Case Interview Question #00227: Our client Chrysler Group LLC is a global automaker headquartered in the Detroit suburb of Auburn Hills, Michigan. It is the third largest of the “Big Three” automobile manufacturers in the US, after General Motors (NYSE: GM) and Ford Motor Company (NYSE: F). Chrysler Group’s trademarked MOPAR (MOtor PARts) division, with its 30% industry market share, carries almost 300,000 parts, options, and accessories for vehicle customization.
Chrysler has been losing money for several years in its North American division. The new CEO suspects a big reason may be his company’s high degree of vertical integration. This client makes about 70% of its own automotive parts, compared to 30-50% at its chief competitors (GM, Ford). The CEO has asked us to help develop a cost saving strategy around this issue. How would you go about it?
Additional Information: (available if asked for)
- The client Chrysler spends 35% of its North American revenues on its parts-making operations.
- It buys (sources) another 10% from independent suppliers, most but not all of which are located in North America.
- Its parts-making operations are spread over six divisions and cover about 100 plants in the U.S. and Canada. The same parts are often made in several plants.
- All the plants are union, with high labor costs and generally average (often poor) quality.
- Top UAW (United Auto Workers is a labor union) executives are split over issue of “give backs” — reducing labor rates, benefits, retirement perks, etc., in return for fewer layoffs. Some union executives want to work with the new CEO, others want to show him how strong the union is.
- There is excess capacity in our client’s parts manufacturing plants, as well as throughout the auto parts supplier industry.
- Auto parts suppliers would be eager to win business from our client because it would reduce their dependency on the other two U.S. auto manufacturers.
Question #1: Given the situation, what is the key hypothesis? How would you state it?
Note to interviewers: a strong hypothesis is a testable statement that, if true, has significant implications for the client.