Chrysler Thinking Fast and Making Moves

The idea was a trademark Chrysler brainstorm. Since Japanese automakers were raising their prices in the U.S., why not fill the gap they were leaving with a domestic subcompact that would sell for less than $6,000? Practically overnight, the No. 3 automaker put together a bargain intended to give U.S. car buyers a pleasant form of sticker shock. The automaker slashed the price of its front-wheel-drive Plymouth Horizon and Dodge Omni by $710 and tossed in options worth $684 for free. Chrysler calculated that it could still make a profit, partly because it had long since paid off the costs of developing the Horizon and Omni, proven models that were first produced in 1977. Chrysler named the $5,799 package the America and unveiled it in May. At last count, the automaker had sold 123,978 of the cars.

The episode vividly reveals Chrysler's philosophy for the coming free- for-all in cars. It wants to be the automaker that can detect sudden opportunities and take swift advantage of them while rivals are still forming a committee to study the situation. The only surprise is that the latest bright idea did not come from Chairman Lee Iacocca, the man who hatched the comeback of the convertible in 1982. Instead, the America concept sprang from two of Iacocca's potential successors, Gerald Greenwald, chairman of the company's automaking division, and Harold Sperlich, its president. The automaker's stockholders will no doubt take it as a promising sign that Chrysler's top managers have learned how to think like Iacocca. When Chrysler's 62-year-old rescuer retires in the next few years, the company will have to get by without its most valuable asset.

Yet Chrysler (1985 sales: $21.3 billion) will head into that uncertain and highly competitive period in strong condition. The automaker is expected to post earnings of $1.25 billion for 1986, which will follow $4.7 billion in profits during the previous three years. The profit stream will enable Chrysler to devote a hefty $12.5 billion between 1986 and 1990 to developing new models and equipping old factories to produce them. During that time, Chrysler plans to rebuild aggressively its share of the auto market to nearly the level it claimed before the company's slide in the late 1970s. At Chrysler's 1987-model preview in September at Texas Stadium in suburban Dallas, Iacocca announced that the company aims to boost its share from 11% to 15% at the rate of about 1 percentage point annually.

The tricky part will be to increase manufacturing output by several hundred thousand cars a year without building any more factories. Chrysler remains cautious about undertaking new construction because it still remembers the overcapacity that smothered the company during the crisis years. Instead, Chrysler has been busy renovating old plants and even taking the unusual step of subcontracting its assembly work. When Chrysler officials took notice of unused capacity at an American Motors assembly plant in Kenosha, Wis., they hired AMC to start building cars like the Chrysler Fifth Avenue there. Chrysler has embraced high-technology equipment in its operations but has made the transition from the old ways at an orderly pace so that the new machines . function well. Boasts Sperlich: "Chrysler seems to be the one domestic company that has learned how to make its robots spray-paint cars instead of each other."

Chrysler's efficiency is widely admired, but some Wall Street analysts think the company should have a clearer long-term strategy for car development. The main complaint is that Chrysler still bases many of its autos on the same K-car chassis it first used in 1981, and evidently intends to keep doing so until the early 1990s. While that prevents Chrysler from making dramatic engineering changes, the continuity enables the company to keep costs low and quality high. Most of Chrysler's 1986 models were indeed carryover designs from the previous season, but this year the automaker came up with several fresh new vehicles on the K-car chassis. "There's our glory boy for '87," crowed Iacocca at the Texas Stadium show as he introduced the sleek, sporty LeBaron coupe (base price: $11,295). Other well received new models, introduced last summer, include the Dodge Shadow ($7,499) and Plymouth Sundance ($7,599) compacts.

One weak point in Chrysler's lineup has been a relative lack of large, high- powered vehicles, which have become hot items during the current economic expansion. In the early 1980s the automaker specialized in small, economical cars, but the markups on those models are slight compared with the margins on more expensive vehicles. "In the auto business, luxury and profits have become synonymous," says James Alexandre, who follows the industry for the investment firm Donaldson, Lufkin & Jenrette. To help fill its luxury niche, Chrysler is gradually buying control of the Italian automaker Maserati. The first jointly produced car, priced at about $30,000 and code-named the Q- coupe, will be shipped from Italy late next year.

Chrysler intends to keep up with the automotive space race by making several high-tech acquisitions. In August 1985 the automaker spent $642 million to buy Gulfstream Aerospace, a maker of business jets. Iacocca has since been interested in a friendly takeover of a defense contractor priced at $1 billion or less but has been unable to find a suitable match.

Yet the most nagging question is when Iacocca plans to relinquish the driver's seat. Sitting in his cluttered office and smoking an eight-inch Cohiba cigar given to him by the Italian Minister of Foreign Affairs, Iacocca answers the question by first conceding that he has slowed down a little. "I * can't take the pace around here anymore. Those 16-hour days are for the young crowd. It comes with age -- you slow down a step like the ballplayers." But Iacocca sees no reason why he should necessarily retire at 65, and none of his subordinates wants the job of telling him it is time to pack it in. And why would any car nut want to? As one automotive trade paper put it, the good old days are now.

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