1.

0 CASE SUMMARY

Chrysler’s future may be uncertain, but its past is full of notable moment. Since

Chrysler’s start in early 1900s, they have held a substantial amount of respect and leverage

within the automobile industry. After long journey in the automotive industry passing by

highlights of failure and others of success they encountered a tricky financial situation.

Chryslers has been caught up by some bad decision while they are struggling for survival. A

few changes in management also influence the decision making of Chrysler especially after

merging with Daimler where there are a lot of problem arises.

Chrysler have introduce several car model design in 1934 where it introduce

aerodynamic automobile but it does not get much response during that period of time. In

1950, Chrysler has become popular by introducing the HEMI engine, power steering, power

window, fuel injection and other product. In 1973 Lee Iococca has become the CEO of

Chrysler where he introduce Dodge Caravan and Plymouth that gives a huge success to

Chrysler’s sales.

In 1998, Chrysler forms merger of equal with Daimler which is a German automaker.

These merge does not found to be successful and Daimler eventually take over Chrysler. Upon

taking over Chrysler, the Daimler management which emphasize on bureaucratic have cause

come cultural difference problem within the organization. Furthermore, Daimler runs the

Chrysler separately from its luxury Mercedes Benz.

On May 2007, Daimler sells 80.1% stake of Chrysler to Cerberus and Crysler has

become Chrysler Motor LLC. Nardelli was appointed as the CEO of Chrysler. In 2008 Chrysler

have asked for financial aids the company is facing Global Crisis 2008. Chrysler also have

done major restructuring to cut cost in 2009. Nardelli have request for US$9 billion in order
to restructure and achieving long term viability of its operations. U.S government have agreed

to give Chrysler the loan with one condition that is Chrysler must merge with Fiat. On May

2009, Chrysler has filed for bankruptcy and reach a global strategic alliance with Fiat. Sergio

Marchionne has become the new CEO of the alliance and remain positives that he will be able

to run both Fiat and Chrysler.

2.0 SWOT ANALYSIS

2.1 Internal environment analysis (Strength)

 Financial Support from the Government

.In January 2009, Chrysler has obtained US$4 billion from the US government after Chrysler has

request for US$7 billion during its struggling period. On April 2009, the US government also has

make a deal with Chrysler to make an alliance with Fiat in order to get additional loan as Chrysler

has requested an extra US$2 billion above US$7 billion for long term restructuring. In the past also

Chrysler has been helped for financial aid by former U.S. President Jimmy Carter in 1979. This

indicates that Chrysler has a strong relationship with the U.S. government.

 Efficient in Managing Cost

Major restructuring plan of Chrysler such as discontinued four vehicles models, eliminate 12

production shifts have improves the cost competitive.

 Form Alliance with Fiat

According to Nardelli, by forming alliances with Fiat Chrysler can enhance more global strategic

alliances. Furthermore, alliance with Fiat also make Chrysler the availability of powertrain

technology, worldwide distribution capabilities.

 Established Brand Name

Chrysler is one of the most popular automotive manufacturer in the industry. Chrysler developed

the Firepower, the first hemispherical-head V8 engine which later become popularly known as HEMI

engine. Furthermore, Chrysler become more popular with the introduction of power steering, power
window, electronic fuel injections and others to the market. Even the U.S. president Barrack Obama

have acknowledge the alliance of Chrysler and Fiat is a good thing.

 Good Negotiation Skill

Chrysler top management has a very good negotiation skill where they has negotiate successfully

with UAW and CAW to reduce cost..

2.2 Internal Environment Analysis (Weakness)

 Lack of Innovation

Chrysler remained focus on SUV and trucks only and come out very little innovation in producing

new car. This cause Asian manufacturer to be in leading as they focus more on consumer

preference. Lack of innovation also due to the Chrysler poor investment in Research and

Development as Chrysler focus more on cost cutting. Chrysler was once perceived as a good

innovator because they have come up with a lot of innovation such as power steering and power

window.

 High Debt Burden

Chrysler has a very high debt burden until Chrysler have to fail for bankruptcy protection. Although

Chrysler has done major restructuring yet it still suffers from poor sales and debt burden.

Previously, Chrysler also face some high burden under Iacocca but manage to overcome the debt

by emphasizing on manufacturing Dodge Caravan and Plymouth Voyage.

 Poor Decision Making

Some analyst criticize the decision of Chrysler to merge with Daimler because they perceived that

Chrysler was generating more profit and doing well at that time. Furthermore, Chrysler have an

opportunity to buy Daimler but instead they form a merger of equal and then eventually sold it.

 Tarnished Reputation

Due to major revamp and restructuring, Chrysler have produced low quality cars whereas Asian

car like Toyota and Honda produced a high quality and good performance car. This have created
 a negative impression on Chrysler.

 Employee Demotivated

Frequent change in management has given impact to the employee as they need to frequently

adapt to the new change that has been brought up by new management. For example, when

Daimler take over the management, the employee have to adapt to the Germans style

management culture that is more bureaucratic compared to American culture that values

efficiency, empowerment, creativity and informal relationship among employee.

2.3 External Environment Analysis (Threat)

 New Advance Technology

Chrysler have an outdated technology as compared to the Asian manufacturer. Asian

manufacturer can come up with small and efficient car along with the customer preference for

these design of car.

 Global Financial Crisis

Chrysler has survived the period of Great Depression and 2008 Financial Crisis but the impact on

the crisis still can be seen by the manufacturer. The Global Financial Crisis 2008 have affected

the automotive industry with great impact because the crisis initiated from U.S. With the high

debt and fail for bankruptcy protection, it is still a doubt that Chrysler can survive another Financial

Crisis.

 Bargaining Power of Consumers

There are a lot of car manufacturer with high level of competition in automotive market that

creates more option for the customer. This will cause the customer have high bargaining power.

Automotive manufacturer that produce vehicle according to the customer preference will generate

more profit and increase in sales.

 Threats of Substitute Products

Automotive industry has wide range of substitute product in the market. During the fuel price
 hike the customer prefer a small and fuel-efficient car. Chrysler have only big cars and not fuel

efficient meanwhile Asian car manufacturer has these kind of car. Thus, the Asian manufacturer

car has become a substitute to the Chrysler’s car.

 Threats from Competitor

Chrysler have a lot of internal and foreign competitor like Chevrolet, Nissan, Toyota, Honda and

Volkswagen. Different automotive manufacturer have different strategy to market their product

and manage cost efficiently.

2.4 External Environment Analysis (Opportunity)

 Demand for New car Model

The demand for new car model is always preferred by the customer. A new car model that satisfy

the customer need is important in order remain in the market. Customer desire and preference

change according to the current change of the environment..

 Environmental Pollution Awareness

Severe environmental effect on global warming and other environment destructive event has been

opposed by the consumer. Increase awareness in preserving the environment has led to new

opportunity to the entrepreneur to come up with product that is environmentally friendly.

 New Global Market

Alliance with Fiat creates an opportunity to Chrysler to expand their market globally and come up

with new global strategic alliances.

 Bargaining Power of the Supplier

Chrysler has previously initiates dialogues with the suppliers to reduce substantial cost during their

cost restructuring period. This can be an advantage of Chrysler to manufacture a vehicle with

lower cost.

 Limited New Entrant

High competitive automotive market often demotivate the new entrant from entering the market.
2.5 EFE Matrix and IFE Matrix

2.5.1 Internal Factor Evaluation Analysis (IFE Analysis)

Strength Weight Rating Weighted Score

Financial Support from Government 0.10(15%) 3 0.30

Efficient Cost Management 0.10(10%) 2 0.20
Form Alliance with FIAT 0.10 (10%) 2 0.20
Established Brand Name 0.08 (8%) 2 0.16
Good Negotiation Skills 0.08 (8%) 3 0.24

Weakness
Lack of Innovations 0.15 (15%) 2 0.20
Employee Demotivated 0.07 (7%) 2 0.14
Poor Decision Making 0.10 (10%) 3 0.30
Tarnished Reputation 0.10 (10%) 3 0.30
High Burden Debt 0.12(12%) 2 0.24
Total Weighted Score 1.0(100%) 2.28

The ratings in IFE matrix refer to how strong or weak each factor is in a firm. The

numbers range from 4 to 1, where 4 means a excellent strength and 1 is major weakness.

According to the analaysis, the total weighted score is 2.28 which is below 2.5. It means that

Chrysler has some weakness internally and worse than other rivals. They must improve their

internals if they expose to competitors in future.

2.5.2 External Factor Evaluation (EFE Matrix)

Opportunities Weight Rating Weighted

Score

Demand for New Car Model 0.15 (15%) 2 0.30

Environmental Pollution Awareness 0.08 (8%) 2 0.16
New Global Market 0.09 (9%) 2 0.18
Bargaining Power of the Supplier 0.06(6%) 3 0.18
 Limited New Entrant 0.06 (6%) 2 0.12
Threats
New Advance Technology 0.12 (12%) 2 0.24
Global Financial Crisis 0.05 (5%) 2 0.10
Bargaining power of consumer 0.15 (15%) 2 0.30

Threats of Substitute Products 0.12 (12%) 2 0.24

Threats from competitors 0.12 (12%) 2 0.24
Total Weighted Score 1.0(100%) 2.04

It should be noted that the highest possible total weighted score of a firm is 4 whereas

the lowest possible total weighted score is 1. If a company get the highest weighted score, it

means the company is effectively taking advantage of the existing opportunity as well as has

the capacity to minimize the risk. In the contrast, if the total weighted score is 1, it means

that the company is not able to take good advantage of current opportunity and avoid risks.

In the case of Chrysler, the total weighted score is below average 2.5 which means that the

company is not performing well, the company strategy is not really effective. Thus the ability

of Chrysler to take advantage of current opportunity and avoid potential risks is weak.

2.7 Competitive Profile Matrix (CPM)

Chrysler Toyota

Critical sucess Weighted Rating Weighted Weighted Rating Weighted

factors Scores Scores

1 Research and 0.25 2 0.50 0.25 4 1.00

Development

2 Competent 0.15 3 0.45 0.15 3 0.45

Employee

3 Organizational 0.15 3 0.45 0.15 3 0.45

Efficiency

4 Product Quality 0.25 2 0.50 0.1 4 1.00

 5 Financial 0.20 1 0.20 0.20 4 0.80
Strength

1 2.10 1 3.70

The CPM matrix shows how the competitive advantage of a company compare to other
competitors is. It is obvious that the highest weighted score get, the stronger the competitive
advantage is. In the case of Chrysler, the weighted score is much lower than Toyota and KFC
which means that Chrysler has weak competitiveness.

3.0 LIST OF PROBLEMS AND PROBLEM STATEMENT

3.1 List of Problems

3.1.1 Lack of Innovation

Chrysler having a very high debt that it cannot focus on the development of new

product. The world is changing and lack of new model can become an advantage for the

competitors. Chrysler only focus on the SUV and trucks whereas their competitor have come

with new models that satisfies the customer needs. During the oil price hike, the demand is

for the small and fuel efficient car. Asian manufacturer like Toyota and Honda have come up

the new model but Chrysler unable to come up with the new model because lack of investment

in the R&D.

3.1.2 High Debt Burden

Chrysler is facing a very high debt from the U.S government loan. Chrysler also have

file bankruptcy protection under Chapter 11 as the amount of debt is hike up. Chrysler have

survive a few crisis before like the Global Financial Crisis but the impact is still very high. It is

still doubtful if Chrysler could survive another similar crisis in the future if the situation remains
the same. According to Karl Brauer Fiat taking over Chrysler is a huge gamble because

Chrysler have been losing money for years.

3.1.3 Poor Decision Making

Analyst believe that Chrysler have been made a few fault decision such as merging with

Daimler. Chrysler was doing very well on the time they form a merger of equals with Daimler.

Furthermore, Chrysler can buy Daimler that time rather than for a merge that eventually cause

Daimler to take over Chrysler. The consequences of this decision is employee become more

demotivated because they need to adapt to the new management with different culture.

Analyst also criticise the decision made by Daimler to separately run Chrysler from its luxury

Mercedes Benz. By doing this Daimler does not take advantage working together with Chrysler

to produce vehicles.

3.1.4 High Competitive Market

Automotive industry is a very high competitive industry where new entrant unable to

enter into this market. High competition between the automotive manufacturers cause the

customer to have more variety of choice that can be a substitute. This has create the

bargaining power of the customer and the automotive industry has to satisfy the customer

needs in order to stay competitive in the market. Chrysler has many competitor in U.S and

from foreign country like Toyota, Honda and Nissan.

3.2 Main Problem Statement

The Fundamental for all the problem can be deduce to inability to react to customer

demands and industry changes. The cause of all the problem that has been listed above is

mainly due to Chrysler fails to meet customer preference. Furthermore, Chrysler also become

a victim of fast changing automotive industry. The problem for Chrysler is a going around a
cycle. The design and certain model that has been produced by Chrysler does not meet the

preference of the customer. This causes the sales of the product decreases and Chrysler in

high debt. Competitor has fulfilled the customer preference and give them a high bargaining

power. For example, Asian manufacturer come up with small and fuel efficient car whereas

Chryslers stick to large cars due to lack of allocation for Research and Development.