How Marchionne Will Run Fiat-Chrysler

The new CEO is embracing unconventional methods, such as fostering internal competition, as he revs up the carmaker

Marchionne is credited with bringing Fiat back from the brink Fabio Ferrari/Ramella/Grazianeri/Polaris

By David Welch, David Kiley and Carol Matlack

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When Fiat-Chrysler Chief Executive Officer Sergio Marchionne spoke for the first time to his new U.S. employees in June, he quickly dispensed with the rah-rah rhetoric. Standing in the four-story atrium at Chrysler's Auburn Hills (Mich.) headquarters, a couple thousand people hanging on his every word, the new chief thanked U.S. taxpayers for their forbearance and praised Chrysler veterans for their fortitude. Shortly after that, Marchionne, a rumpled figure in slacks and a black polo shirt sporting a Chrysler logo, cut to the chase. "In this business," he said, "mediocrity will kill you. We can't accept it."

For the third time in 11 years, Chrysler is bracing for the vagaries of new ownership. First it was the Germans, then the private equity guys, now the Italians. Many executives who watched Marchionne that day express relief that he and Fiat (FIA.MI) want to revive an automaker many had given up for dead. On the other hand, they have heard about the new boss' operating style. Marchionne, who declined to comment, demands teamwork while pitting divisions against each other. He isn't afraid to promote from deep in the ranks, and he expects executives to put in seven-day weeks as he does. That's how he brought Fiat back from the brink. "Only two people have turned around car companies [recently], Sergio and Nissan's (NSANY) Carlos Ghosn," says Ron Bloom, who heads the U.S. Treasury Dept.'s Auto Task Force. "His decision-making moves quickly. He's a firm believer in meritocracy."

Man in a Hurry

There is little time to waste. Bankruptcy harmed a company that already had lost much of the buying public. Chrysler's models are older and less fuel-efficient than rivals'; not one vehicle gets the Consumer Reports seal of approval. Then there are the gaping holes in the lineup.

Marchionne will have to restore luster to Jeep, Chrysler, and Dodge, and plug those holes with small, fuel-efficient vehicles designed by Fiat. His biggest challenge will be replacing misfires such as the Sebring sedan, Jeep Compass, and Dodge Caliber—with the kind of mass-market vehicles that will make or break Chrysler. "Getting that right is where a lot of energy is being poured because that's the cake and the rest is icing," says a Chrysler executive, who expects Marchionne to approve a five-year product plan this month.

It doesn't help that Marchionne, 57, is inheriting a company suffering a crisis of confidence. The Chrysler of yore was a swaggering place—agile and unafraid of taking chances. In 1998, Daimler (DAI) bought the company and over the next nine years managed to squelch much of the Chrysler esprit de corps. Two years ago Cerberus Capital Management gained control. Faced with a far worse market than anyone had predicted, Cerberus cut and cut—and then cut some more.

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