Surprise, surprise. When Fiat CEO Sergio Marchionne took over operations at Chrysler upon its emergence from bankruptcy in June, he found something of a mess, he told reporters at the Frankfurt Motors Show this week. He told the Wall Street Journal that he found, a “whole pile of surprises.” According to the paper, Marchionne added that, “We were surprised by how little had been done in the past 24 months,” he said. “I am now confident that we have the right plan and people in place.”
He shouldn’t be surprised. After two years of private equity ownership under Cerberus Capital Management, Marchionne should expect nothing more than a tired model lineup, a dribbling of new models coming and a gutted staff. No matter what private equity players say about fixing companies, they often resort to cut, cut, cut as the answer. Cerberus’s hand-picked CEO for Chrysler, former Home Depot and General Electric executive Robert Nardelli, came in talking about bringing fresh eyes, new perspective and a desire to save an American icon. But the ground beneath Nardelli soon shifted and he started the purge. It wasn’t a sharp ax Nardelli was swinging, but a high-powered chain saw.
Sources in the company say that Nardelli’s buyouts and layoffs indiscriminately gutted some departments like purchasing, marketing and finance while other groups were less affected. Many experienced powertrain engineers left. Capital spending was slashed and now the only new cars coming in the near future are a Jeep Grand Cherokee and a Chrysler 300 sedan. It’s no wonder Cerberus was happy to walk away from Chrysler, handing it to Fiat, the federal government and the UAW while forgiving some $2 billion in loans. Given the company’s condition, Cerberus was having a tough time giving the company away to anyone else. Only Marchionne had the derring do to step in.
Consider these facts. With so few new models coming, Chrysler will replace just 33% of its sales volume with new vehicles between now and 2013, according to Merrill Lynch. That’s one-third the rate that Ford, Honda and the Korean carmakers will replace their models and less than half the industry’s 72% average. The larder is truly bare.
It’s not all Nardelli’s fault. German owner Daimler AG wasn’t exactly lavishing cash on new models. And in fairness to Nardelli, he came in when Chrysler was already in trouble. Then the financial crisis and recession hit him like a freight train. Some argue on his behalf that had he not cut so drastically, that the company would have gone bankrupt before the government was ready to step in and shepherd the Chapter 11 process.
Perhaps, but the troubles at Chrysler are now Marchionne’s to fix. Insiders say he is pushing hard to get Fiat’s cars to the U.S. in record time, as little as 20 months, to get revenue rolling in. He is pushing for some other Chrysler models to speed up, too. For Chrysler’s sake, that has to happen. It’s the only hope for the company to survive.