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International Business: Autos
Chrysler's Rescue Team
Can it stop the bleeding?
It was a sobering New Year's message. Over the holiday weekend, DaimlerChrysler Chief Executive Jurgen E. Schrempp told German media it could take two to four years to turn the tide at Chrysler. Because of weak sales and out-of-control costs, the U.S. auto maker posted a $512 million loss in the third quarter and is expected to lose $1.3 billion in the fourth. It's a debacle--a scenario that couldn't be any further from the global synergies Schrempp had extolled when Daimler purchased Chrysler in 1998.
Schrempp's admission revealed the enormity of the task facing the band of executives struggling to turn Chrysler around in a weakening U.S. car market. But this time, Schrempp isn't just breathing down the necks of some hapless American managers. He's putting the reputation of his best German executives on the line as well. The new CEO of Chrysler Group is Dieter Zetsche, 47, a veteran Daimler executive who turned around the company's U.S. truck unit, Freightliner LLC, in the early 1990s and later helped restructure Mercedes-Benz itself. Zetsche has chosen as his backup Chief Operating Officer Wolfgang Bernhard, a 40-year-old whiz kid who handled the launch of Mercedes' flagship S-Class sedans. They're struggling to deal with what Zetsche describes as Chrysler's "breathtakingly fast decline of the bottom line."MINIVAN GLUT. But if there's something unusual here, it's that Zetsche and Bernhard are the only two Germans on Chrysler's new seven-member rescue team. For all the talk about the Germans invading the executive ranks of Chrysler, Schrempp has sent only a pair of workout guys to handle the biggest workout in the automotive world. For the rest of the team, he is relying on Chrysler veterans. They include Controller James D. Donlon, the bean counter who is believed to have alerted Germany to Chrysler's spiraling costs; Thomas W. Sidlik, Chrysler's head of procurement and supply; and manufacturing chief Gary L. Henson.
At least these Americans won't have to wait for scary transatlantic phone calls to find out what the Germans are thinking. And Zetsche is critically dependent on his American executives to understand Chrysler's problems and come up with a rescue plan. The next few weeks will be crucial to the development of that plan, which Zetsche will present on Feb. 23 to the DaimlerChrysler supervisory board.
Zetsche has already gone to work. In December, he outlined plans to save $2 billion this year and an additional $4 billion over the next two years by cutting suppliers' costs. Details are still being worked out, but there's also talk of trimming the 33,000 white-collar workforce by as much as 15% and shutting factories. The most vulnerable sites are an aging Jeep plant in Toledo, Ohio, a small car assembly plant in Belvidere, Ill., and a full-size van plant in Windsor, Ontario. He's already cutting Chrysler's product line. On Jan. 4, the company said it would eliminate the Jeep Cherokee this summer, a year earlier than planned. The best-selling Grand Cherokee remains in production. "The basic game plan for this company was built on the assumption of strong growth," says Zetsche. "We're now facing a reality pretty different from these assumptions."
One reason for Chrysler's current crisis is that executives miscalculated demand for the company's aging minivans as it prepared a new model. The glut of old minivans meant Chrysler had to offer thousands of dollars in incentives for each vehicle sold in 2000. When the inventory of old minivans lingered on, Chrysler ended up offering incentives on new models, too.
Already, suppliers are resisting Zetsche's demand for immediate 5% price cuts on components, while many of the company's 4,400 dealers are wary of the new team. Zetsche met with a few of the leading dealers only days after taking the top job on Nov. 17, and dealers were impressed with his vow to involve them in important sales and marketing decisions. But they are watching closely to see whom Zetsche will tap to replace ousted sales and marketing chief Theodor C. Cunningham. They fear a German would sour relations. "There's a lot riding on who gets the sales and marketing job," says Tom Barenboim, chairman of the Chrysler-Jeep National Dealer Advisory Council. "It will determine how we work with the company."
Zetsche and Bernhard are taking their own cram course on Chrysler. They're eating in the employee cafeteria rather than the executive dining room at the headquarters in Auburn Hills, Mich. And they're huddling with designers to learn about the products in the pipeline. After the recent media unveiling of a new concept car, Zetsche and Bernhard stayed late to pore over the vehicle: While climbing around, Zetsche even ripped the slacks of his trademark three-piece suit.
Yet the ambivalence about the Germans' presence remains palpable. "I don't want a German here," but if it has to be, "Zetsche is the best man for the job," says Bud Liebler, Chrysler's senior vice-president of global marketing. It helps that Zetsche has already worked once with Americans on a turnaround. At Freightliner, Zetsche fired 20% of the white-collar workforce, closed one engine plant, and slashed purchasing prices. Freightliner President Jim Hebe liked Zetsche's ability to laser in on key issues and delegate other tasks to others. At Freightliner, Zetsche got personally involved in cutting costs. "He set a goal which we felt was unachievable. But there was no negotiating, and we got there," recalls Hebe, who once wrecked his car driving through an ice storm to attend a meeting called by Zetsche. "He can be extremely personable one minute," says Hebe. "And the next minute, you'd wish to God you were somewhere else.""ROUND TWO." After Zetsche, the star of the team is Bernhard, a Columbia University MBA who detractors label a know-it-all but whom admirers think is one of Daimler's best executives ever. A former McKinsey & Co. consultant who counted Daimler as a client, Bernhard was running the launch of the Mercedes S-Class when he was just 34. He brought the assembly line up to full speed in just seven months--half the time that it took for the previous model. Recognized quickly as fast-track material, Bernhard was tapped in 1998 to head AMG, a car-customizing business that Mercedes was absorbing. Within 18 months, he had doubled Mercedes-AMG's revenues and operating profits.
This German knows something about cost-cutting: At Mercedes, Bernhard was charged with carving 25% out of $8 billion in supplier costs. "This is just Round Two for me," he says. "I've been here before." As he looks for cuts, Bernhard lays out an imaginary grid over the company and, he says, "turns over each square, examining it, trying to see what kind of savings might fall out."
Although Bernhard undoubtedly has enormous influence, he also knows who runs Chrysler. In meetings, observers say the chief operating officer tends to wait to show his feelings until he knows which way Zetsche is leaning, and then he throws his support behind the boss.
In contrast, some of the Americans can be more argumentative, even though none has the high profile or track record of such former Chrysler executives as Robert A. Lutz or Francois Castaing. "Maybe it's not the strongest or best-known back bench," admits one insider.CLOSING FACTORIES. No one American has emerged as the most powerful. Donlon is seen as key on cost-cutting. Well-respected in Stuttgart, he was the first senior executive from Auburn Hills to move to Germany after the merger. So when things started to fall apart at Chrysler last fall, Schrempp sent him back to see just how bad things were. His dire assessment may have contributed to the firing of former CEO James Holden. Donlon's dogged pursuit of cost-cutting initiatives--like cracking down on suppliers--that seemed out of favor under previous managers are now getting more attention under Zetsche.
Manufacturing boss Gary L. Henson, who joined Chrysler in 1994 after a 32-year career at General Motors Corp., is studying how to cut Chrysler's production to match its slower growth expectations. The likely options include closing factories, cutting shifts, and reducing assembly line speeds. He's also looking for ways to boost plant flexibility and efficiency. His biggest project to date has been dramatically increasing the flexibility of Chrysler's Windsor (Ont.) minivan plant.
The other Americans have important roles but keep lower profiles. Richard O. Schaum, executive vice president of engineering, is searching for synergies among Chrysler, Mercedes, and two Asian auto makers in which DaimlerChrysler has a stake, Hyundai and Mitsubishi. One analyst even predicts Hyundai will build the next Dodge Neon. Chrysler and Mitsubishi already build cars together in the U.S., and Mercedes' smart-car division and Mitsubishi are cooperating on a small car. Sidlik is the driving force behind Chrysler's efforts to squeeze further savings from its suppliers. On the fringe, playing the role of "elder statesman," according to one Chrysler insider, is Gary C. Valade, who played a key role in negotiating the 1998 merger. With Sidlik, he is the only senior-level executive left from before the merger.
At the moment, this odd blend of saviors and survivors--ironically, the first true German-American management team at DaimlerChrysler--offers Chrysler's best shot at renewal. The Germans must be praying this works. As Chrysler's red ink mounts--operating losses could go as high as $1.9 billion in 2001, not counting restructuring charges--it's bound to cut into the development plans of Daimler's flagship Mercedes unit, and the future plans of Schrempp himself. So far, he has the support of the DaimlerChrysler board. But the strength of that support depends on what a handful of Germans and Americans can achieve in Detroit.By Joann Muller and Jeff Green in Detroit and Christine Tierney in FrankfurtReturn to top