On the Attack

On a brisk autumn morning in Auburn Hills, MI, the leaves on the maple trees surrounding Chrysler Group headquarters are changing color, signaling the end of summer. It's a bittersweet time for many in Michigan.

Chrysler Group President and CEO Dieter Zetsche sees it as the end of another trying season and the beginning of a new one filled with hope and promise.

After all, his company is about to embark on one of the biggest new product blitzes in its recent history. Chrysler plans to introduce 25 new vehicles within the next 36 months; with nine coming in 2004 alone.

The breadth of new products stretches across various segments, to include the Chrysler PT Cruiser convertible; revised Town & Country and Dodge Caravan; the Crossfire roadster and SRT-6 performance version; the 300C sedan and Touring wagon; Dodge Magnum cross/utility vehicle; new Dakota pickup and Jeep Grand Cherokee and a stretched Wrangler. These products will join the recently launched Dodge Durango SUV and the Dodge Ram SRT-10 performance pickup, which will hit the market late in the year.

Zetsche and his team have taken a beating in 2003. While the third and final year of Chrysler's restructuring was supposed to be a time of promise, the auto maker hit several potholes, including the disappointing launch of the Chrysler Pacifica and a relentlessly competitive marketplace demanding ever-bigger incentives.

“It's safe to say that during the first two years of the turnaround, we were very successful on the cost side, meeting and beating all of the targets we set for ourselves. At the same time…the objectives we set for ourselves on the revenue side were not met entirely,” Zetsche says in an interview.

The bottom fell out during the second quarter, when Chrysler tried to wean itself off incentives and saw its sales tumble. The auto maker posted a $1.1 billion loss during the quarter, derailing the plan's expected $2 billion profit for this year.

Zetsche says Chrysler had few new products to offer in 2003, which put the company at a disadvantage. It was forced to ratchet up its cost-cutting efforts to help offset the decline in revenues. While the auto maker was able to save an additional $1 billion over its original $2 billion estimate, it still wasn't enough.

Shortly after the second-quarter results hit Wall Street, Zetsche and his team found themselves under more intense pressure to quickly right the ship. Headlines popped up throughout the financial and Detroit press predicting Chrysler's demise.

Zetsche says the negative press began to take its toll on the team at Chrysler, some of whom had been through this same scenario many times before.

“I clearly acknowledge that parts of those articles are not helpful for us and that, of course, we are facing morale issues,” he says.

“No doubt, you are better off when your people are excited and in high spirits with great morale. When you are going through tough times and when your people are confronted with either reports or speculations in the media about your situation and potential future, you have the chance to still energize your people. This team has been able to overcome significant problems in the past,” he says.

Despite the problems, Zetsche says there's no need to extend Chrysler's turnaround plan beyond the 3-year timeframe. The product plan is moving forward at a brisk pace, which should help boost the bottom line, he contends.

“The price pressure is mainly affecting the carryover products. The objective with the new products is to pull customers into your showrooms based on the strength of the new products and not the ‘deal-of-the-week,’” he says.

That doesn't mean Chrysler will bail out of the incentive game. In fact, the company plans to be more aggressive on its pricing and incentive practices going forward. Chrysler executives point to the new Durango as a good example. The volume-leading SLT 4×4 is priced $2,000 less than the outgoing comparably equipped model, despite a new chassis, interior and body.

Additionally, Chrysler plans to offer incremental incentives upwards of $500 on the Durango right out of the gate.

Zetsche now has his eyes set on a new target: to make Chrysler the most efficient high-volume auto maker by 2007. That may seem to be a goal even loftier than making another $2 billion, but Zetsche is firm in his belief that Chrysler will truly turn itself around only after it is regarded as the leading manufacturer in both efficiency and quality.

“On the productivity side…we intend to lead the best volume players in the North American market in productivity measured according to the Harbour Report,” he says. “Basically, the same applies to quality. To be perceived as industry leaders in the volume segments with our three brands we will then be really among the best.”

Zetsche knows the rest of the industry will be moving forward to boost productivity levels even as Chrysler moves to improve its standing. He expects Chrysler to post gains in the realm of 7% in the coming year.

One of the critical pieces of Chrysler's product-based turnaround is the upcoming launch of the LX rear-wheel-drive platform. The new platform marks a return to RWD.

Zetsche admits it will take some time to educate the public on the benefits of RWD after decades of promoting front-wheel drive. The industry, he says, sold consumers on FWD because it was cost efficient.

Chrysler already has debuted the 300C sedan and Touring wagon (which will be sold only in Europe). There's also the Dodge Magnum wagon. Also rumored to be on tap: the return of the Dodge Charger.

Zetsche says the LX platform is not a make-or-break strategy for Chrysler, despite what many pundits have suggested.

Chrysler is working with its alliance partners, including Mitsubishi Motors Corp., to develop a new family of small and midsize cars, to replace the Chrysler Sebring, Dodge Stratus and Neon. Those cars are expected to debut in 2005, along with siblings from Mitsubishi.

“We are proceeding according to plan in both segments. The first product to come to market based on that platform will come from Mitsubishi, but we will follow soon after,” he says. “Not next year, but soon after.”

Zetsche also is focusing his attention on growth of the Jeep brand. While the company has long been touting the possibility of adding both larger and smaller Jeep products for the past few years, Zetsche says those plans are coming closer to fruition.

He also says the only way Jeep can truly grow is through “new products,” with growth “going up and down” various segments.

The Chrysler brand, itself, is going through what some would call a schizophrenic period. Chrysler's former marketing chief, James Schroer, was firm in his commitment to take the Chrysler brand upmarket from both a price and image standpoint. The current marketing regime, under the direction of Joe Eberhardt, is abandoning that strategy.

Zetsche says he wants Chrysler to offer premium vehicles in volume segments, which doesn't necessarily mean taking the brand to high echelons in terms of price.

“Premium was perceived as starting to charge premium prices and…it's certainly no formula for success,” he says. “What we intend to do is launch products under the Chrysler brand…that are the opposite of commodities. Over time (that) will build the brand equity and allow us potentially, as well, to enjoy a limited premium in the volume segment.”

Chrysler also is taking Honda's Odyssey minivan success head-on in the coming months with a newly revamped minivan of its own.

The new van will offer second and third-row fold-into-the-floor seating configurations, an industry first. Zetsche is mum on the subject, but says Chrysler plans to remain a leader within every segment in which it competes.

“When you are not only the inventor of segments but the dominant leader for decades, it's very important that you maintain that position and you cannot do that on the merits of the past,” he says.

Zetsche acknowledges that Chrysler has delayed development of certain products by upwards of six months. The changes were made to ensure a steady stream of new products in coming years and better pace upcoming launches. It doesn't mean a vast number of products were put on the back burner, he emphasizes.

Chrysler also is working with its counterparts at DaimlerChrysler AG in Stuttgart, Germany, to develop a strategy for the launch of hybrid-powered vehicles. Chrysler will launch a contractor version of its Dodge Ram pickup in the next year, which offers a hybrid-electric powertrain with enough auxiliary power to run a house. It will be the first in a series of vehicles Chrysler will use to develop a comprehensive hybrid strategy.

“Certainly hybrids have their merits, not by replacing all conventional combustion systems but by finding their place in the overall market. We will go beyond (the Ram contractor) and have a vehicle, a FWD vehicle for Chrysler, which is more in the core with a hybrid (propulsion system), as well,” he says.

“Not next year. We're working on that project. We haven't disclosed the launch time right now.”

His plate may be full, but Zetsche, who still manages to find time to be an avid reader and play the violin and viola, is ready for the task. He also is quick to dispel rumors that DaimlerChrysler has been discussing the possible separation of Chrysler from the rest of the group.

Recent reports have indicated DaimlerChrysler Chairman Juergen Schrempp and the supervisory board have been under pressure to consider such a move in light of Chrysler's weak financial performance.

“DaimlerChrysler has proven in the past that this company has staying power, and that it is willing and able to take problems on in order to solve them. We, specifically here in Auburn Hills, are getting lots of support from my boss Juergen Schrempp and from the entire management team in order to help us in the challenges we are facing,” he says. “I never ever heard any discussions (within the supervisory board or board of management) of considering any alternatives to (our) strategy.”

With new products on the way and an increased focus on improving quality and efficiency with every new product launch, Zetsche is confident Chrysler will have more than enough ammunition to take on the battle for growth in the U.S. market.

“Now we will have, by quantity and as important by quality, the means to become aggressive again and not just to defend but to attack with those new products,” he says. “Now we can take care of the top line (revenue) as well (as the bottom, cost-cutting line), while we continue to work very hard to maintain the pace on the cost side as we did in the last three years.”