Swan song

Holden discusses wins and woes in a last interview as Chrysler boss

In 1998, James Holden, then Chrysler Corp.'s sales and marketing vice president, stood in a dealership's utilitarian repair shop, and heralded Chrysler's Five Star program for dealers.

Mr. Holden said at the time that the new Five Star quality control program was a great way for Chrysler dealers to up their customer satisfaction standing, and thus their sales. He cited a comparison that, as an auto executive, he always looked for the next job up.

A year ago, Mr. Holden became president of the Chrysler unit of DaimlerChrysler AG. In that position, he had a lot on his plate, both sweet and sour - the latter including a terrible third quarter, in which the Chrysler unit lost more than $500 million.

Now the ambitious auto executive who was always looking for the next job up is out of a job at Chrysler. He was replaced by a German executive, Dieter Zetsche, who headed DC's commercial vehicles unit.

In what turned out to be his last interview as the head of Chrysler, Mr. Holden talked somberly with Ward's about those awful third-quarter losses and the sweeping cost-costing he ordered to deal with them.

His mood brightened when talking about Five Star. As an architect of that, Mr. Holden leaned forward in his well-appointed 15th floor office and discussed Five Star's successes.

He said, "It was founded on logic and partnership with the dealers, and it was really developed as a counterpoint in frustration to all the smoke and mirror programs and garbage that was out there two or three years ago...

"We knew when we launched it that we'd need dealers on board to help develop and design it. We did that and they now support it in a big way."

Five Star now has its imitators, he noted. Ford's Blue Oval program allegedly duplicates Five Star in many ways. "Not allegedly," said Mr. Holden.

There's a big difference between the two, however. Blue Oval plans to give certified Ford dealers a 1.25% discount on vehicle invoices. That's sparked considerable criticism. Five Star gives dealers certain incentives, but two-tier invoice pricing isn't one of them. And won't be, said Mr. Holden.

"Maybe it will work for Ford, but that's not what we're going to do," he said.

He said Chrysler is trying to give Five Star dealers a competitive advantage and offer programs that allow them to buy everything from office supplies to technology equipment through a central clearing house as well as to get advertising support from the automaker.

He lauded Chrysler's generally good relations with its dealers. But there've been a few disputes. For example, although DC has urged dealers to avoid the temptation of marking up the popular Chrysler PT Cruiser, some dealers are charging $3,000 over sticker. But, added, Mr. Holden "in general they've partnered with us on that issue."

Still, manufacturer-dealer disputes are inevitable, according to Mr. Holden who spent much of his career working with dealers.

"We have better dealer relations than anyone else, but you want a healthy tension," he said. "It shouldn't just be a love-in. If they're so ecstatic, then we don't need a dealer council, and probably got the wrong balance."

DC, like other automakers, got burned lately by over-inflated residual forecasts on leased vehicles, such as Jeeps.

"What went on with leasing was a wild shift to sport utilities and a frenzy for those vehicles as the segment grew...," he said. "We all predicated it would soften some. We probably didn't expect there would be as many SUV competitors this soon."

He said Chrysler would adjust residual values to "something more rational" than before, back off leasing a bit but still stay in that game.

"There's nothing inherently wrong with leasing as long as you've got the variables lined up right," he said. "We dropped too low. We had a couple of (SUV) vehicles that were running 50-60% (leasing versus buying) which was competitive in the segment but now it's too high."

He said Chrysler should settle in at leasing 35% of its SUVs, 20% of its minivans, and various percentages for cars, depending on models.

DC is unhappily following GM by offering generous incentives such as zero percent financing in an attempt to move metal and stay abreast of the competition. But Mr. Holden was clearly miffed at GM's initiative, saying Chrysler had no option but to follow suit.

"Why did they go to that extreme, which costs between $5,000-$6,000 as an incentive? Why did they go that high? We followed. We didn't lead this mess."

He said hefty incentives for moving end-of-the-year inventory is common, "but if this is the new level that everybody thinks it takes to sell cars, you're mortgaging your future."

On the other hand, he adds, "It's a great time to be a customer."

Chrysler offered generous incentives in the first and second quarter to maintain volume levels. But that was getting costly. So the firm cut back incentives. Poor third-quarter sales followed.

Pressured by the German home office in Stuttgart, Mr. Holden sent a memo to his executive team telling them to cut costs and get leaner - or else.

He tried to deal with low morale at the Chrysler unit's headquarters in Auburn Hills, MI, triggered by DC boss Juergen Schrempp's blunt comments to a financial newspaper.

Mr. Shrempp had remarked that his true intentions were always to make Chrysler a division even though he had initially said Chrysler Corp. and Daimler-Benz' merger would be a merger of equals.

"If I had gone and said Chrysler would be a division, everybody on their side would have said, there is no way we'll do a deal," Mr. Schrempp told the Financial Times.

Said Mr. Holden, "Nobody wanted to read that here. The reaction has not been great inside this building. Beyond that, my message to my folks is to get over it and get to work..."

In light of losing his Chrysler job, some of his comments during the interview seem prophetic - or at least ironic.

"Stuttgart can do what Stuttgart wants," he said at one point.

Referring to his role as head of a U.S. unit under scrutiny from Stuttgart:

"Either you are running the place or you're not."