Herr Heir?

It started with a 10-minute meeting at 8:40 a.m. in New York during September 2000.

DaimlerChrysler AG Chairman Juergen E. Schrempp called aside Dieter Zetsche, then 47 and head of the company's Commercial Vehicle Business, and asked him to take charge of the U.S.-based Chrysler Group, then reeling from staggering losses.

“I had neither a foreboding nor forewarning nor suspicion I was being considered,” Zetsche tells Ward's.

Two years ago this month — on Nov.17, 2000 — Zetsche reported in as Chrysler Group president, the first German executive to head Chrysler since its takeover by Daimler-Benz AG to form DaimlerChryser AG on exactly that same date in 1998. That coincidence suggests Schrempp gave American management a two-year window following the takeover as part of the agreement.

Zetsche inherited a mess. Masquerading that the DB/Chrysler alliance was a merger of equals, Schrempp and Chrysler Chairman Robert J. Eaton remained as co-chairman of DC AG until Eaton's planned exit in early 2000. From the start it was obvious that Schrempp was in charge.

During 1999 many of Chrysler's top executives departed, suddenly wealthy thanks to lucrative stock awards as part of the deal. Others found they didn't mesh with orders from Stuttgart headquarters, and exited. A relatively unknown marketing expert, James Holden, eventually took over as Chrysler Group president. Although not entirely his fault, the bottom soon fell out.

“In the first and second quarters of 2000 Chrysler Group met (financial) expectations,” says Zetsche, “but in the third quarters things fell through the floor and the fourth quarter (when he arrived) was a disaster.” The Group still managed to make $531 million in 2000. But clearly it was on a dangerous downward spiral. Excluding one-time writeoffs, Chrysler Group lost more than $1.9 billion in 2001.

Now, two years into its three-year turnaround plan, the Chrysler Group is back in the black. It's on track to beat its break-even target for 2002. In October it reported third-quarter operating profits of $301 million versus a $264-million loss a year earlier, and for the first nine months operated $526-million in the black against a whopping $4.8-billion loss (including special items) during the same period last year. Chrysler's performance offset lower results for other DC AG groups during this year's third quarter.

So why didn't Schrempp act earlier in moving a trusted and capable lieutenant into the Chrysler seat, especially since its management ranks were severely depleted?

“Timing-wise we couldn't do it a year earlier,” says Zetsche. “That was still the time of two chairmen and ousting the CEO amid those discussions about the merger and sending in a German” would've sent the wrong message, he says.

In fact, “It was never our intention of having a German running (the Chrysler Group). We didn't think we needed someone to turn around its fortunes.”

That's because in the early going Chrysler was still performing well. When things turned south, that thinking changed - and so did Zetsche's life and career.

As part of the transition, Wolfgang Bernhard joined Zetsche at Chrysler's Auburn Hills, MI, headquarters as chief operating officer and, with involvement of Schrempp and other executives, they plotted the turnaround plan.

That meant slashing 26,000 jobs, working with the UAW on sticky union issues, reducing output to reduce swollen inventories, putting price pressures on suppliers, rubbing elbows with dealers and simultaneously attacking efficiency and quality problems while juggling to keep product plans on track.

The payoff began to show starting in this year's second quarter when the Group earned $777 million — not enough to erase first-quarter losses but still enough to eke out a profit for the first six months, since augmented by the favorable third-quarter results.

Moreover, Chrysler's rebound has come in the face of fierce inventive wars.

The incentives have worked, but are now raising concerns that the market is becoming saturated and a downtown can be expected in 2003.

Zetsche's job is far from done. But what he has accomplished in two years makes him a leading candidate to one day succeed Schrempp, 57, at the top at DC AG. As Chrysler's situation deteriorated there was talk of cashiering Schrempp, but eventually his contract was extended until 2005.

Zetsche shrugs when asked about his future prospects. “I enjoy what I'm doing and I would like to do it as long as possible,” he says. “Beyond that, I don't bother; we have enough to do here.”

Until he took command at Chrysler, Zetsche was practically unknown in U.S. automotive circles, but not to America. He'd lived in Oregon during the early 1990s as president of D-B's Freightliner heavy-duty truck subsidiary. And as chief engineer of Mercedes passenger cars from 1992 until 1995 and subsequently head of sales and marketing first for D-B and then DC he had a close working knowledge of Mercedes' largest market outside Europe.

Besides a wealth of technical and business experience, he speaks excellent English and possesses a winning self-effacing personality, vital to the task of leading his mostly American Chrysler management team in mounting a turnaround. Since his arrival, he has maintained a high profile in industry and community affairs.

Although the challenges he faced as Chrysler's first German CEO were described by some as “scary,” Zetsche says he drew broad support from his family and colleagues. He recalls that Chrysler folks said, in effect, “He may screw it up, but give him a chance.” He appreciated that.

“I believe that's something unique about this country and the Midwest. This is a country of immigrants; you get a chance here.

He downplays his role in executing the turnaround plan. “At the end of the day, this is not rocket science. First you get more money in than you spend. Then it's managing costs, revenues and day-to-day in the marketplace.”

As a member of DC AG's management board, Zetsche says he was “entirely aware of the situation” at the 100,000-employee Chrysler Group, had seen its forecasts and knew of its “obvious problems.”

Having endured the gritty challenge of stanching red ink and returning to profitability, Zetsche now is moving to shore up Chrysler's manufacturing efficiency, nagging quality problems and product lineup.

He sees a future loaded with unique new vehicles that stand out from the competition and appeal to younger buyers - a group that includes his three teenage children, students at the Detroit Country Day, an elite prep school in suburban Detroit.

The boldly styled Dodge M-80 concept truck and Dodge Razor concept coupe fit that category, he says. Meanwhile, the upcoming Chrysler Crossfire and Pacifica are aimed at affluent older buyers.

Making the grade

Here's how industry experts grade Chrysler Group CEO Dieter Zetsche's two years on the job:

Auto analyst Jim Hall of the AutoPacific Group

B+

“That's in light of the mess he inherited and what has happened in the world since he arrived. The restructuring is moving ahead, new products are coming into production and quality is rising.”

Merrill Lynch automotive analyst John Casesa

A-

“He has won the respect of his constituencies, some of whom were skeptical and disillusioned (when he arrived). It's an immense accomplishment that he's won the respect of Chrysler's workforce. He's done a better job of executing — whether it's labor, product or whatever — across the board.”

The only Zetsche negative: “The clumsy way supplier relations were handled” early in Zetsche's tenure when Chrysler demanded unilateral price cuts.

David E. Cole, director of the Center for Automotive Research (CAR)

A

“He was viewed initially as a stormtrooper from Stuttgart, but he got (the late UAW president) Steve Yokich behind him because he showed he was a leader. And that's what DaimlerChrysler was looking for. If they had picked the wrong guy, it could have pushed the company over the edge. The saga is not over yet, but he's passed the most serious crises.”