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Chrysler Group Announces Initiative to Reduce Material Costs by 15%

8 December 2000

Chrysler Group Announces Initiative to Reduce Material Costs by 15 Percent

    AUBURN HILLS, Mich., Dec. 7 Chrysler Group President and
CEO Dieter Zetsche today announced a two-step approach to reduce material
costs for vehicles and general services over the next two years, as the first
element of a comprehensive restructuring plan aimed at lowering overall
spending and improving efficiencies.
    "We are in a difficult business situation and we know the only way to
initiate change effectively is by working together," Zetsche said.  "The true
test of a strong relationship is measured during times such as these."
    In past years, Chrysler has asked suppliers for reductions of three
percent annually.  Instead of using this incremental approach, in Phase 1 of
this new initiative, the company is expecting all suppliers to reduce the
prices they charge for materials on vehicles and all general services by five
percent, effective January 1, 2001.  Under current circumstances, this
one-time decrease will cover the period, 2001-2003.
    In keeping with its Extended Enterprise(R) philosophy, in which the
company works in cooperation with suppliers from the design stage through the
manufacturing and delivery of vehicles, Phase 2 of the new initiative has the
company's engineers, platform teams, manufacturing and procurement managers
working closely with suppliers to identify an additional 10 percent cost
improvement over the two-year period, from 2001 through 2002.  These
activities are intended to be margin-neutral for the supplier base.
    "Our suppliers' ideas and innovations contributed to our becoming the most
efficient vehicle producer some years ago," said Tom Sidlik, DaimlerChrysler
Corporation Executive Vice President, Procurement & Supply.  "Now, in the
current business situation, we are counting on our supplier partners to stand
with our company in regaining this position in these difficult times.  We
intend to redouble our own efforts, as well as tap into our suppliers'
creativity and core competencies across all aspects of our business, in order
to ensure Chrysler's long-term viability."
    The overall initiative will be accomplished by working together with
suppliers to achieve the optimization of vehicle cost and content through
technology, parts commonization and re-design across all platforms (Jeep(R),
Truck, Minivan, Large Car, and Small Car).
    Phase 2 will be facilitated by a fast-paced and structured process, with
multiple teams of Chrysler specialists spending six-to-eight weeks in each
instance working with one or more suppliers on improving material costs.
Within one year, at least 150 supplier companies -- representing over
75 percent of the company's annual purchases -- will have completed Phase 2.
    Richard Schaum, Executive Vice President, Product Development and Quality,
said the company's product development teams are eager to continue
collaborating with the supplier base.
    "The pace of change in our industry is extraordinary, and it's never been
more important to work closely with our suppliers from product creation to
volume production to the showroom," said Schaum, who is also General Manager
of Passenger Car Operations.  "We have had excellent supplier relations over
the last 10 years.  With this relationship, we feel that implementing this new
process jointly with our suppliers will continue to provide our customers high
quality and innovative products at affordable prices."