on JD Power APEAL scores. Finally, a recent Consumer Reports article listed Chrysler last in terms of the number of recommended nameplates in its portfolio (zero Chrysler nameplates were recommended). • Chrysler admits that about 40% of quality issues (IQS/100 vehicles) are design-related and are typically not addressed until a new product is developed. • Chrysler is planning to lift profitability by focusing on its more profitable truck and SUV segments. Given the potential variability in fuel prices, Chryslerʼs volume assumptions for these cars may be at risk. • Chryslerʼs product strength is in the pickup, SUV, and minivan segment—all of which are relatively low in fuel efficiency. On a standalone basis, Chrysler will struggle to comply with increasing fuel efficiency standards, and it may even have to restrict the sale of certain models to make sure it is in accordance with proposed standards. • In fact, the gap in perceived brand quality for Chrysler, Dodge and Jeep relative to their competitors has increased meaningfully over the last several years, suggestingChryslerʼs market share, if not for significantly increased incentives that have further eroded profitability, is even more vulnerable than history suggests. • In general, Chryslerʼs customer mix is skewed to a lower FICO score buyer (in the first quarter of 2008, approximately 34% of buyers were subprime or near-subprime), so the current financing environment disproportionately hurts traditional Chrysler buyersʼ ability to purchase a new car.7

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Publicis Marketing Intelligence: Chrysler

Life After Bankruptcy • On June 10, Fiat took management control of the Chrysler Group. The step came only 42 days after Chrysler sought bankruptcy protection. • Fiat initially will hold 20 percent of Chrysler, whose other stakeholders include a union health care trust, and the Canadian and American governments.8 • The question is whether Chrysler can survive long enough to get the Chrysler-Fiat models into U.S. showrooms.The Fiat CEO knows how to move fast. Fiat was on the verge of bankruptcy when he took over in 2004. He quickly laid off hundreds of executives and built a leaner team, including younger managers from Fiat's South American operations and its U.S.-based farm equipment subsidiary, Case New Holland. By last year, Fiat was back in the black and had one of the healthiest profit margins in the industry. "There used to be a joke at Fiat: The main thing they produced was organization charts," says Karl Ludvigsen, an independent auto consultant who was a Fiat executive in the pre-Marchionne era. 9 • The deal will also allow Fiat to re-enter the American market, from which it withdrew in 1984, and to eventually build Fiat and Chrysler models together on assembly lines in the United States and Europe. • During Chrysler's bankruptcy, Chrysler Financial Services was replaced by GMAC Financial Services as the primary retail and commercial lender for Chrysler dealers. • Marchionne expects "rational pricing" to return to the U.S. auto market in 12 to 18 months. "My expectation is that we will see discounting levels drop significantly over the next 12 to 18 months," he told analysts. He said the last 30 months saw a desperate chase for volumes at the expense of margins, leading to "unprecedented" discounting. The best way to protect margins is for dealers to have less than a month's worth of inventory. That, he said, "is something that we're dealing with at Chrysler today. Itʼs a necessary discipline." Chrysler has consistently been at or near the top of all carmakers in money spent on incentives. In June, Chrysler spent an average of $4,904 per vehicle, the highest among volume automakers.10 • If fuel prices rise above $4 a gallon again, the small-car segment could grow quickly, and Fiats could boost volume, revenue and perhaps margins. But high fuel prices would hurt sales of Chrysler's traditional strength: light trucks. Market analyst Tracy Handler of IHS Global Insight said U.S. small-car sales "are pretty small volumes" but could grow by 2011 when the first North American Fiat designs are built. "The volumes need to be big for Chrysler to survive," she said. "Will they be? I have doubts about that."11 • Over all, Chrysler's sales are down 46 percent so far this year, compared with the same period in 2008. Sales are down 51 percent for Dodge cars and 71 percent for Chrysler brand cars, compared with 37 percent for Dodge trucks and 41 percent for Jeep. (Across the industry, new-vehicle sales are down 37 percent.) 12

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Publicis Marketing Intelligence: Chrysler

The Toll on Dealers • An auto dealership averages 50 direct employees, according to the National Automobile Dealers Association (NADA) trade group. That's about 40,000 jobs at the 789 Chrysler dealerships closing, though some find jobs at their other dealerships or with the used car operations that some exiting Chrysler dealers plan to start. • Chrysler says it will redistribute inventories from dealers closing today to surviving dealers. Payments from the new seller and Chrysler will cover the vehicle, it says, though Chrysler will charge the old dealer $350 per vehicle to ship them. "They'll be made whole, other than the $350," Steven Landry, Chrysler executive vice president of North American sales and service told trade publication Automotive News. • This so-called over-dealered status hurts profit, automakers said, which in turn cuts into customer service and prevents upgrades to aging showrooms. That could hurt the brand image, making it less competitive. Ultimately, they argue, that leads to fewer sales and diminished profit.13 • According to Chrysler, the dealers being cut represent a quarter of its total distribution network but just 14% of its sales volume. Half of those stores moved fewer than 100 vehicles a year, and 83% of them sold more used than new vehicles. • In addition to the “hard” costs, there are soft costs that affect Chrysler Group LLCʼs corporate and brand reputations. When there are too many dealers in an area, the dealers are not as profitable as they could be, resulting in a reduced ability to invest back in the business, which ultimately affects a customerʼs perception of the dealer and the brand. • Too many dealers in a market drive down the prices on vehicles because they compete against each other for the sale, which negatively impacts dealers and the company, as well as residual values, which can hurt the consumer. • Retaining the best salespeople is key to both selling vehicles and providing the customer with an exemplary experience. It is difficult to keep top talent if they have the potential to triple their income at other manufacturersʼ dealerships. Average throughput at Chrysler LLC dealerships prior to the rejection was 405 sales annually. The U.S. average is 525.

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Publicis Marketing Intelligence: Chrysler

Changing Dealer Relationships • Chrysler has also made some critical changes to its relationship with dealers. David Hammer, owner of a Chrysler and Dodge outlet in Milford, New Hampshire, singles out an extension of the advance ordering period from 30 to 60 days. The move gives dealers more latitude to specify features that they think will be most in demand. "It allows Chrysler to work with the suppliers to build the cars that we want," Mr Hammer says. • According to Mr Hammer, Fiat has also pledged to allow dealers to keep lower inventories. The carmaker's two previous owners, Daimler and Cerberus Capital Management, came under fire for swamping dealers with vehicles to keep assembly plants running.14

Tackling Three Challenges • Step 1 for Marchionne was flattening the management structure to resemble Fiat's by creating a team of 23 managers with clearly defined responsibilities. All report to Marchionne. Management appointments are now largely complete, and each of the company's brands—Chrysler, Jeep, Dodge and Mopar parts— is responsible for its own success. • Step 2 is a product plan to strengthen those brands. • Step 3 will be emerging from Chrysler's self-imposed silence through its first 90-days postbankruptcy.15 • Ultimately, Marchionne he has said he wants to take Chrysler public, but that is not expected before 2011, and 2012 may be more realistic. • Jim Press, as the company's No. 2 and whose strength is in sales and marketing, did not gel with Marchionne, who has a hands-on approach to marketing.16 • The last two times Chrysler was sold—to Daimler-Benz in 1998 and to Cerberus Capital Management in 2007—its new owners promised nothing less than a remarkable renaissance for the smallest of Detroit's Big Three. Marchionne has no such grand visions for his company's prospective alliance with Chrysler. ''I think Chrysler has all the prerequisites to survive,'' Marchionne said. ''But the bigger issue is what does it look like two or three years from now? It's not as if Fiat is going to show up and Cinderella is going to be magically turned into something else.''17

Not So Fast: Second Life for PT Cruiser •The PT Cruiser, which initiated a batch of retro-styled vehicles at Chrysler, will live for at least another year. Marchionne says the company will keep building the PT Cruiser in Toluca, Mexico, reversing the automaker's plan announced in January. At that time, Chrysler had said it would stop production and put the line up for sale. •The PT Cruiser was introduced in 2000 as a wagon and in 2005 as a convertible. The convertible was discontinued in the 2008 model year. Since launching the PT Cruiser, Chrysler has launched the retro-styled Dodge Charger and Challenger muscle cars. • Jim Hall, an analyst for 2953 Analytics in suburban Detroit, says keeping the PT Cruiser around for a while makes sense: "It's a vehicle they sell that has no marketing cost. The tooling is paid off. There's no reason to drop it." • U.S. annual sales of the PT Cruiser peaked in 2001 at 144,717. Chrysler sold 50,910 in 2008 and has sold 8,591 this year.18 10


Publicis Marketing Intelligence: Chrysler

Forthcoming Innovations In its viability plan submitted to Congress, Chrysler outlined some of its current or planned innovations: • uconnect: this is Chryslerʼs umbrella for technologies addressing consumer need for connectivity and information. uconnect builds off of Chryslerʼs hands-free Bluetooth communication system, SIRIUS Backseat TV, and 30 gigabyte multimedia infotainment system with navigation and real-time traffic monitoring. • Dealer-installed Mopar systems now can turn a vehicle into a Wi-Fi hot spot. – As an example of a uconnect feature that is coming: a “smart” phone can be programmed to start the vehicle, adjust power windows and locks and set vehicle temperature. • In addition, an in-vehicle camera can monitor security of the vehicle. If a vehicle is lost or stolen, the phone can even disable the vehicle and locate it using satellite imaging. • Blind Spot Monitoring: introduced on 2009 Chrysler Town & Country and Dodge Grand Caravan minivans, this system detects a possible unseen vehicle when changing lanes. • Active Transfer Case and Front Axle Disconnect System: new on the 2009 Chrysler 300 and Dodge Charger, this system offers the efficiency of a two-wheel drive system and the safety and performance of all-wheel drive when needed. • Rear Cross Path: this system, available on 2009 minivans, notifies the driver of a car crossing their path when backing up.

Selling the Government on Future Prospects Chrysler makes its case for the future in the viability plan submitted to the government. Highlights: • Chrysler has continued to make substantial investments in new products and technology and will launch 24 new vehicles during the next 48 months – eight of these new products arrive in the next year and a half. Chrysler will renew more than 60 percent of its total sales volume in key market segments, with • vehicles that include the next-generation Jeep Grand Cherokee, Dodge Charger, Dodge Durango, Chrysler 300 and several exciting new small cars. • Electric drive will be a primary path to developing clean vehicles for all Chrysler product lines. Led by Chryslerʼs internal advanced alternative propulsion vehicle development team called “ENVI,” the company is making rapid progress and will have 66 ENVI advanced propulsion electric-drive vehicles in fleet service this year. • The first Chrysler electric-drive vehicle will be available for retail customers in 2010, with additional models in production by 2013.

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Publicis Marketing Intelligence: Chrysler

Current Chrysler Model Lineup With Base MSRP 19

✗ Chrysler 300

Crossfire

PT Cruiser

Sebring

$27,665

$35,705

$18,720

$23,780

Sebring Convertible

Town and Country

Pacifica

Aspen

$28,530

$27,160

$25,365

$35,580

Current Jeep Model Lineup with Base MSRP

? Commander

Compass

Grand Cherokee

Liberty

$30,160

$19,095

$31,230

$23.760

? 12

Patriot

Wrangler

Wrangler Unlimited

$18,170

$21,460

$23,815


Publicis Marketing Intelligence: Chrysler

Current Dodge Model Lineup with Base MSRP

Avenger

Caliber

Challenger

Charger

$21,665

$17,090

$22,945

$25,585

Grand Caravan

Journey

Viper

Dakota

$23,545

$21,600

$91,220

$23,300

Durango

Nitro

Ram 1500

Ram 2500/3500

$28,980

$22,985

$22,420

$33,185 / $40,325

The 2010 Ram Heavy Duty is pictured at left. Pricing Details not yet available.

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Publicis Marketing Intelligence: Chrysler

2010 and Beyond • Chrysler's best brand has been Jeep, but experts say its lineup also needs to be pared down. Sales of the Jeep Compass and Patriot, two crossover vehicles, fell by more than two-thirds in April. Both are built at the Illinois plant, along with the Caliber, whose sales are down 73 percent so far this year. • Among the changes for 2010 are the addition of entry-level versions of the Dodge Caliber, Jeep Compass and Patriot with a smaller 2.0-liter engine (2.4 liters was the smallest before) and fivespeed manual transmission to provide 23 miles per gallon in the city and 31 mpg on the highway for the Dodge, slightly less for the Jeeps. These represent an improvement in highway driving of 2 mpg for the Dodge and 1 mpg for the Jeeps. •The Caliber also gets an upgrade to its interior with soft-touch materials, a new instrument panel, center storage bin, armrests and other accents. •Jeep Liberty, Dodge Nitro and the light-duty Ram pickup have a system for 2010 that turns off the fuel during deceleration to increase fuel efficiency. The driver will know it is happening when the "eco" button on the dashboard lights up. •Much of the 2010 lineup, including all Jeeps, are equipped with the eco feature. The Dodge Journey gains 1 mpg in efficiency with a 3.5liter V-6. Many of the tweaks to the lineup make optional features standard. • Some vehicles come with a price cut, like the Dodge Caravan SXT minivan with a base price that is $2,180 lower for 2010. The new heavy-duty Ram pickup comes as a crew cab for the first time, allowing Dodge to play in the highest volume part of the market. It will be followed up for 2011 with a new fleet of commercial trucks, as the Ram 3500, 4500 and 5500 chassis cabs will debut. • The 2011 model year is when the Jeep Grand Cherokee with Chrysler's new Pentastar family of V-6 engines and the redesigned Chrysler 300 enter the market. The outgoing Grand Cherokee drops the top-of-the-line Overland model for this year. • The Jeep Commander remains in the lineup in what could prove to be the final year for the slowselling SUV. • The Chrysler brand will see changes to the creased hood on the Sebring sedan and convertible, which will be replaced with a conventional and smoother hood for 2010. New wheels complete the look. Inside, the gauges have been redesigned. • Chrysler's new management decided to keep the Dodge Viper and extend the 2009 model year. There are four new colors, including a "snakeskin green" and a new interior with tan Nappa leather seats.

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Publicis Marketing Intelligence: Chrysler

• Chrysler has continued to make substantial investments in new products and technology and will launch 24 new vehicles during the next 48 months – eight of these new products arrive in the next year and a half. • This means the Company will renew more than 60 percent of its total sales volume in key market segments, with vehicles that include the next-generation Jeep Grand Cherokee, Dodge Charger, Dodge Durango, Chrysler 300 and several exciting new small cars. • Electric drive will be a primary path to developing clean vehicles for all Chrysler product lines. • Led by Chryslerʼs internal advanced alternative propulsion vehicle development team called “ENVI,” the Company is making rapid progress and will have 66 ENVI advanced propulsion electric-drive vehicles in fleet service this year. • The first Chrysler electric-drive vehicle will be available for retail customers in 2010, with additional models in production by 2013.

Product Pipeline Lacking • Chrysler's in a tough spot right now. The beleaguered automaker survived the Daimler fiasco only to be picked up by an indifferent Cerberus team before ultimately ending up in bankruptcy court. Chrysler came out of those proceedings with a new dance partner in Fiat, and while the new company has a healthier balance sheet, a lack of funding has left the Pentastar with a nearly empty cupboard when it comes to new 2010 products. • In fact, Chrysler's new-product roster for the coming model year can be counted on one finger. The heavy duty 2010 Dodge Ram arrives with new sheet metal, a significantly improved interior, a new crew cab configuration, and upgraded gasoline and diesel engines. It'll eventually be followed by commercial versions, with model designations ranging from 2500 to 5500. • As for the rest of the lineup, Chrysler did the most it could with its limited resources. Among the running changes for the 2010 model year are an improved Dodge Caliber interior, an updated, smooth-hooded Chrysler Sebring (as if anyone's going to notice) and plenty of fuel economy-related updates. • The Dodge Nitro, Jeep Liberty and light-duty Ram receive a fuel cutoff feature during deceleration. The Dodge Caliber, Jeep Compass and Jeep Patriot add entry-level 2.0L four-cylinder models that deliver nominal fuel economy gains (2 mpg in the Dodge, 1 mpg in the Jeeps). The 3.5L Dodge Journey, a car that we'd all but forgotten about, will also see tweaks that will allow it to pick up an additional mpg as well. • Finally, Chrysler hopes to entice buyers by making previously optional equipment standard for 2010, while also adjusting pricing. The Dodge Caravan cost of entry has been lowered by $2,180 to $21,800, giving families a budget-priced option in the minivan market. Oh, and one last thing -- a limited edition Dodge Challenger SRT8 will be offered in Plum Crazy for 2010. Now that sounds genuinely interesting.20

The Electric Company: Whatʼs in the Works • Four electric prototypes are proposed: a minivan (Town & Country), two SUVs (Jeep Patriot EV and Jeep Wrangler EV), and a sports car (the Lotus-designed Dodge Circuit EV). The company will not comment on which model will be the first electric vehicle until it has decided on a battery supplier.21 • Rebecca Lindland of the research firm IHS Global Insights said there was no reason to keep making the Sebring and Avenger, which are among the worst-selling midsize cars on the market. The automotive blog Jalopnik.com last week labeled the Sebring as one of 10 vehicles that helped drive Chrysler into bankruptcy.

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Publicis Marketing Intelligence: Chrysler

Sharing Resources • Marchionne sees a lot of overlap between the Dodge and Alfa Romeo brands. “Dodge  is the American muscle car, while Alfa Romeo is the European muscle car. How we dovetail these two brands is very important,” said Marchionne according to an AutoCar report • The implication is that the Alfa Romeo brand would compete with Dodge if it were to be offered side by side, and so Marchionne is also believed to be considering selling all Alfas in the U.S. as Dodges.  • There are also reports that Fiat vehicles, not well-loved for their last stint in the U.S., may be  re-branded and sold as Alfa Romeos.  • Such a plan would sidestep the sticky issue of the Fiat brand reputation in the U.S. while still allowing an outlet for all brands both here and abroad, yet avoiding undue competition between brands.22 • And that's where the attraction lies.  Fiat isn't the first European make to try its hand at running Chrysler. In the late 1990s, Chrysler merged with Mercedes-Benz. The difference is, while Chrysler and Mercedes were able to cut costs by sharing some components, both companies were focused on large sedans, sports cars and SUVs - not the best models to have on hand when gas prices skyrocketed, the economy tanked and consumers moved toward smaller cars. • Fiat, on the other hand, makes small cars that have proven to be both popular in Europe and fuel efficient. By partnering with the Italian brand, Chrysler can have immediate access to small-car platforms and technology that will drastically scale back the time needed to launch smaller, more efficient models. And Fiat will gain a dealership network and access to the American market for its small cars. • What kind of cars could American consumers expect from Fiat if the merger goes through? One that many small car fans are waiting for is the Fiat 500. The cutely styled micro car slots right between the MINI Cooper and Smart Fortwo, and could steal sales from both.23

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Publicis Marketing Intelligence: Chrysler

What Goes Around, Comes Around: The Dodge Challenger

• The original Challenger  debuted almost 40 years ago.  The all-new  Challenger  has dramatic retro styling with front-end design cuts reminiscent of the original Challenger. From the side profile, a line carries the eye from the front to the tail. In the rear are dual stainless steel exhaust pipes. • Even the fuel tank door is made of stainless steel. Challenger sits on 18-inch wheels with 20 inchers on the SRT8. • On  December 3,  2007, Chrysler started taking deposits for the third-generation Dodge Challenger which debuted on February 6, 2008. Many of the "first delivery" Challengers were either pre-sold, or sold for above MSRP (as is often the case with a highly anticipated vehicle launch). It is a direct competitor of the Ford Mustang and forthcoming Chevy Camaro.

And the Dodge Charger . . .

• This retro-styled four-door sedan is still a styling hit after four years on the market. The Dodge Charger was one of the first of Detroit's modern reincarnations of the late 1960s muscle cars that scorched drag strips so many decades ago. The nostalgic appeal of the Charger runs deep and is only boosted by the tasteful modern styling updates. • The  2009 Dodge  Charger is bulky, as Edmunds notes that it is "based on the same Mercedesderived platform used for the  Chrysler  300 and [now discontinued] Dodge Magnum. As such the Charger has four and is a bit larger than the average midsize sedan."

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Publicis Marketing Intelligence: Chrysler

Thoughts on Ad Strategy • Some advertising experts say that GM and Chrysler will need more than ads to get people to buy their cars. Sue Parenio, an associate professor of advertising at Boston University, said the ads will have to do more than promise the companies will stay around—they'll have to also tout the quality of their cars. • ``GM brands and Chrysler need actual advertising strategies,'' Parenio said. ``I'm convinced that they've been operating without them for years and years. At the very least, they need to identify brand features and benefits.'' • Both GM and Chrysler skipped the Super Bowl this year—something that will have to change in the future, Parenio said. ``They need a full court press by running ads and commercials continuously,'' she said. • John Verret, a BU associate professor of advertising, also said that both car companies need to start offering something more concrete. ``I think one way to do it would be to hammer away at a warranty,'' he said. ``Give the consumer something they don't have right now, a reason to believe again.''

First Post-Bankruptcy Ads • “The whole purpose of the campaign is to let people know, yes, weʼre still out there for you.” The “We Build” campaign also includes five TV ads, two discussing restructuring and three featuring Chrysler, Dodge and Jeep products. The product ads focus on various Chrysler products in efforts to distinguish them from the competition. The Auburn Hills, Mich.-based automaker continues to work with its ad agency of record, BBDO, on the campaign, which also will have some online elements, Tinson says. • Chrysler addressed the first challenge with an advertising campaign starting May 3 that included print ads in 50 large U.S. newspapers, including the New York Times, Wall Street Journal and USA Today. “The tagline is, ʻWeʼre building a new car company, come see what weʼre building for you,ʼ ” says Jodi Tinson, Chryslerʼs manager of marketing communications.

BBDO on the Firing Line • The Auburn Hills, Mich., auto maker, which emerged from bankruptcy-court protection about two months ago, is tapping ad firms in addition to BBDO because it has grown dissatisfied with the agency's creative output, reports say. Chrysler is one of BBDO's largest clients. It spent $801.3 million on U.S. ad time and space in 2008, according to TNS Media Intelligence. Chrysler has pared back ad spending for much of 2009.24 • BBDO won national and regional creative duties for the Dodge, Jeep and Chrysler brands in a consolidation move back in 2000.25

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Publicis Marketing Intelligence: Chrysler

• Michael Accavitti—who moved to president-CEO of the Dodge brand following Chrysler's emergence from bankruptcy—is leading the process, as he's charged with overseeing all three Chrysler brands and is head of the new company's worldwide marketing organization. • Chrysler is consulting with Alix Partners, the corporate-turnaround specialists who worked with the automaker through its Chapter 11 bankruptcy, to help with the pitch. • Fiat is known to regularly call "jump balls" that pit a range of agencies one another for marketing assignments. • BBDO—whose contract with Chrysler is said to be up in January–is taking part in the jump ball for fourth-quarter creative and remains the lead on account management and planning, executives said. Media duties, handled by Omnicom's PHD, are not affected by the review.

Experts Chime In • Crisis management counselor Eric Dezenhall says Chrysler's recent ad may be a good start. "The advertising should paint a picture of the Chrysler of tomorrow--and how a new generation of consumers might benefit from it," he says. Other auto marketing experts agree. No campaigns featuring old Jeeps or vintage Dodges, they warn. The nostalgic approach some other marketers are using in the recession doesn't apply. "Chrysler's history is irrelevant during a bankruptcy," says Cameron McNaughton of TreeFarm Partners, who has run campaigns for Audi and Mercedes-Benz. The company "needs to make a promise to its employees and the American people and then keep it." For leading auto shopping site Edmunds.com, the answer lies less in promises and more in promotions. "Chrysler's best bet is the old standby of bigger incentives," says Edmunds CEO Jeremy Anwyl. Chrysler vehicles already sell for an average 18% below sticker, vs. an industry average of around 16%, according to the site.26

Perceptions: How Chrysler Stacks Up

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Publicis Marketing Intelligence: Chrysler

Taking a Chance: Tweaking Successful Formulas • While the road ahead remains bumpy for Chrysler, customers can expect a smoother ride from the '10 Dodge Ram heavy-duty pickup than from the outgoing model. The Ram 2500 and 3500, available for the first time in crew-cab configuration, features the auto maker's inaugural application of fluid-filled body mounts. Positioned under the C-pillar, the glycol-filled mounts are supplied by Cooper Standard Automotive and could migrate to other models as Chrysler realigns its postbankruptcy product strategy, insiders say. Why did Chrysler engineers try to refine the auto maker's iconic workhorse? Because market research revealed consumers have high expectations for comfort, regardless of the vehicle segment. When the auto maker launched a Six-Sigma project to guide the development of its new' truck, "ride quality came right up to the top," says Eric Keipper, manag- er-truck and powertrain noise, vibration and harshness.27

The Influence of Fiat • Fiat hasn't sold vehicles in the U.S. since 1983--and those were widely deemed unreliable. (Wags referred to Fiat as "Fix It Again, Tony.") Today, that reputation is out of date. In recent years, Fiat, though still not tops in quality, has emerged as a technology leader, especially in the kind of small, fuel-efficient cars that Chrysler needs. • After taking the reins at Fiat in 2004, Marchionne cut costs and boosted productivity, freeing up billions to get new technologies, including cleaner, more efficient engines and transmissions, into the market more quickly. He also pushed the company to engineer small cars that are among the best in the world. • Now he aims to merge that expertise with Chrysler's nascent electric-car program to make the combined company a global force to be reckoned with. • Those fancy new diesel models from Mercedes and Volkswagen? The underlying technology, which makes diesels peppier, less polluting, and more efficient, was developed by Fiat. But Fiat reaped little financial benefit: The company was so strapped for cash in the 1990s that it sold the license for the technology, known as common rail, to German auto parts maker Bosch. Marchionne is determined not to let such a thing happen on his watch. • For gasoline-powered cars, Fiat has developed a new technology called Multiair that it says will cut fuel consumption by up to 25% while boosting power and reducing harmful emissions by 10% or more. It will be launched this fall on Fiat's Alfa Romeo MiTo models and eventually the Fiat 500 minicar. Coming technologies include an automatic transmission that reduces fuel requirements by 10% and "flex" engines that switch between gasoline, methane, and other biofuels. • Marchionne told Chrysler staffers in June that over the next several months the newly combined company would begin "the process of transferring Fiat's technology into Chrysler's manufacturing facilities." The CEO vowed that Fiat innovations would give Chrysler "a strategic advantage around the world." • ''We have to get back to being metal bashers,'' Marchionne has said. ''We need to go back to some simple rules of making and selling cars.'' Marchionne, 56, has taken just such a basic approach to remaking Fiat from a bloated conglomerate into a leaner, more focused competitor in the European auto market. • In the United States, small-car sales soared a year ago as gasoline prices rose to more than $4 a gallon. But they have since fallen as fuel prices dropped by half. Chrysler hopes the small Fiat vehicles will: 1. Attract more entry-level customers to Chrysler at the bottom end of the market. 2. Grow to cover more of the market. 3. Burnish the environmental image of Chrysler brands. 20


Publicis Marketing Intelligence: Chrysler

Chrysler Marketing and Sales Organization Staff, July 2009

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Publicis Marketing Intelligence: Chrysler

The Auto Crisis and Consumer Perception Some findings from an Auto Pulse survey conducted by the Consumer Reports National Research Center using a nationally representative probability sample. Telephone interviews were conducted with 1,777 adults (18 and older) whose household owns at least one vehicle. Interviewing took place from July 30 to Aug. 3, 2009. • Ford has benefited the most from the recent turmoil in the auto market, with the largest gain in newcar buyers who say that they are likely to consider buying a Ford model—up 17 percentage points compared with a year ago. The respondents considering buying a GM model were up six percentage points, but those considering a Chrysler model were down 25 percentage points. • The most important considerations for todayʼs new-car buyers are fuel economy, quality,  safety,  price, and  value. Less important for most buyers are brand, environmental friendliness, or a manufacturerʼs stability as a company. • The Detroit 3 automakers have been in the spotlight all year, with Chrysler and General Motors going through heavily publicized bankruptcy proceedings. Despite public concern about the future of those companies, the vast majority of survey respondents—79 percent—say that they are likely to consider a model from an American brand when they buy their next vehicle. And 53 percent say they are very likely, compared with only 27 and 13 percent, respectively, who are very likely to consider an Asian or European brand. • People considering buying (Chrysler) models dropped a dramatic 28 percentage points among all respondents and 25 percentage points among new-car buyers. And with relatively few new models in the short-term pipeline, it may be some time before the restructured company can improve on the attributes that now matter most to consumers. • Among respondents who said that they were less likely to consider buying a model from a Detroit automaker, the top reasons given for Chrysler and Ford were that the companyʼs products arenʼt appealing. By contrast, the leading reasons for not considering a GM model were concern about the companyʼs future and the economic condition of the company.

Additional Insights • Chrysler wanted to spend $134 million in advertising over the nine weeks it's expected to be in bankruptcy—the U.S. Treasury's auto-industry task force gave it half that.28 • Of the $707 million the marketer spent in U.S. measured media last year, nearly $144 million was in national broadcast TV, according to TNS Media Intelligence. What will be the effect of Chrysler sitting out the upfront? An earlier analysis of TNS figures by Ad Age found that even the most exposed of the networks, Fox, received only about 1% of its dollars from Chrysler last year. • Ford Motor Co. saw sales jump 17 percent in August, a month marked by a buying frenzy created by the government's "cash for clunkers" program that encouraged consumers to trade in old vehicles for more fuel-efficient new ones. Chrysler Group LLC posted a 15 percent drop in U.S. sales in August compared to a year before, the company reported. August sales of new vehicles fell to 93,222 from 110,235 during the same month last year. They increased 5 percent from July of 2009.29 • Chrysler Group LLC has only one all-new vehicle for 2010 but is adding fuel-efficient versions of existing products and making more features standard in a lineup that must carry it through next year. The single new offering is the heavy-duty Dodge Ram full-size pickup. But the new Chrysler is hoping some pricing changes and fuel-efficiency increases will help bridge the gap until new vehicles arrive in 2011 and Fiat-engineered small cars are introduced.30 22


Publicis Marketing Intelligence: Chrysler

• The Caliber also gets an upgrade to its interior with soft-touch materials, a new instrument panel, center storage bin, armrests and other accents. Jeep Liberty, Dodge Nitro and the light-duty Ram pickup have a system for 2010 that turns off the fuel during deceleration to increase fuel efficiency. The driver will know it is happening when the "eco" button on the dashboard lights up.Much of the 2010 lineup, including all Jeeps, are equipped with the eco feature. • The new heavy-duty Ram pickup comes as a crew cab for the first time, allowing Dodge to play in the highest volume part of the market. It will be followed up for 2011 with a new fleet of commercial trucks, as the Ram 3500, 4500 and 5500 chassis cabs will debut. And the 2011 model year is when the Jeep Grand Cherokee with Chrysler's new Pentastar family of V-6 engines and the redesigned Chrysler 300 enter the market. • Chrysler's new management decided to keep the Dodge Viper and extend the 2009 model year. There are four new colors, including a "snakeskin green" and a new interior with tan Nappa leather seats. • The Chrysler Group LLC reversed course and agreed to accept product liability claims on vehicles built before the company's good assets exited bankruptcy on June 10. Those claims were left behind in "Old Carco" -- essential what is left of Chrysler LLC, and the only alternative was to file a claim as an unsecured creditor against the few assets the entity has, which means victims were likely to get little or nothing. "We want our customers to feel comfortable and confident buying, driving and enjoying one of our vehicles," John Bozzella, senior vice president for external affairs and public policy said in a statement late Thursday. "Chrysler Group vehicles meet or exceed all applicable federal safety standards and have excellent safety records." • All decisions now take into account how products for Chrysler and Fiat can be developed by sharing the best of both automakers. The first Fiat for the U.S. market, the 500, could go on sale by the end of 2010. • The automotive industry will have to wait another month or two for Sergio Marchionne and his team at Fiat to unveil their long-term plans for Chrysler. Fiat plans to unveil its five to 10 year strategy for sharing vehicle platforms and powertrains with its new US partner in October or November. Chrysler's board is due to be briefed at the end of September. •Among options under consideration is a new version of Chrysler's 300 sedan sold as an Alfa Romeo. The sporty Alfa 169 could also be built in North America. Fiat plans to produce its 500 mini-car in Mexico but volumes are likely to be modest. • In all of April, Chrysler sold just 2,685 of the Sebring and Avenger models combined. ''The market has pretty much killed those vehicles off,'' said Erich Merkle, an independent analyst. ''That's a segment that they needed to be competitive in but they just weren't.''

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Publicis Marketing Intelligence: Chrysler

Selected Sources 1

The New York Times, May 7, 2009 USA Today, June 11, 2009 3 The New York Times June 11, 2009 4 Automotive News, June 29,2009 5 The Detroit News, August 24, 2009 6 Business Week, August 12, 2009 7 This section: Whitehouse.gov, March 2009 8 The New York Times June 15, 2009 9 Business Week, April 16, 2009 10 Automotive News, July 27, 2009 11 Adweek, May 18, 2009 12 The New York Times, May 7, 2009 13 Los Angeles Times, May 15, 2009 14 FT.com, September 4, 2009 15 The Detroit News, August 24, 2009 16 The Detroit News, August 22, 2009 17 New York Times, February 3, 2009 18 Automotive News, July 6, 2009 19 x = to be eliminated, ? = future uncertain 20 The Detroit News, September 6, 2009 21 Hoover始s Company Profile, August 2009 22 Motorauthority, July 2009 23 US News and World Reports 24 Wall Street Journal, August 31, 2009! 25 Advertising Age, September 3, 2009 26 Business Week, May 18, 2009 27 Ward始sAuto.com, August 2009 28 Advertising Age, May 11, 2009 29 Detroit News, September 2, 2009 30 Detroit News, September 1, 2009 2

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