Surowiecki on Chrysler

In the latest New Yorker, James Surowiecki looks at Cerebus’ purchase of Chrysler. He says that “legacy costs” are a problem, but not the only problem.

A 2006 report by the Harbour-Felax Group, a well-respected automotive-industry analyst, concluded that in 2005 Chrysler’s health-care costs were about eleven hundred dollars more per vehicle than Toyota’s. But even if that gap were closed Chrysler and other U.S. automakers would be far less profitable and would be growing more slowly than their foreign competitors. Ultimately, American manufacturers sell too few cars for too little money, and have to offer too many incentives—thousands in cash back or low-interest financing—on the vehicles they do manage to sell. That same Harbour-Felax report found that, on average, Japanese automakers’ profits for 2005 were twenty-nine hundred dollars more per vehicle sold in the U.S. than those of American automakers. And most of that profit comes not from lower production costs but from the Japanese automakers’ being able to charge more, because their cars are better designed and more reliable, and because their mix of products is smarter. Honda’s revenue per vehicle, for instance, was twenty-six hundred dollars more than Chrysler’s.

Posted by on May 31st, 2007 at 10:34 am

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