Sergio Marchionne on Chrysler: "Little had been done"

Posted by: David Welch on September 16, 2009

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Surprise, surprise. When Fiat CEO Sergio Marchionne took over operations at Chrysler upon its emergence from bankruptcy in June, he found something of a mess, he told reporters at the Frankfurt Motors Show this week. He told the Wall Street Journal that he found, a “whole pile of surprises.” According to the paper, Marchionne added that, “We were surprised by how little had been done in the past 24 months,” he said. “I am now confident that we have the right plan and people in place.”

He shouldn’t be surprised. After two years of private equity ownership under Cerberus Capital Management, Marchionne should expect nothing more than a tired model lineup, a dribbling of new models coming and a gutted staff. No matter what private equity players say about fixing companies, they often resort to cut, cut, cut as the answer. Cerberus’s hand-picked CEO for Chrysler, former Home Depot and General Electric executive Robert Nardelli, came in talking about bringing fresh eyes, new perspective and a desire to save an American icon. But the ground beneath Nardelli soon shifted and he started the purge. It wasn’t a sharp ax Nardelli was swinging, but a high-powered chain saw.

Sources in the company say that Nardelli’s buyouts and layoffs indiscriminately gutted some departments like purchasing, marketing and finance while other groups were less affected. Many experienced powertrain engineers left. Capital spending was slashed and now the only new cars coming in the near future are a Jeep Grand Cherokee and a Chrysler 300 sedan. It’s no wonder Cerberus was happy to walk away from Chrysler, handing it to Fiat, the federal government and the UAW while forgiving some $2 billion in loans. Given the company’s condition, Cerberus was having a tough time giving the company away to anyone else. Only Marchionne had the derring do to step in.

Consider these facts. With so few new models coming, Chrysler will replace just 33% of its sales volume with new vehicles between now and 2013, according to Merrill Lynch. That’s one-third the rate that Ford, Honda and the Korean carmakers will replace their models and less than half the industry’s 72% average. The larder is truly bare.

It’s not all Nardelli’s fault. German owner Daimler AG wasn’t exactly lavishing cash on new models. And in fairness to Nardelli, he came in when Chrysler was already in trouble. Then the financial crisis and recession hit him like a freight train. Some argue on his behalf that had he not cut so drastically, that the company would have gone bankrupt before the government was ready to step in and shepherd the Chapter 11 process.

Perhaps, but the troubles at Chrysler are now Marchionne’s to fix. Insiders say he is pushing hard to get Fiat’s cars to the U.S. in record time, as little as 20 months, to get revenue rolling in. He is pushing for some other Chrysler models to speed up, too. For Chrysler’s sake, that has to happen. It’s the only hope for the company to survive.

Reader Comments

midcoastmaniac

September 16, 2009 2:46 PM

READ THE WHOLE STORY, YOU MAY SEE THAT MARCHIONNE DID GET HANDED A COMPANY THAT WAS ALREADY DEEP INTO TROUBLE, BUT IT IS ON IT'S WAY OUT. I AM A COMITTED CHRYSLER OWNER, DRIVEN NOTHING BUT CHRYSLER MINIVANS FOR OVER 20 YEARS. I CANNOT EVEN HAVE A NIGHTMARE ABOUT DRIVING ANYTHING ELSE.

Schmeltz

September 16, 2009 3:46 PM

If I were to guess of how "The Plan" will play out, I would say Marchionne is going to salvage the best and most he can of the brands and capacity for developing new vehicles, with the least amount of people and overhead possible. If it survives, the Chrysler LLC. of the next few years will probably look like Fiat brand providing all of the car models and crossovers. Jeep will be the SUV specialty it has always been. Dodge will be renamed "Ram" as a brand and will be the consummate maker of pick-ups of all sizes. Chrysler and Dodge brands will probably be dissolved as they are widely viewed as damaged brands already. Their lack of new product is swiftly towing them down the path to oblivion, and Marchionne doesn't appear anxious to resucitate them. It is no doubt less costly to simply re-tool American factories to produce Italian designed and engineered Fiats, rather than come up with Fiat cars that look like Chryslers and Dodges anyhow. The question remains, will anyone really flock to the dealerships and buy Fiats when there are already so many other excellent choices available? The 500 is cute but I don't think it can save the Company.

The stark reality is Chrysler has been technically dead for a few years now, it just hasn't been pronounced yet.

Ben

September 16, 2009 4:32 PM

It is virtually impossible to merge Euro business culture with American business culture. If German Daimler failed, the Italians have absolutely no chance of operating profitably.

m.r.

September 16, 2009 4:54 PM

the stark reality is that Chrysler may be folded into FIAT and disappear as a
unique brand. FIAT brand may not be readilly accepted by NA buyers. perhaps there are too many car companies in NA just as there are too many plants and too many workers. and the Chineese are comming.

George P

September 16, 2009 5:30 PM

I would give Italians much better chance than Germans in keeping the Chrysler/Dodge brands viable. Italians thrive on chaos far better than Germans who would be paralyzed without their "ordnung" (order). The problem with Daimler Benz management was that they were too German for their own good.

kh66

September 16, 2009 6:19 PM

The only winners of this mess: The shareholders that sale chrysler to daimler... They sale a profitable company, daimler broke it with his german arrogance (we are technological superior, etc.) and now the taxpayers have to pay for all that. We should send the bill to the originals shareholders...

American Citizen

September 16, 2009 6:59 PM

Fix It Again Tony. Yeah, sure.

Just what the american auto market needs, an infusion of "cars" even crappier than a MOPAR (Many Odd Parts Arranged Recklessly).

I suppose they'll only come with Pirelli's...hope they have that run flat option cause of the noise they make when they're flat.

Snoz

September 17, 2009 3:39 AM

Luxury car maker Mercedes is accustom to loose management given its cars enjoy one of the highest profit margin in the mass production market. High profit margin can easily forgive design and manufacturing mistakes. Not so with a low profit margin car like a Chrysler. After acquiring Chrysler, a maker of "Volk" wagons, Mercedes failed to exercise the management and production discipline necessary to turn a profit. In addition to problems of cost containment, Mercedes' German executives were clueless as to American culture and perspectives. Case in point: Mercedes decided that Chrysler would benefit from some of Mercedes exquisite halo. Out trotted German CEO Herr Dieter Zeitsche on TV, speaking in thick German accent, trying to sell the virtue of German engineering in a Chrysler car. Unfortunately, his bald head and big pointed white mustache reminded Americans of a Captain Crunch, a caricature found in a children breakfast cereal. Alternatively, Deiter’s voice had the peculiar side effect of reminding Americans not of Lee Iaccoa's famous line, "If you can find a better car, buy it," but of Colonel Klinger or side-kick Schultz of Hogan's Hero. On that day, American said “Auf Viedersen” to the marriage of German management and American mass production. With in a year, Mercedes paid almost one billion dollars to Cerebrus to take Chrysler off its hand. In 2009, US Government poured almost ten billion dollars into Chrysler in order to entice Fiat to assume the wreckage left by the infamous "Butcher" Nardelli.

William Price

September 17, 2009 6:57 AM

George...I could not have said it better -- agreed 110%. There is an old saying they have in Germany: "Germans love Italians but do not respect them. Italians respect Germans but do not love them." It IS indeed VERY TRUE, and this bodes VERY, VERY WELL for the Fiat-Chrysler tie-up.

Ben There Done That

September 17, 2009 10:36 AM

As a former Fiat employee, it would suprise me if this deal ever really works. The Italians are notorious for screwing up whatever they get into in North America. I'm afraid that Chrysler will be another failed venture that they successfully manage down to zero.

Earthling

September 18, 2009 3:53 AM

Ben (sic) There Done That, oh really? Are you referring to Fiat divisions such as Ferrari, Maserati, Case New Holland, etc? Yeah, those companies are doing VERY badly in North America. But, oh, wait, you didn't just say Fiat, you said the entire Italian nation! So, I suppose ventures like Ducati, Aprilia, Vespa, Armani, Barilla, etc. are all just more failed ventures? You sir, are a moron. Good for Fiat you are an ex-moron...

Bill

September 18, 2009 3:39 PM

The Fiat plan that will be revealed in
November, will kill the so called "tainted" Chrysler and Dodge brands.
Expect to see Fiat on the buildings.

American buyers will shun the Fiat label
as they did in the seventy's by the
bushel.

First time, shame on me, second time,
shame on you, third time, not even
considered...

RevivingMa

September 20, 2009 9:46 AM

"Just what the american auto market needs, an infusion of "cars" even crappier than a MOPAR (Many Odd Parts Arranged Recklessly)."

So that's how you view a company that's been struggling with some sort of government/political interference for more than 40 years? Oil embargoes, a "self made" recession layered with accountants cooking the books and government lies....These are thing not in control of Mopar.

You cut cost when you can, but whenever you're able to, you put forth your best effort, even if you feel you can do better.

As far as quality, I'm guessing you've never had to deal with GM's penchant for cheap copy cat production or Ford's misbegotten electrical and mechanical issues, among other things those two are associated with.

Nice acronym you have there. Mopar fans can play that game too.

Ford-(Fix Or Repair Daily)
Chevrolet-(Can Hear Every Valve Rap On Long Extended Trips)

Keep it clean.

TampaDetroit

September 25, 2009 11:29 AM

How many of us can honestly say we've driven a Fiat lately? Don't be too quick to pass judgement. As for the Fiat of the 70's comment, that won't resonate with young buyers. Throw in the Microsoft Sync system and amp up the handling & power and you'll draw the tuner set away from the current crop of rice burners. If the Chinese automakers keep fumbling to get their market share footing in the U.S., Fiat and Chrysler have a chance. Don't view the Chrysler pentastar as a revered icon, its not. Dodge and Jeep are hot with the younger crowd and young at heart. As for the rest of us, we'll survive driving the 300 or a Town & Country.

asconn

October 12, 2009 1:02 PM

how quickly we appear to be willing to chuck chrysler over the side and along with it a significant piece of both american history and the american workforce union and otherwise. let's give Mr. Marchionne and the folks at Chrysler a chance to save the company and right the wrongs of the immediate past; get the business back on its wheels, sell some interesting cars and put some cash back in the till for a change. Enough Chrysler bashing already. Competition is good for business. Even Toyota has its issues and no-one is bashing them for theirs. Lighten up people.

gabriel lori

October 16, 2010 10:45 AM

Today fiat is a modernised company that people do not know because of its absence from the USA,but they invented the common rail diesel and have made inroads in tecknology...and quality..you people that are critiscising are living in the past and its time you all wake up and maybe start traveling to other countries to see what vehicles are being made outside the USA that are of superior quality and workmanship,they get excellent fuel economy and great horsepower with engines half the size of U.S autos!!We have been paying for crap all these years in the USA!!!

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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