Chrysler desperately needs strong alliance partners like Fiat to move towards more fuel efficient cars, analyses Karan Mehrishi of 4Ps B&M

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A part from auto parts, they were providing R&D support to Chrysler not very long ago. Now all that French auto parts supplier Faurecia is providing Chrysler is legal headaches to add to its financial ones. Faurecia claims that Chrysler had promised to pay R&D costs in addition to the parts costs for the Chrysler PT Cruiser and Sebring, Dodge Avenger and Nitro and Jeep Liberty; costs amounting to some $110 million. Fancy those misleading names by the way. Chrysler is neither ‘cruis’ing in the market, nor is it in a position to ‘avenge’ the competition, ‘dodge’ trouble or, for that matter, at ‘liberty’ to dictate terms with its suppliers!

It isn’t new for Chrysler to fall in trouble with alliances or mergers. Interestingly, it seems to be getting into another big one - with Italy-based Fiat Auto. Apparently, Chrysler is coxing Fiat to supply much needed small car technology; in return the Italian can have access to a 35% stake (through an unbinding agreement of course) in whatever it can salvage. All the best with that!

More seriously, though, Chrysler needs all the support it can get, even if it means going back the dreaded alliance route, else it may not even be able to survive an alliance with itself now. In this downturn hit economy, the big three are under state obligation to turn ‘consumer pocket friendly’ – a thought that they had banished from their cerebral cortex for almost fifty years. If not, the Detroit majors might not get the federal bailout package, that’s apparently helping their CEOs sleep well at night. However, out of the earmarked $12 billion, Chrysler is eligible for less than $4 billion with the rest going to bigger brother GM. In order to meet the incumbency, Chrysler now desperately wants to churn out small cars that will appeal to ‘poorer’ customers, who may have had enough of ‘big on engine-big on size-low on quality’ American cars. Fuel guzzling is not in fashion anymore and Fiat is the best fit at this time. The Turin-based manufacturer supposedly has the world’s foremost repertoire of small car making techniques and offers cutting edge designs. Fiat also holds the patent for the class leading CRDi diesel technology that’s taking the world by storm. Through a significant stake in Chrysler, Fiat on its part can have access to the larger American market and can market its lesser known brands like Lancia and Alfa Romeo to the affluent Americans. Also, there now appears to be a possibility where American customers will start looking beyond the fuel guzzling v8s and seriously consider the next generation diesels from Fiat’s stable. Convincingly, there now appears to be a great deal of synergies between the two partners and finally some rationale in the relationship will prevail.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Citigroup has once again resorted to restructuring – this time, however, by shedding off its decade-old strategy...

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Citigroup has once again resorted to restructuring – this time, however, by shedding off its decade-old strategy of becoming a financial supermarket and splitting into two. But will it be of any help? MANISH K. PANDEY analyses...

Some companies have it in them, some don’t. We are talking about the ability to rewrite history. That’s what Citigroup did some ten years ago when it decided to provide investment advice along with traditional banking. Unfortunately however, Citigroup is now going through the painful process of giving up that strategy in a not-so-historic way.

As cost cutting measures and pink slips are failing to provide the bank with much needed succour, CEO Vikram Pandit seems to be at his wits’ end looking for a saving grace. And interestingly, but not surprisingly, he has realigned Citigroup’s current dealings into two separate businesses – Citicorp and Citi Holdings. Raison d’être: to free up capital and save the group from the collapse – may be his last attempt to make Citigroup stand on its feet!

With Citicorp, Pandit now plans to focus on leveraging the competitive advantages of the group’s global banking business and through Citi Holdings – which will be made up of brokerage and retail asset management (including Smith Barney, Nikko Cordial Securities, Nikko Asset Management and Primerica Financial Services), local consumer finance (including CitiFinancial and CitiMortgage in the US, and consumer finance operations across the globe) and a special asset pool – he wants to keep an eye on group’s riskier assets and hard-to-manage ventures. “With lower risk and a streamlined set of businesses, we expect Citicorp to be a high-return and high-growth business. And with Citi Holdings, we will tighten our focus on risk management and credit quality for businesses with strong market positions but that are not central to our core franchise,” avers Pandit. In fact, Pandit has also agreed to give up control of the Smith Barney brokerage to Morgan Stanley and even plans to sell the CitiFinancial consumer-lending unit and Tokyo-based Nikko Asset Management, once the hive off process is complete.

Certainly by doing so he can now strive to further reduce operating costs and allow Citigroup to sell or spin off any of Citi Holdings assets to raise cash but then is it actually going to be profitable is the question that is doing the rounds in many minds. “There are certainly ‘good bank’ and ‘bad bank’ components in Citigroup’s balance sheet, and our assumption is that with a role for the government, Citi can find a profitable path. But without treasury involvement, the path will be more dicey,” Mike Englund, Chief Economist, US-based Action Economies tells 4Ps B&M. No doubt the new move is a sort of back to basics – to focus on the pure banking by shedding off the idea of creating a financial supermarket – but then it doesn’t change Citi’s business model at all. The move only separates the business on paper with Citi’s current problems lying intact.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Nightmare times to knock on guilty celebrity-endorsed doors… Jail for brand ambassadors! Hefty fine for companies! Monojit Lahiri investigates...

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Okay guys, the sublime, never-ending and blissful honeymoon that the celeb Brand Ambassadors elite club [read: Bollywood & cricket stars] enjoyed, pocketing insane mega-bucks by endorsing brands for companies, could have hit a killer road-block! The new Companies Bill 2008 proposes to toss any – or every – celeb into the slammer for up to three years, if found guilty of being party to propagate misleading claims and inducing customers to buy the product advertised. The companies involved are under the scanner as well. If found guilty, they will have to shell out a cool Rs.50 lakh [from a piddly Rs.1 lakh, earlier] in fine, for cheating and frauding the unguarded consumer. However, there is one bright spark. The Prosecution will have to ‘conclusively prove’ that the celeb endorser was aware he/she was making a false statement or representation – or that he/she did what he/she did, without ascertaining the facts.

The ad-frat, industry & celeb-management guys appear dumbstruck at what, they believe, is a ‘draconian’ move. Hot-shot photographer Atul Kasbekar leads the charge by going on record stating, “This is ridiculous! How on earth can a celeb be held responsible for worms in the brand of chocolate he endorses?!” Sanotsh Desai, head honcho of the Future Group, believes that the dice is – very unfairly – loaded against the celebs. “A penalty of Rs.50 lakh for the company and jail sentence for the celebrity is absurd.”

Anuja Chauhan, Executive Creative Director, JWT (whose debut novel The Zoya Factor is making big waves with the chick-lit diwanas) brings her own spin to the table. “I think its a good idea... specially if the brand endorser is endorsing the brand as himself... as in as Shahrukh Khan as opposed to as Rahul/Raj, or as Amitabh Bachchan as opposed to as Dadaji or whatever... and specially when the brand is targeting a lower or more rural SEC of consumer who truly take what the celebrity says to be the Gospel Truth. When some international brand comes to India and tries to woo me, I don’t know the brand, I just know the endorser. He’s the guy I totally believe in, he’s the one who introduces me to the brand and vouches for it. It’s like a friend introducing a stranger to you. So if the stranger takes you for a ride, you will go to your friend only, and say, yaar tooney toh mujhe duba hi diya...”

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Tickling your ‘Dzire’

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Maruti’s sedan version of Swift took the auto industry by surprise, when it was launched in May. Priced competitively at Rs.4.49 lakh, Maruti Suzuki’s Swift Dzire was intelligently positioned for the aspiring middle class, who with their growing incomes wanted to upgrade to sedans, but were unable to do so, because of heavy price tags. Swift Dzire became an instant hit with as much as six months wait-list. It fit the bill of a stylish entry level sedan and not too heavy on the pocket either. This one made the cut with minimum marketing budgets!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Another ‘City’ ready to sleep!

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The irony in this case is that Circuit City’s closest rival Best Buy (who has also eaten Circuit City’s share of earnings) recently registered $2.15 billion in operating income, maintaining a surplus due to which many market experts are considering that City’s quagmire is a case of internal mismanagement. But then there is an another set of market experts who still expect many more retailers to stand in the chapter 11 list in times to come. Doron Levy, President, Captus Business Consulting, who belongs to the latter category, asserts, “We will see some more bankruptcies in the near future, but I really see consolidation on the horizon for many chains. Some have really strong business models, but are not managed correctly. I do have some specific retailers that I could foresee going into bankruptcy and eventually disappearing form the retail landscape all together.” Talking on the same lines, David .J. Livingston, retail consultant, DJL Research points out, “I think we will see an onslaught of closings among the small specialty stores located in shopping malls. This will result in the downfall of several real estate investment trusts which own these malls.” Though unfortunate, but retail is always affected in some or the other way from the roadblocks in the growth of any industry for that matter. So, the position of the retailers in the economic chain today is simply determined by what they sell. The slowdown in spending, though, would have an impact virtually across the horizon.

It’s not only retail outlets who are tightening their belts; online retailers are also joining the bandwagon as they are cutting their marketing and promotional budgets to stay profitable. Adding to that, online retailers are using tactics like free shipping to attract more buyers. And the decision seems wise enough. As per a study by Hitwise, the click-rate of online retailers is going down drastically. But then, market experts are still very much in favour of growth in online retail in the coming times. The annual holiday survey by Deloitte, clearly showed that Online spending is the 2nd best shopping destination for consumers after discount departmental stores. And the sheer power of online retailing gets more clear if we go by growth figures as National Retail Federation has announced a 2.2% projected growth in overall retail sales, which stands too low in comparison to the 12% projected growth in the online sphere. So, we can be sure of one thing – online retail will grow in times to come due to the simple reason that the fundamentals are quite compelling at the moment.

But you can’t be that sure of the growth in the overall retail sector as the prevailing turmoil may not end in the short-run. The only point favouring the growth of US retail industry is that there are many big retailers like WalMart, Tesco et al who are still in an expansion mode. Livingston emphasises, “Even though the economy has been difficult, there are still many retailers expanding. Wal-Mart continues to build stores with varied formats. Target is building, Tesco is building. Perhaps not at a fast pace, but they are.” But we can expect many more not-so-huge retailers going out of business in times to come. This will surely be one Christmas that they won’t forget in a hurry.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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