New Business August 12, 2009, 3:52PM EST

How Marchionne Will Run Fiat-Chrysler

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Marchionne assumed Chrysler still had a brain trust. He wasn't about to bring in a bunch of outsiders. "He thinks there are good people at Chrysler," says Stefano Aversa, co-chief of the consultancy Alix Partners, who has worked with Marchionne. "He wants to retain the U.S. culture." Of Marchionne's 23 direct reports at Chrysler, 3 came from Fiat.

Rather than rely on suggestions from top management, Marchionne asked more than 100 middle- and lower-ranked staffers what they thought of their bosses. Then, say people familiar with the process, he picked people most respected by their subordinates. "If he didn't hear expressions of leadership voluntarily from people, he took it as a sign that they didn't view the executive as a leader," says a staffer Marchionne interviewed. Several senior people have since left, including the sales and marketing chief and the product development czar.

Marchionne then reached deep into the company to find talent. For example, he grabbed Peter L. Fong, who was running sales for the mid-Atlantic states, and made him president and CEO of the Chrysler brand. An outside executive who was privy to the process says Marchionne had heard Fong was a great sales guy and well-respected.

Brands as Internal Rivals

To help strengthen and focus Chrysler's brands, Marchionne decided they should compete with each other for marketing and development resources. He has turned Dodge, Jeep, and Chrysler into separate companies, each with its own CEO. The risk is that the brand chiefs wind up undermining each other. To prevent that, Marchionne gave these executives corporate responsibilities, too. For example, Fong runs the Chrysler brand but is also in charge of sales for the whole company. The Dodge chief is responsible for the marketing strategy of all three brands.

No lover of hierarchy and process, Marchionne has stripped people of fancy titles and moved the CEO's office from the 15th story to the ground floor, where designers and engineers dream up new cars. He encourages low- and midlevel staff to keep the work moving even if they have to bypass a supervisor to get a project or expenditure approved. Before, says a Chrysler executive, "People guarded the chain of command and their titles like mother lions."

Marchionne is at heart a delegator. He sets goals and expects his reports to tell him how to proceed. For example, the chief was set on quickly bringing Fiat to the U.S. and ditching the Chrysler brand. His team persuaded him that doing so would be too expensive right now. But there is one area where Marchionne gets deeply hands-on: marketing, a discipline that Chrysler desperately needs to get right. Marchionne personally approves every ad and already has been meeting with BBDO, the automaker's longtime advertising agency.

Marchionne's plan to combine the best of Fiat (small cars) with the best of Chrysler (pickups, minivans, and SUVs) makes sense in theory. But today's auto market is every bit as Darwinian as Marchionne's management philosophy. As he told his troops in June: "We have been given this incredible second chance to rethink everything we do. There will not be a third."

Welch is BusinessWeek's Detroit bureau chief. Kiley is a senior correspondent in BusinessWeek's Detroit bureau. Matlack is BusinessWeek's Paris bureau chief.

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