MRO Magazine

Chrysler, Fiat CEO says reducing costs key to competing with Chinese rivals

Montreal, QC -- Western automakers can only compete with eventual low-cost Chinese rivals by reducing labour costs and standardizing platforms and parts, according to the CEO of Chrysler and Fiat.

Montreal, QC — Western automakers can only compete with eventual low-cost Chinese rivals by reducing labour costs and standardizing platforms and parts, according to the CEO of Chrysler and Fiat.

Sergio Marchionne said it is no longer sustainable for unionized workers to be paid using the current formula for steady pay increases no matter how poorly a company is performing.

”We need to introduce a viable, significant portion of overall compensation to our workers that reflects how well the business is doing,” he said during a news conference after speaking to a Montreal business group on Oct. 7, 2011.

”And if the business is doing really well, they ought to be overly compensated for what’s going on.”


He said the single biggest driver of cost reduction, however, is standardizing the automobile architecture, powertrains and components. That includes heating and air conditioning systems, suspensions and other large parts of a vehicle.

Marchionne said he hopes a new collective agreement can be reached with workers in the United States in the coming days without resorting to binding arbitration.

Workers gave up the right to strike as part of Chrysler’s bankruptcy restructuring in 2009.

The UAW reached agreement this week with Ford Motor Co. that gives veteran workers at least US$16,000 in bonuses. The deal with General Motors was slightly less generous.

Given its own financial predicament, the agreements ”may be overly generous at least at the beginning phase of the process,” he told reporters.

Chrysler, the smallest of the so-called Detroit Three, is in a more precarious financial position.

In May, it repaid US$7.6 billion of loans to governments in Canada and the United States, six months ahead of schedule.

Marchionne predicted that the number of global automotive companies will eventually shrink to five or six giants, including potentially several from China.

Western manufacturers need to adapt their scale to effectively compete with Chinese-owned rivals that will have huge domestic markets and low marginal costs.

”As a producer, you cannot be small and cute and compete, you’re going to get killed.”

He said western companies need to get their act together before Chinese manufacturers begin to target Europe and North American motorists.

”It’s a great future if we know how to manage it, if we butcher this it will be very painful,” he said in response to audience questions after his speech to the Italian Chamber of Commerce of Canada.

Marchionne also applauded efforts in Quebec to establish an electric vehicle charging grid.

He said such efforts can’t be left to car companies, which neither have the means nor the wherewithal.

Vehicle electricification will eventually come in some form, although he believes a hybrid offering is most likely because of the limited application and costs of completely electric cars, he told reporters.

Marchionne said Fiat’s Iveco Irisbus is also in discussions with Montreal to test a hybrid business.

Earlier, Marchionne said European car companies should follow the example of North America’s automotive industry, which is on the path to recovery after removing excess capacity that hindered its growth.

Marchionne said bailouts by the Canadian and US governments in 2009 provided the industry an opportunity to tackle the chronic problem of production overcapacity.

”In Canada and in the US, overcapacity is no longer a problem. We have taken every ounce of unnecessary capacity out of the system,” he said.

By working together, industry, governments and trade unions helped to overcome the structural impediments that have long dragged down the sector.

About 96 million vehicles are built annually, at least 20 million to 25 million more than the market can realistically digest, he said.

Meanwhile, Marchionne said Europe has unfortunately not come to grips with inefficiencies to accept that the realities of competition go beyond national borders.

Instead of radical restructuring, European governments have provided direct financial support to national players in a blatant contravention of the Treaty of Rome, which established the European Economic Community, he said.

Marchionne says time is running out for European carmakers which will record this year the lowest growth since 1982.

Although an advocate of the free market, Marchionne said he’s had to defend government funding over the past 2-1/2 years.

”Without intervention from elsewhere, the almost inevitable collapse of the industrial sector would have been irreversible with obvious consequences for hundreds of thousands of families and the economy as a whole.”

Neither Fiat nor Chrysler would have made it on their own, Marchionne said.

Together they are going to sell nearly 4.2 million cars this year, making it the fifth largest automaker in the world. By 2014, that number should reach 5.9 million units.