Chrysler Cost Clarification: Stepalong Cassidy Rides Again!

by Robert Farago

Published: May 19th, 2008

chrysler cost clarification stepalong cassidy rides again

"It is disappointing to find that the media can’t seem to get the message straight. So, let me set the record straight. Not once in any public or private discussion have I ever suggested that suppliers would have to reduce pricing to meet the 25% cost out challenge without our mutual objective of protecting their profitability in dollars and percent. Our drive for cost reduction will only be accomplished with collaboration between Chrysler and our supply base. That simply cannot happen if it is not mutually beneficial. This is really simple. First, I want to take cost out of what is incurred by us and our supplier (25 percent target). Secondly, I want to share equally with the supplier on each stepalong the way. Schedule stability should drive significant savings for the supplier – potentialestimate of eight percent. So, after stable orders can be demonstrated, our supplier would saveapproximately 8 percent — giving us 4 percent and increasing their profits by approximately4 percent. In summary, aprogram that suggests that we will take the savings without having driven the cost out is doomed to failure before launch. That would be just another typical cost reduction effort that puts the burden on the suppliers without regard to the obligation we have as OEMs to find mutually beneficial solutions. I personally refuse to play that game. It simply will not help the survival of this once great American industry." John CampiChief Procurement Officer, “not czar” Chrysler LLC

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4 of 16 comments

Landcrusher on May 20, 2008

I couldn't help but note that he said nothing denying that they are pushing their suppliers to go off shore. Then, in the end, he talks about survival of the once great American industry. I guess they want to save the industry, but not have it still be American. I have no problem with that, except that they won't come right out and say it.

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Becurb on May 20, 2008
50merc : As for Mr. Campi, this gig at Chrysler is probably the best-paying job he’s ever had. That’s the good part. The bad part is Bob Nardelli is his boss. So I think Campi is dutifully playing the role demanded of him. I note he is a Home Despot veteran, so it may well be that he is a trusted lackey of Nardelli. If Campi "was disappointed the media could not seem to get the message straight", perhaps he needs to take more care in his press releases. Schedule stability should drive significant savings for the supplier – potentialestimate of eight percent. Hmmm. I wonder exactly how this is supposed to work? If the 'dog weren't doing a fine impression of "the ever shrinking dog", I could understand his assertion. However, given the direction Cryslerbus appears headed, I would have to think it the height of insanity to not cut their estimates around 75-60%, and bid the price on that volume. Still, I do not see it as a hedge against commodity costs, even in a foolish "lets make a year long buy now" type of deal. And, finally, is the 'dog doing anything about simplifying their parts inventory? That would be a cost savings right there, but it would require an engineering investment I don't see Cryserbus as willing to do. Bruce

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Hal on May 20, 2008

It seems the honest part of that statement is "this once great American industry." Someone will make money building cars in the US, it was never going to be pretty getting Chrysler to that point but I would have thought that the weak dollar, higher transportation costs and supply chain efficencies mean offshoring is unlikely for Chrysler's direct suppliers?

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Chris Haak on May 20, 2008
@thalter : It looks like someone is a secret TTAC reader…. While TTAC covered it, this site wasn't the only one that did. Automotive News picked up the initial coverage of the issue (as far as I am aware) on the cover of this week's issue. Anybody with half a brain saw that a 25% component cost reduction in a time of rising raw material prices is a pipe dream, or a sure ticket to supplier bankruptcy or suppliers turning down Chrysler's office of doing business with them because doing so means certain losses.

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