Chrysler, Fiat Drive Off the Lot

Freed from bankruptcy court, the new Chrysler Group faces a recession-wracked economy and no new vehicles for months

By David Kiley and David Welch

Italian automaker Fiat (FIA.MI) officially began running the newly constituted Chrysler Group on Wednesday, June 10, a day after a deal was cleared by the courts enabling the Detroit automaker to emerge from Chapter 11 bankruptcy.

As arduous as Chrysler's path has seemed during the past six months—with an avalanche of negative publicity, collapsing car sales, and bankruptcy—the road ahead promises to be even more difficult. The new company will be working in a recession-weary environment, and with no significant new product arriving for months. "I would call this deal a move to salvage Chrysler, not save it, and we will have to see what comes of the salvage," says John Casesa, managing partner of New York-based Casesa Shapiro Group, an advisory firm specializing in the auto industry.

Fiat CEO Sergio Marchionne, who will also serve as Chrysler CEO, made his first management moves on Wednesday. He named Chrysler Vice-Chairman James Press, the former U.S. head of Toyota who arrived at Chrysler in 2007, as deputy CEO. Frank Klegon, the company's product development chief, and top marketing executive Steve Landry both left the company.

Speed Interviewing

Chrysler executives say that Marchionne has taken what for them seemed an unorthodox approach to sorting out the talent pool he inherited. He did fast, 15- or 20-minute interviews with more than 100 executives, often asking what they thought of their superiors, what their strengths and weaknesses were, as well as what they thought of certain peers. "The questions were very blunt," said one staff executive. "It was a drill the likes of which I had never been through before."

Marchionne has not yet detailed how he will structure the company. But industry analysts believe he will not run Fiat and Chrysler as two separate companies. Instead, design and product development will be run centrally with one staff, from Italy, though there will be designers and engineers working in Michigan. That will effectively put product development for Chrysler, Dodge, and Jeep into Fiat's hands. It is a similar structure as Ford's (F), which now runs global product development from Dearborn, Mich., for all its world markets. For years, Ford had separate staffs on different continents.

"They can't afford to run this as two separate companies and take a lot of time to get to know one another," says Gary Dilts, executive vice-president at J.D. Power & Associates (which, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP)). Dilts led Chrysler's sales operation after the company was acquired by Daimler-Benz a decade ago. "They don't have the luxury of time, and I'd look for Marchionne to act swiftly and decisively," he said.

New Vehicles 18 Months Away

Chrysler's share of the U.S. auto market was 12.1% through the first five months of the year. But in May, its first month in Chapter 11, that slid to 10.6%. Some industry analysts believe the company will bounce back to near 12% as news of its fast exit from Chapter 11 sinks in.

The first new vehicles to come from the Fiat-Chrysler marriage are probably 18 to 24 months away from hitting dealerships. All that time, says Dilts, costs will continue to be cut and new management will be trying to "rewrite how you run a car company for profit in North America."

Top of that to-do list for management, say Chrysler insiders, is to run factories very lean, not building up massive inventories of vehicles that have to be heavily discounted. And although Chrysler, Dodge, and Jeep brands are integrated at the manufacturing and marketing levels, each one will be run with its own profit-and-loss responsibility.

Cultural Problems Possible

Both Fiat and Chrysler sell mostly mass-market cars and sport-utility vehicles. But many wonder if they won't encounter some of the same cultural problems as those that Daimler-Benz found hard to bridge, between a German luxury car company and an American maker of family cars and minivans. "I see a tremendous amount of risk in Fiat's effort to revive Chrysler," says analyst Michael Robinet of CSM Worldwide.

But Chrysler had no choice: Fiat was the only automaker to step forward with a plan and desire to link up and keep Chrysler from the scrap heap.

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