Begin with the end in plan presentations

Chrysler Business Plan Analysis, Part 1

On November 4, 2009, Chrysler publicly presented its 5-year business plan stating their timeframe to pay pack their TARP loan as well as get on healthy footing as a business. We will take advantage of the transparency of their business planning (a requirement of TARP?) to explore a number of aspects of business planning in general.

The long and detailed Chrysler plan (over 9 hours in presentation time and 300+ slides – whew!) might have been more effective if they gave us the roadmap (no pun intended) for the plan early on. There were two key slides tucked at the end of the presentation that, if presented early on, would have immensely helped the audience in comprehending Chrysler’s strategy and their ability to deliver on it.

The first key slide, “Summary of financial targets” (#332 of the presentation and #20 of the Finance section), tells us what will be the ultimate result of their efforts from 2010 to 2014.  This slide is an elegant and simple presentation, that if presented earlier, would have been helpful in focusing our attention in a few key areas.  Specifically:

• Revenue will grow fastest between 2009 and 2011.  The CAGR of 20% is a bit misleading in that the last 3 years of the plan have annual growth rates of 9.5%, 8.7%, and 8% respectively. So, the big growth is in the first two years of the plan (a big $10 billion jump from 2010 – 2011). Given that the global economic recovery is supposed to be gradual and the integration execution of such a complex merger (between Chrysler and Fiat) will take some time, what will be the catalyst for this significant revenue growth early on in the plan?
• Cost efficiencies will also be significant early on, with operating profit growing at its fastest rate from 2010 to 2012.  Revenue growth clearly helps with the operating profit improvement, but note the big margin jump from 2011 – 2012 while revenue growth is declining in that year (from its strong growth in 2010 – 2011).  What will be driving the costs down in these early years?
• Finally, TARP will be repaid by 2014.  Obviously, this will be dependent on achieving the revenue and expense targets, but it’s a strong signal of an aggressive plan that they are shooting to pay back the significant loan in such a relatively short timeframe.

While the first slide shows us the “what”, the second key slide, “EBITDA bridge” (#324 of the presentation and #12 of the Finance section), shows us the “how.” It’s an EBITDA “stair step” chart that highlights the magnitude of key EBITDA drivers. Although, the execution of the chart is a bit clumsy (many “stair step” charts are clumsy — watch for a future post on how to improve them), it tells us that we should focus our attention on two key areas:

• Chrysler plans to achieve their financial goals through strong auto sales. The largest driver of EBITDA is volume at $8 billon. This point may seem obvious, but it is interesting that they are going to choose volume growth over a different strategy, like pricing. This tells us to pay attention to how they plan to position themselves among their competitors (e.g. product improvements), which brands will lead the volume sales, their respective marketing strategies, and the markets they plan to compete in.
• Cost efficiencies are the second key EBITDA driver. It’s somewhat a relief to know that this is not the primary driver as it is often a unsustainable driver of EBITDA growth (you can’t cut costs forever). But it tells us to pay attention to efficiencies that will be gained from their merger with Fiat, as well as overall efficiency improvement in engineering, manufacturing, marketing, and other significant areas.

As in any story (particularly in long presentations like the Chrysler plan), knowing the ending first (by moving two simple slides up earlier in the presentation) helps us to focus our attention and increase our comprehension of the overall plan.

- A.B.