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Dr. Dieter Zetsche
President & Chief Executive Officer, Chrysler Group and Member of the Board of Management, DaimlerChrysler AG
Automotive News World Congress
Dearborn, MI
January 17, 2005
The Global Auto Industry: A “Post-Modern” Decathlon
Thank you and good evening to all of you. In addressing the theme of this conference, “Your Growth Imperative: From Vision to Execution,” I ‘m going to sound a bit like “Sports Illustrated,” because I’ll briefly discuss the global auto industry in the context of an analogous athletic event, specifically as a sort of “post-modern decathlon.”
As you all know, the concept of a contest in which athletes compete in multiple events was born in ancient Greece. It is said to have been the most popular contest of the original Olympic Games. (Unless, of course, you were a huge fan of chariot racing – a brutal combination of speed and demolition derby not totally unlike today’s NASCAR!)
The famous Greek philosopher Aristotle admired the multi-stage competition above all others, as he and other learned men of his day were strongly opposed to what they called overspecialization. Of course, the Olympic event has evolved over the centuries. In the ancient Games, it was merely a “Pentathlon” [pen-TATH-lawn] – the five events being discus; javelin; the standing long jump (accompanied by flute music!); sprinting; and wrestling. Today’s decathlon has ten track and field events, no flute music, and, thankfully, the contestants wear clothes! But, as much as the event has changed, the concept remains true to its original form. Namely, you must come in first or place high in every single event to ultimately come out on top.
I personally can’t think of a more fitting analogy to today’s global auto industry!
In the past, I think it’s fair to say that you could compete in the auto industry on just one or two strengths. You could excel in just styling, performance, production, quality or price and still stay in the game. The small British sports cars of the late 1950s and early 1960s, for example, were loved by customers for being fun-to-drive, but loathed for their lack of reliability. While you can probably still scrape rubber off of Woodward Avenue left by “muscle cars” back in the late 1960s or early 1970s, the memories of those cars through the “soft lens of time” do not include fuel-efficiency or high-speed turns. Yet, those vehicles – and many more like them – and the companies that built them were successful in their day.
However, they wouldn’t even begin to cut it today. In a sense, Aristotle’s two-thousand year-old critique of the “overspecialization” approach rings true across the ages! Today, in an industry that reflects the competitive elements of the decathlon, you have to execute in every single phase of the business and come out at or near the top in every discipline to win.
Indeed, any vision for success or growth – even survival – in today’s global auto industry, is pure hallucination if not supported by execution. Furthermore, modern elite decathletes often achieve results in the individual events that would have been competitive with (or would have even beaten!) top athletes who specialized in those events in years past. They do so by raising the bar on what’s acceptable performance. That means training and performing to a higher standard.
It all begins with the recognition that the competition has risen to a new level. Decathletes have to replace their old concepts about what it takes to win in terms of speed, conditioning, training and so on, with ones reflecting the challenge of ever-faster and ever-stronger competition. It’s very much the same in the global auto industry. We have to adjust our mindset, take our performance up a notch and consistently execute at a higher level.
Recognizing this, a few years ago at the Chrysler Group we introduced a simple “conceptual roadmap” in our company to help crystallize our vision of how we needed to elevate our game. It is, if you will, the “training program” we’ve used to drive our transformation and put ourselves in position to compete with the best. And I think it’s one that could be tailored to serve just about any automotive company.
We sharply focused our efforts on three basic dimensions:
o customer experience;
o operational excellence;
o and product leadership.
Virtually every one of the individual “events” critical to success in today’s industry … and there are more than 10, I can assure you … can be condensed into these three basic dimensions. We also drew a line in the sand to challenge ourselves to rank among the best in customer experience and operational excellence, and to strive for a leadership position in product, an area where Chrysler has traditionally been very strong. And to accomplish all of this in 2007 – just a few short years from now.
To get there, we knew that we would have to push ourselves hard and fast. Much like a decathlon, we recognized that we’ll have to finish at or near the top in every discipline to come out an overall winner. (It almost makes you think, with nostalgia, about the days when the big dilemma was how to deliver on just quality and cost at the same time.)
When we first went public with our objective to stand shoulder-to-shoulder with Toyota in operational excellence ... and to look Honda in the eye in customer experience ... and to achieve product leadership in the market against all comers (and to do it all by the year 2007) ... a lot of people in the media and on Wall Street thought that we were smoking something. I’m sure that we had our share of doubters among our supply base and even in Auburn Hills!
Along those lines, who, just five years ago, would have thought that Nissan would be where it is today?
Now, as we're well into our transformation with several years of improvement in our infrastructure – and, more importantly having launched several breakthrough products last year – it’s not so far-fetched. No doubt, we still have our work cut out for us. But I’m confident that we are on track to achieve our ambitious goals.
In the metrics that we use to define customer experience, we’re forging ahead. In quality, our new vehicle warranty costs, the best single indicator of quality, are down more than 34 percent since 2001. According to the 2004 J.D. Power IQS survey, we’ve sustained a double-digit rate of improvement in quality, notching an 11 percent increase in the IQS survey. Consumer Reports also gave our new models a strong vote of confidence, recommending more than one-third of Chrysler Group vehicles. It also found three-quarters of Chrysler Group vehicles to have “Average” or better reliability – better than the industry average.
It’s a good start. But it’s still just a start. We have a lot of hard work to do to match or beat the best, because we know how hard everyone in this industry is working to keep the quality benchmark a fast-moving target.
In the metrics that we use to define operational excellence, we’ve also made some good progress. In productivity, we achieved a second straight breakthrough year according to the 2004 Harbour manufacturing survey. At about eight percent, we’ve had the leading rate of improvement in the industry.
Having launched nine new products last year, we didn’t expect to sustain the leading rate of improvement in the industry. But we now know that we will show a significant gain in productivity with a rate north of four percent for 2004, which will once again, place us at or near the top for hours per vehicle (HPV) improvement in 2004.
In corporate and material cost reduction, we continue to innovate, leverage our global resources, and work with our suppliers to accelerate our initiatives.
In sum, we're now able to do more with less. For example, if you compare our year 2000 five-year product plan with our current plan, you'll see that we have reduced spending and investment by about a third, while increasing the number of new products we are developing by 50 percent. We have also reduced our capital expenditures by nearly 50 percent. Going forward, we're going to continue this trend.
It goes without saying that our suppliers, including Mike Burn’s Dana Corporation, are major contributors to the progress we’ve made in both “customer experience” and “operational excellence.” Much as we’ve pushed ourselves hard and fast, we’ve asked the same of our suppliers.
In fact, this is a point in which our auto industry “post-modern decathlon” differs from today’s athletic event. Our decathlon includes team sports.
Take OEM and supplier relationships, for instance. Throughout the auto industry, the biggest opportunity for driving competitiveness transcends the “classic” goals of continuous quality and cost improvements. It’s really about innovation.
Of course, every OEM wants to hear about suppliers’ ideas for new products, new technology, new delivery systems or new processes. We’re no different. But we also want suppliers that recognize unconventional opportunities – and that are willing to take risks to achieve growth. We’re continually looking for ways to develop flexible business solutions with our business partners – in ways that often break new ground.
A great example of this is the upcoming co-location of three suppliers in a new, on-site facility next to our Toledo North Assembly Plant. These suppliers -- one Korean, one German and one American -- will build and manage major body, paint and chassis operations, all within the footprint of our plant. It will be the first time suppliers will operate as an integral part of an American auto assembly plant -- but we hope it’s not the last. This is a win-win arrangement. For us, it optimizes capital for investment in future products and it gives us new, state-of-the-art processes. And our new supplier-partners have the opportunity to put new, innovative processes to the test.
Let me emphasize that innovative partnerships with small – and medium-sized suppliers are as critical to our success as those we form with large companies. A good example is Gentex, based in Holland, Michigan. Gentex supplies us with Electrochromic, or “self-dimming,” mirrors. As our customers have demanded improved technology, content and features in our vehicles, Gentex has worked closely with us, streamlining its development and manufacturing processes and continually developing new and innovative products. Because of the excellent relationship that has been developed and maintained between Gentex and the Chrysler Group, this supplier recently became a Tier One supplier to our sister company, Mercedes-Benz.
We’re interested in working with suppliers large and small to establish more innovative programs to create opportunities for our mutual success. We’re also interested in teaming up with other auto companies when it makes sense.
There are two current examples that I like to point to in this respect. The first example is our Global Engine Manufacturing Alliance. GEMA is a Joint Venture company formed by DaimlerChrysler, Hyundai Motor Company and Mitsubishi Motors Corporation. Its purpose is to manufacture a family of engines that feature world-class technology, performance and efficiency, while achieving scale economies that minimize investment. GEMA will have plants in Asan and Hwasung, South Korea; Shiga, Japan; and two in Dundee, Michigan. There’s as much innovation in the GEMA business model as there is in the motors themselves!
The second example is our recently announced cooperative effort with General Motors. We will jointly develop a state-of the art two-mode full hybrid propulsion architecture for applications in GM, Chrysler Group and Mercedes Car Group vehicles. Our goal is to combine our expertise to bring to market a hybrid technology that will lessen the impact on the environment, improve acceleration performance, while also significantly improving vehicle fuel economy and range. We believe that by combining the hybrid development efforts of DaimlerChrysler and GM we will position our companies as leaders in this technology – while sharing the capital investment and risk and leveraging economies of scale.
We’ve also structured the program to allow for additional automotive partners. And several auto companies (that will, for now, remain nameless) have already expressed an interest in joining us. I anticipate that we’ll see an increasing number of such “odd bedfellows” relationships develop across the auto industry in the years ahead.
PSA Peugeot Citroen, for example, which recently unveiled the small cars that resulted from their collaborative effort with Toyota, has now turned to a new partner, BMW, to develop and build small-car gas engines and to Ford to build diesel engines. The list of such efforts is growing. And it’s a healthy trend given the ever-rising level of global competition.
So, while this modern auto industry decathlon requires peak performance across a wide span of individual and team disciplines, it ultimately demands your finest performance in the feature event. In our industry, that feature event is, of course, product. (I’m convinced that my epitaph will one day read, “It all comes down to product!” And that’s OK by me.)
So, while every competitor in this industry will fight to rank among the best in the categories that I’ve loosely described as customer experience and operational excellence, the game is ultimately won on product. That’s how our company has historically gotten back in the game after falling on hard times. That’s how we at the Chrysler Group began to climb back into the ring in late 2003. It’s how we really got back into the fight in 2004. Namely, on the strength of our most aggressive launch schedule in the 80-year history of our company.
From our Stow-‘n-Go minivans to our new Grand Cherokee and Dakota, we’ve been honored with a number of product awards and accolades. The HEMI engine is hot in any product -- even in a Mopar crate. We were especially pleased when the Chrysler 300 won the 2005 Motor Trend Car of the Year, and, just last week, the North American Car of the Year!