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Fighting Bob


The Corporation: EXECUTIVE SUITE

FIGHTING BOB

With Chrysler Corp.'s Gulfstream II climbing to 43,000 feet, Robert J. Eaton can finally sit back and relax. He loosens his tie, unbuttons his collar, and grabs a turkey sandwich. "I think it's been a good day," he says. He's heading back to Detroit on Oct. 3 from New York, where he has just delivered the most important speech of his life. After months of holding his fire, Chrysler's chairman had finally unloaded on his nemesis, Las Vegas billionaire Kirk Kerkorian, in an address to the Council of Institutional Investors.

Now, as he settles into the leather seat of the company jet, Eaton, 55, breaks into a rare diatribe. Kerkorian, he rails, isn't fit to run Chrysler. And Eaton isn't going to let him. Investors, he says, "don't want a Las Vegas gambler running Chrysler."

It's not just business anymore: Now it's personal. By all rights, Bob Eaton should be savoring triumph. Since leaping from General Motors Corp. to Chrysler in 1992, he has been presiding over the most successful period in the No.3 carmaker's checkered history. Sales are soaring, profits have hit a record, and market share is on the mend. But instead of reveling, Eaton is fighting for his professional life. As Kerkorian presses his campaign for control of Chrysler, he and his aides are making Eaton and his track record, management style, and strategic vision the central issue. In conversations with reporters and with the powerful institutional investors who will ultimately decide the battle's outcome, they are tarring Eaton as a man more lucky than smart.

The fight became a grudge match after Eaton embarrassed his largest investor by quashing Kerkorian's $20.5 billion takeover bid last spring. Since then, Kerkorian has hired more firepower: a proxy solicitation firm, investment bankers Wasserstein Perella & Co., Washington-based shareholder activist Ralph Whitworth, and Jerome B. York, the former Chrysler chief financial officer who had become IBM's ace cost-cutter. Kerkorian's troops are massing for a proxy fight.

Far from giving Eaton any credit for Chrysler's current success, Kerkorian & Co. have a litany of complaints about him: He's a bland, indecisive manager. He has failed to hammer home to subordinates the need to improve Chrysler's spotty quality. His insistence on amassing a $7.5 billion nest egg to carry the auto maker through the next recession is ridiculously overcautious, as is his reluctance to increase the company's debt. And he has been way too timid in pushing into the expanding world markets that promise the greatest future growth.

The ad hominem nature of the Kerkorian camp's escalating campaign puts Eaton in an uncomfortable spot. The Kansas-bred engineer is an almost painfully unassuming man who ritually shuns the pronoun "I," preferring to share credit with his management team. He has been mum on Kerkorian and extremely mild in his public comments on the investor's charges--until now. "Mr. Kerkorian has absolutely destroyed two companies: Columbia Pictures and MGM/UA," Eaton says. "It would be a tragedy to let him and his group do that to Chrysler. If they thought I was going to roll over and let them take advantage of this company, they absolutely misjudged me."

Eaton is vehement in defending his strategies for Chrysler. That big cash pile, he says, is essential to maintain Chrysler's capital spending to upgrade factories and develop snazzy new vehicles--and keep profits flowing--when the inevitable downturn comes. The cash and the strong balance sheet are also necessary to finance global expansion. In a reversal of his earlier reluctance to establish foreign assembly plants, Eaton now says that he's contemplating a half-dozen deals to set up major new operations in such places as China, India, and South America. And while Chrysler's quality still lags behind most of its competitors', Eaton notes that he's already making big strides to better it. Vehicle quality, as measured by the company's warranty data, improved 26% during the past three years.

A BIT WOODEN. In many ways, Eaton is the antithesis of his predecessor, Lee A. Iacocca, the swashbuckling ex-chairman who's helping Kerkorian wage his campaign. While Iacocca was, for a time, idolized by Wall Street, the press, and the public, the company's board and many in his management team chafed under his high-handed ways. By contrast, Eaton comes across as a bit wooden in public, contributing to the impression that he's ineffectual and bureaucratic. But insiders know a different Bob Eaton: a flexible, forceful manager who is willing to listen and learn. They describe a man with formidable people skills who has forged a contentious group of brilliant managers into a cohesive team. "I don't think people realize that Eaton is a fantastic leader," says Chrysler director Joseph A. Califano Jr. "He has energized the talent at that company to become more than the sum of its parts. His style is just right." Iacocca declined to be interviewed for this story.

And while Eaton's low-key persona may not wow Kerkorian or Wall Street, a swaggering superstar could well be the last thing Chrysler needs right now. To his boosters, Eaton represents the new breed of boss at the Big Three: the prudent shepherd of corporate resources for long-term prosperity. If he's a little bland, that's a small price to pay for blunting Detroit's brutal boom-bust cycles, with their devastating layoffs, plant closings, oceans of red ink, and suspended dividends. Even big investors who privately call Eaton uninspiring are reassured by his steadying influence on Chrysler, which has had two close brushes with bankruptcy in 20 years. "I'm more scared of inspiring CEOs," says one shareholder. "I just want to see the auto companies run profitably in a very boring way."

By most measures, Eaton is the right man to do just that. He kept GM's European turnaround on course with a raft of new models and stringent cost-cutting discipline. When he ran GM's mammoth technical staff, he had to mesh the company's feuding fiefdoms of designers and engineers. And at Chrysler, Eaton did something that many thought impossible: He formed a solid alliance with Robert A. Lutz, Chrysler's charismatic president, who never hid his disappointment at losing out on the top job when Iacocca finally retired. Lutz says he quickly felt an affinity with his new boss: "Finally, I had a superior here I could respect."

LINE OF DEFENSE. Eaton's first line of defense against Kerkorian is just how well Chrysler is doing these days. The company is riding high: Profits last year hit a record $3.7 billion on sales of $52.2 billion. The carmaker's pension fund--$4.4 billion short in 1991--was fully funded for the first time since the 1950s. Those two accomplishments prompted Standard & Poor's to give Chrysler its first A credit rating since 1969 and remove the stigma and higher costs of the junk-bond rating that Chrysler carried less than two years ago. "Look at my record, and compare it to Kerkorian's, Iacocca's, and York's," Eaton says. "Chrysler has produced a greater return on investment than any company they've ever been associated with."

The financial rebound is driven by some of the most exciting cars and trucks coming out of Detroit. While Chrysler's lineup suffers from uneven quality, there's no doubt which auto maker sets the pace for stylish design. Vehicles such as the Jeep Grand Cherokee, the Dodge Ram pickup truck, the LH family sedans, the Neon small car, and the minivans have boosted Chrysler's share of U.S. light-vehicle sales 2.5 points since 1990, to 14.8%. Thanks to aggressive cost-cutting in the early 1990s, Chrysler claims the title of the world's lowest-cost auto producer.

It's true that the turnaround was well under way before Eaton set foot in Chrysler's Highland Park (Mich.) headquarters in March, 1992. Lutz, a charismatic former Marine fighter pilot, was the one who revamped Chrysler's engineering ranks into nimble, cross-functional teams that designed an all-new roster of cars and trucks cheaply and quickly. And it was York who squeezed $4 billion out of Chrysler's annual costs before leaving to become CFO at IBM in 1993. "Eaton was probably the luckiest businessman in America," says one former Chrysler executive. "He walked into a situation that was about perfect." It's a view that has some resonance among Chrysler's institutional shareholders. "If Bob Eaton has left his stamp on Chrysler, I've yet to see it," grumbles one. "A lot of investors are still there because of Bob Lutz."

Eaton sharply contests the view that he's just the happy beneficiary of a rising tide. "When I came to Chrysler, it did not have a long-term strategy. It did not have a mission," he says. It does now, he adds--and for the first time, he's willing to take the credit. "Yes, I'm the guy behind it. I'm the guy pushing for cultural change." Vice-Chairman Thomas G. Denomme agrees: "Before Bob, we had never tried to fundamentally change how we work together. He was the teacher. He was the catalyst."

Eaton's aim is to make Chrysler a more dependable, predictable place run by a cohesive team of managers. He vows an end to Chrysler's history of crises and cliffhangers. "Every previous chairman of Chrysler since Walter P. himself has had the opportunity to make history by presiding over a dramatic Chrysler turnaround," he told the Council of Institutional Investors. "I [want] to be the first chairman never to lead a Chrysler comeback."

Hardly flashy. But Eaton likes to play the Kansas mechanic, making small but continuous improvements throughout the organization. That's a hallmark of the auto company that Eaton considers the world's best, Toyota Motor Corp. He has borrowed heavily from the Toyota handbook, keeping financing cautious, aiming for constant gains in quality and productivity, and giving employees more say in the workplace.

That philosophy isn't so far from the conservative values instilled in Eaton during his boyhood in rural Arkansas City, Kan. His father, Eugene, was a brakeman and conductor for the Santa Fe Railroad, and his mother, Mildred, ran a beauty shop in the basement of their home. "Bob worked for absolutely everything he got," recalls childhood friend Bob Foster, who now runs a furniture store there.

Dreaming of his own car--at age 9-- Eaton began delivering the Arkansas City Daily Traveler for 35 cents a day. After two years, he had saved $10 to buy a rattletrap black 1932 Ford, which he promptly took apart. "I wanted to know how it worked, and I was absolutely sure that I could make it better somehow," he recalls. Once he got the jalopy back together, Eaton was hightailing down back roads long before he was old enough for a driver's license.

The paper route and other jobs, such as sorting packages at Montgomery Ward, provided cash for parts to repair the series of old cars and motorbikes Eaton acquired before college--15 cars and 12 motorcycles in all. To pay for college, Eaton worked the wheat harvest and picked strawberries. He recruited classmates from the University of Kansas to work in an Oregon pea cannery, where he became night superintendent. Eaton was fascinated by machinery and process. "He was always interested in how everything worked: how you canned peas, how you ran a combine or a Caterpillar," says Stephen Ross, a high-school classmate and Kappa Sigma fraternity brother who now works as an insurance agent in his hometown.

Eaton married his college sweetheart, Connie Drake, from Burlington, Kan., in 1964. The young couple moved to Detroit, where Eaton had just landed a job as an engineering trainee at GM's Chevrolet Div. Connie taught grade school, while Bob began working his way up GM's engineering ranks. The couple raised two sons, Scott, now 23 and a marketing manager, and Matthew, 21, a student at Boston University.

Eaton's career quickly moved into high gear. Just 21/2 years out of college, as a research engineer, Eaton was subpoenaed by the plaintiff in a big civil liability case against GM alleging that the Chevrolet Corvair was prone to roll over. "I was on the witness stand for eight days," Eaton recalls now. "They attacked anything and everything." GM won the case.

Eaton moved onto the GM fast track as chief engineer for the X-car, GM's first front-wheel-drive auto. He helped lead the effort, during the second Arab oil embargo, to rush out the family of fuel-efficient compact cars, which included the Chevy Citation and Buick Skylark. "It was a real trailblazer," says former GM President Lloyd Reuss. "It was a major change in the way the American auto industry built cars."

GREAT TIMING. Not everyone was so enthralled with the X-cars. Quality was shoddy, and the rear brakes tended to lock up. By 1983, the Justice Dept. filed suit to force GM to recall 1.1 million of the cars for the alleged brake defect. Eaton headed the technical team, devising elaborate tests to compare the X-car with hundreds of other models and rallying a group of engineers, economists, and lawyers to keep plugging away through a 30-month legal process. Once again, Eaton held his own on the witness stand, while demonstrating the feistiness he's newly displaying in his fight with Kerkorian. Eaton was "a handful to cross-examine, very combative. He wouldn't just answer your question--he would argue with you," says Larry Moloney, the government's lead prosecutor on the case.

"He probably hasn't changed much."

GM won the X-car case in 1987, and Eaton was soon off to Zurich to run the company's European operations. It was another case of great timing. He arrived just as the financial overhaul and consolidation of GM's German and British units was beginning to click, and Europe's economy was rebounding. Eaton rode the wave as GM Europe contributed $1.7 billion to the company coffers in 1991, even as its North American operations were losing $7.9 billion.

To his critics, Eaton was sometimes slow to seize new opportunities. He initially resisted subordinates' urgings to jump into Eastern Europe by building a GM plant at Eisenach in the former East Germany. He finally agreed--and Eisenach has become the most productive auto plant in Europe, according to a recent independent study. But his boss at the time, GM CEO John F. Smith Jr., disagrees that Eaton was overcautious. "He was very bold and aggressive in developing our plan for eastern Europe," Smith says.

Eaton's friends at GM further point to his speedy acquisition of Saab as proof that he can act quickly and decisively. Eaton had been trying to buy a 29% interest in Jaguar PLC when Ford Motor Co. swooped in with a $2.5 billion bid for the whole company. Instead of trying to outbid Ford, Eaton cast an eye at Saab. "He immediately saw opportunities there that none of us had seen before," says Tom Mason, who headed GM Europe's marketing at the time. In a three-week blitz, Eaton pulled off the surprise $500 million deal, giving GM an upscale brand to sell alongside its mass-market Opel line in Europe.

"BOXY CARS." When Chrysler directors came courting Eaton, the move from GM Europe looked like a leap into the unknown. "In 1992, like most people in the industry, when I thought of Chrysler, I thought about bankruptcy and boxy cars," Eaton says. But when they showed him where Chrysler was heading--the stylish new cars and streamlined organization--he jumped. The board wanted Eaton because they were ready for a change. "We wanted a different style," says Director Robert J. Lanigan. "Bob is a modern-day manager. He doesn't need a round of applause when he comes to work every day."

Nonetheless, the atmosphere in Chrysler's fifth-floor executive offices in Highland Park was tense when Eaton arrived on Mar. 16, 1992. The board had agreed to let Iacocca stay on as chairman until the end of the year, with Eaton serving as vice-chairman until then. That did little to mollify Iacocca, who was bitter that the directors were forcing him to retire. If anyone was in a blacker mood, it was Lutz, who fumed about being passed over. His penchant for butting heads with Iacocca while championing daring styling and sporty performance had cost him the top job. And Chrysler's senior executives wondered openly how buttoned-down Bob Eaton would fare in their rough-and-tumble environment. Says Vice-Chairman Denomme: "He had 26 officers here looking at each other saying, `A GM guy? You've got to be kidding."'

Accurately reading the mood, Eaton deliberately kept a low profile during his nine months as CEO-in-waiting. He toured plants, roamed the labs at the Chrysler Technology Center, and sat in on meetings more as observer than participant. He methodically studied the organization--to the point of walking a single budget request through the bureaucracy to see how the process could be streamlined. Above all, Eaton watched how Chrysler was run--then set about to change it.

Topping his list was uniting Chrysler's warring camps. Under Iacocca, senior managers from marketing, sales, and finance were often pitted against the engineering, design, and technical staffs. No matter what the battle, Iacocca judged the winner. Eaton was determined to change that. "How are you going to get them to work together to get the best solutions when they're competing?" he says. "It was horrible."

Instead, Eaton began to infuse the company with the management style he calls "participatory." He started with a series of sessions with senior officials at the Thomas Edison Inn in Port Huron, about 60 miles north of Detroit. The "Port Huron experience" started at the lobby. As managers arrived, Eaton and Lutz parked their cars and toted their luggage. Dressed in khakis and wearing half-moon reading glasses, Eaton led give-and-take sessions on empowering employees, fostering teamwork, setting goals, and rewarding achievers. Graduates later ran sessions for their subordinates. The culture shock was enormous. "In the old days, only one person would talk," says Lutz. "Dissenting voices were not easily tolerated and could be considered non-career-enhancing."

Eaton and Lutz quickly formed a team--and they plan to stay one. Despite praise from York, Lutz says he would never work for a Kerkorian-controlled Chrysler. And Chrysler's board is committed to keeping Lutz on board after he reaches mandatory retirement age of 65 in February, 1997. "Bob Lutz makes a hell of a contribution to this company, and I intend to see he keeps doing that," Eaton says.

Not everyone appreciated the new Eaton regimen, though. "There was sort of a harshness to it," says one former Chrysler official. "The feeling was you will become a team player, and the stragglers will be shot." Eaton doesn't disagree: "If people can't change, then you're going to have to get some new people."

To managers who embrace his emphasis on teamwork, Eaton is collaborative and flexible. Instead of leaving top executives to speculate on what goes on in Chrysler's sacrosanct boardroom, Eaton briefs them afterward. And unlike Iacocca, Eaton suggests changes rather than orders them. Manufacturing chief Dennis Pawley recalls how Eaton proposed reducing automation in a plant's body shop but deferred to Pawley's reasoning that extensive manual welding could hurt quality levels. Says Pawley: "Bob never second-guesses you."

STRATEGIC ROADMAP. Eaton is willing to heed dissenting voices on even the most sensitive decisions. Earlier this year, for example, Chrysler was besieged with lawsuits from accidents in which the rear gate latches of minivans flew open in collisions, ejecting passengers. Federal regulators were threatening a recall, and tabloid TV was trashing the image of the quintessential family vehicle.

Eaton attacked the problem the same way he did the X-car case at General Motors. After poring over minivan crash-test data, the latch's design specifications, and the accident rates of comparative vehicles, both he and Lutz came to the same conclusion: The latches were safe, and Chrysler should fight back. The rest of Chrysler's top brass opposed the idea. They argued that during the inevitably long battle to prove the latch's safety, Chrysler's reputation could be irreparably harmed by the publicity. In March, Eaton agreed to replace the latches on 4 million minivans at a cost of $115 million.

Eaton rarely strays from his overall strategic roadmap for Chrysler, though. He steadfastly refuses to consider any acquisition that would diversify Chrysler beyond autos--such as Iacocca's acquisition of Gulfstream Aerospace Corp. Instead, Eaton's plan is to funnel Chrysler's record profits into new equipment for its aged plants. And he has earmarked $23 billion for developing new vehicles in the next five years.

And when it comes to how much money the auto maker needs to weather the next recession, Eaton is holding firm. For Jerry York, Eaton's reluctance to pump some of Chrysler's $6.9 billion cash hoard into bigger dividends or a stock buyback program is evidence that Eaton is too cautious. "They're saying they are betting on a bone-crushing recession in combination with Chrysler becoming noninvestment grade," York scoffs. "But it's not 1990 anymore."

Eaton won't budge. And when he makes up his mind, even his closest associates admit he can be mighty stubborn. "Bob Eaton knows exactly what he wants," says Lutz. "This guy is not a wimp." Indeed, Eaton's belated flashes of temper belie that famous mild manner and reveal his combative streak. "The meek may inherit the earth, but they don't go far in business," he says. Eaton has gone far--and he's making it clear that he intends to wage a fierce fight to stay there.

ROBERT J. EATON

FEB. 13, 1940 Born in Buena Vista, Colo.

1963 Earned B.S. in mechanical engineering at University of Kansas; joined GM's Chevrolet Motor Div. as trainee.

1963-76 Promoted through a series of jobs on Chevy and corporate engineering staffs. Worked briefly for John DeLorean, served as chief engineer for the X-car.

1976 Named chief engineer for GM car programs.

1979-82 Worked for GM's Oldsmobile Div. as assistant chief engineer, then director of quality and reliability.

1982-88 As chief of GM's advanced engineering staff, led technical team for federal X-car recall trial; headed technical staffs.

1988 Named president of General Motors Europe.

MARCH, 1992 Hired by Chrysler as Lee Iacocca's successor, named vice-chairman and chief operating officer.

JANUARY, 1993 Became Chrysler chairman and chief executive.By Bill Vlasic and Kathleen Kerwin, with Keith Naughton and David Woodruff, in Detroit


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