Chrysler turnaround plan was moving right along

Chrysler turnaround plan was moving right along

But then came Sept. 11, a war, 0% financing and a lot of uncertainty

"If you hear a German accent in this building, it's a visitor," James Holden told Ward's last year.

It turned out to be his last interview as president of DaimlerChrysler's Chrysler Group. It also turned out to be a totally inaccurate statement.

The interview was in Mr. Holden's office in the executive suite of Chrysler headquarters in Auburn Hills, MI. A few days later, Mr. Holden's DC bosses in Germany fired him after the Chrysler unit posted huge losses. They totaled $1.8 billion in the last half of 2000.

Dieter Zetsche now holds Mr. Holden's former job and occupies his spacious office in Auburn Hills. Mr. Zetsche speaks fluent English. But the accent is German.

The German executive was sent in to fix Chrysler and staunch the red ink. He launched an eight-year plan to turn Chrysler around. It called for eliminating 26,000 jobs, closing up to seven plants and selling unnecessary subsidiaries. Mr. Zetsche says that internal restructuring is going well. But doing that is almost easy compared to trying to figure out what sort of year 2002 will be for the auto industry in the face of economic unsureness, a war and shaken consumer confidence.

The turnaround plan allowed for losses of up to $2.5 billion this year. Chrysler was ahead of that schedule. But then came Sept. 11, followed by 0% financing and a lot of uncertainty.

"It is extremely difficult to define the market environment you are working in next year. We have a much clearer understanding about our internal business," he says. "...We are just still not clear enough about what we ought to expect next year on the market side."

Still, his turnaround assignment at Chrysler has been tough after he figured out how bad the problem was.

He explains, "I was surprised at the beginning at how un-solid the ground was. It lead to a lot of negative surprises. I thought the organization was further ahead. But you have to accept where you are. If you're in a state of denial, you can't deal with it."

The ailing company and Mr. Zetsche's bitter medicine for it unnerved a lot of Chrysler, Dodge and Jeep dealers.

"We went through a volatile time with our dealers," he recalls. "A number of them critically perceived the early changes."

That was reflected in an NADA survey of how they valued and perceived the franchise. It dropped sharply in February. But Mr. Zetsche points to a "dramatic recovery" in the next NADA survey in August. It's still not at the level it was, but it was a 66% improvement compared to the February survey.

"We could have managed our relationship with dealers better during that tough period," says Mr. Zetsche.

The company is trying to manage that relationship better now, through "intense communication with our dealers," and with Mr. Zetsche making it a point to visit dealerships.

But he says most Chrysler, Dodge and Jeep dealers remained profitable, even though the company was having problems.

He explains, "Our dealer body as a group in 2001 shows profitability which is equal to 2000...That definitely is not true for the profitability of the manufacturer. So, to some extent, it took us some time to understand why we were bitched on about the changes when we were suffering, and we didn't really see traumatic pain on the other side."

The Chrysler Group earned $5.4 billion in 1999 and $2.3 billion in the first half of 2000. But the red ink started flowing in the last half of 2000 when Chrysler was forced to use hefty incentives to move the metal.

The irony is that Mr. Holden lost his job because it was thought that he paid too much for incentives, and wasn't, therefore, bringing in enough profit. How is his successor's situation different from that?

Says Mr. Zetsche, "You look at your incentive development relative to competition, and not only as an absolute. Obviously, I work in a competitive environment."

He says the Big Three are seeing a dramatic deterioration of profits. But he adds that Sept. 11 did not affect Chrysler's overall turnaround plan.

Yet the Big Three is also seeing a deterioration of its market share, so much so that Toyota could conceivable surpass Chrysler's hold on the Number Three spot.

Would Chrysler pull out all the stops to prevent that from happening? Says Mr. Zetsche, "First, I don't think that will happen. Second, we wouldn't do anything stupid to avoid it. Our intention is to recover with our bottom line and have good market share and good marketing and exciting product."

He says that's the way to stay ahead of Toyota and achieve growth and profit. It won't come with the next incentive program and an attitude of, "Let's go for it, whatever the price is."

These days, there's a recurring question as to whether Chrysler is run from Auburn Hills or from DC headquarters in Stuttgart, Germany.

Mr. Zetsche says DC Chairman Juergen Schrempp is "extremely supportive and helpful."

He adds, "The entire group acknowledges and understands that you cannot run your company, within this competitive U.S. marketplace, out of Stuttgart. That's just not doable...This company has to be managed and operated out of Auburn Hills."

But they are watching from Stuttgart, and what happens in Auburn Hills determines its ultimate influence within the corporation.

"We are defining our future ourselves," says Mr. Zetsche. "The faster and the more we come back to reasonable profitability, the stronger our voice will be within the total group. So it's up to us."

His take on various other topics affecting Chrysler:

Industry sales forecast for 2002: "I've never seen a forecast that wasn't off so you can add another - high 14 millions to 16 millions."

Suppliers: 90% of Chrysler suppliers accepted a 5% price cut. Ten percent of its suppliers did not go for that and are no longer partners. About $1 billion in supplier business was re-sourced from one company to another. "Our relationship with suppliers is an overall good one. There are exceptions." Jeep, Dodge and Chrysler brands under one roof: "We'd like to see it where ever it makes sense - in the metropolitan areas, basically all of them - but it's up to the dealers. We're not forcing it on anyone. But we think it makes sense for all parties involved and we will work together in order to follow this strategy until a major part of it can be accomplished."

Shared platforms with Mitsubishi: "We'll do it with three levels of cars, but they'll look completely different. The design and marketing will be different." Switching to rear-wheel drive for large cars: "Rear wheel is a better concept for large cars. It's not in the best interest of a large-car customer to go with front-wheel. But there's always the possibility of 4X4 for people who don't want rear-wheel for traditional reasons."

A call for fold-away seats in Chrysler minivans: "I read articles about the need for that more than I see customer research calling for it. It's a question of what we have to gain and what it costs.”