By November 27, 2006 1 Comments Read More →

Chrysler’s Waste of Overproduction

My dad alerted me to this article from Automotive News. It’s not available free online, I have a pdf copy that I could post or email if you really want to see it (trying to avoid a cease-and-desist from them). I’ll do some cut and paste. The whole article is really a pretty shocking example of the waste of overproduction and just some silly non-lean practices. The “sales bank” sounds as bad as the “jobs bank.”

Dealer Thomas Vann has been sitting on 13 Chrysler Town & Country and Dodge Grand Caravan long-wheelbase minivans since June, when he bought them from Chrysler’s sales bank.

Vann, owner of Team Hillsdale Chrysler-Dodge-Jeep in Hillsdale, Mich., says he can’t get rid of the vehicles. As with other sales bank vehicles, Chrysler built the base-level minivans with no dealer orders, then shipped them to holding lots and sought dealers to buy them.

Vann describes the vehicles as “weirdly packaged minivans.” “There are no (lease deals), no keyless entry, no key fob, no power front chair,” he says. “People say, ‘I don’t want that. I’d rather get the megapackage.’

So Chrysler built vehicles with no end customer in mind and without dealer orders. They built vehicles with weird specifications that customers don’t want. This is the year 2006 and Chrysler is led by a lean guy, Tom LaSorda? I would expect better from Chrysler, really.

This is why the great Tom Peters, I believe it was, said the auto industry is the only industry that has to bribe customers (through incentives, rebates, and financing) to take a product that wasn’t exactly what they wanted.

Some examples of the bad configurations that are rotting on dealer lots:

  • Loaded Chrysler Aspen Limited SUV with no navigation system
  • Base-level Grand Cherokee with V-8 engine (V-6 sells better)
  • Base-level 2006 Grand Caravan SE that costs more to lease than loaded 2007 SXT

I can see where people with the loaded SUV would also want the nav system. Why would you want a cheaper minivan at a higher price? It’s not just an overproduction issue, but having prices that are out of line with how the market values products.

You might ask, does Toyota build everything with a dealer order? Nope; they level production which means sometimes producing without an order. but they understand the customer better and in those circumstances only produce stuff that will easily sell (essentially).

So Chrysler things they can move these?

Chrysler spokesman Kevin McCormick said: “While there may be vehicles out there with less than perfect configuration, our dealers are great people, and we do believe they can find the right customers for those vehicles.”

Good luck dealers! Time to visit PT Barnum Chrysler Dodge for some screaming deals on leftover ’06’s!! So why would Chrysler build these vehicles other than not knowing their market or having too much confidence in their dealers (along with not enough fear of making the dealers mad)? An analyst says:

One reason oddly equipped vehicles are built is that automakers make commitments to suppliers to purchase certain quantities of components they think they need to use, he adds.

Now, even the build-to-order king Dell has to make commitments to suppliers well in advance (partly due to the long lead times from Asia, but that’s a different story). When Dell has excess components, they use pricing and incentives to push the excess on customers, but they still only build product AFTER the customer has ordered it.

Why would Chrysler feel the need to use the excess parts? Wouldn’t it be better to eat some relatively cheap components instead of building a whole unwanted vehicle around those excess parts?

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an book titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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1 Comment on "Chrysler’s Waste of Overproduction"

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  1. Stephen says:

    I would love to see the PDF format of this. I am currently fighting Chrysler financial due to their lack of business skill and overproduction. I was the owner of a Hemi Ram 1500 which dropped in value so rapidly that the dealerships wouldn't take it back on trade. So I dropped off the truck and the keys and stopped making payments. I knew eventually the vampires would show up wanting their blood but I have refused. I am now going to look into a class action suit for all Dodge customers who have found themselves in the same situation. Their overproduction and fat cat mentality brought me a 21K trade in value on my 51K dollar (CDN) purchase two years before. And to add insult they are now using my tax money to retool and make the changes they were too stupid to implement earlier.

    If you have a similar situation, I'd love to hear from you.


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