Is this the next Chairman?

It started with a 10-minute meeting at 8:40 a.m. in New York in 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 if he'd agree 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 in a lengthy interview. “Juergen put a plan on the table and we agreed I'd make up my mind within a week. We had one or two other meetings, and after a week, from a gut feel, I knew what I would do.”

What he did was say yes, and two years ago this month — on Nov.17, 2000 — Zetsche reported in as Chrysler Group president and CEO, the first German executive to head Chrysler since its takeover by Daimler-Benz AG to form DaimlerChrysler AG on exactly that same date in 1998. That coincidence suggests Schrempp gave American management a 2-year window following the takeover as part of the agreement.

To say that Zetsche inherited a mess is an understatement. Masquerading that the DB/Chrysler alliance was a merger of equals, Schrempp and Chrysler Chairman Robert J. Eaton remained as co-chairmen of DC 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, suddenly wealthy thanks to lucrative stock awards as part of the acquisition, departed. Others found they didn't mesh with orders from Stuttgart headquarters and exited. James P. Holden, a marketing expert and Zetsche's Chrysler counterpart, eventually took over as Chrysler Group president, and — 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 quarter 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 was in a dangerous downward spiral. Excluding one-time write-offs, Chrysler Group lost $1.943 billion in 2001.

Now, two years into its 3-year turnaround plan, the Chrysler Group is back in the black and 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 groups during this year's third quarter.

Zetsche also has made major strides in labor relations. Chrysler averted a mid-October strike by the Canadian Auto Workers union (CAW) by making a last-minute offer to construct a new plant in Windsor, Ont., Canada, to build a yet-unnamed new model starting in fourth-quarter 2005. (Ward's sources say it will be the Dodge M80 pickup and some variants.) The union had demanded that Chrysler keep open its aging Pillette Road plant in Windsor, which is scheduled to close next year. Because of the complexity of the new-plant scheme, it almost certainly had been in the works for some time. Zetsche says the business plan includes government aid and investments by suppliers. Suppliers would build, operate and staff the majority of the facility and set up shop in an on-site supplier park.

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” 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 United Auto Workers union on sticky issues, reducing output to thin out 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 in this year's second quarter when Chrysler 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 incentive wars, triggered after 9/11 by General Motors Corp.'s “Keep America Rolling” 0% financing plan that has expanded relentlessly, forcing other auto makers — especially Chrysler and Ford Motor Co. — to follow suit. The incentives have worked, but now are raising concerns that too many sales have been pulled forward from next year, and may cause sales to slow — and perhaps tank — in 2003.

Obviously, Zetsche's job is far from done. But what he has accomplished in just two years makes him a leading candidate to one day succeed Schrempp at the top of DC, one of Europe's largest industrial conglomerates, consisting of Chrysler Group and Mercedes-Benz, as well as a host of commercial vehicle and giant financial operations. When Chrysler's situation was still deteriorating — and DC stock was falling like a rock — there was talk of cashiering Schrempp, but eventually his contract was extended until 2005. Schrempp is 57.

Zetsche simply 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 Daimler-Benz'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.

And he had other appealing credentials. Besides a wealth of technical and business experience, he spoke excellent English and possessed a winning 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 and ready accessibility to the press.

It also helped that he had major overseas experience. After joining D-B's Research Div. in 1976 armed with a master's degree in electrical engineering from the University of Karlsruhe, he rose steadily and in 1987 was named chief engineer at Mercedes-Benz do Brasil. Two years later he moved up to president of Mercedes-Benz of Argentina, then on to Freightliner.

In Germany, where top engineers are a revered species, Zetsche added a “PhD” when he won his doctoral degree from Paderborn University in 1982. As a pre-condition to joining D-B it was agreed that he could simultaneously work on his advanced degree. His research on “active body control (ABC)” for D-B became his PhD thesis. Mercedes in recent years has introduced electronic body control on several models, validating his early work on the systems.

Although the challenges he faced as Chrysler's first German CEO could have been daunting, Zetsche says it was not the case because of the broad support from his family and colleagues. The Chrysler folks said, “‘Give him a chance and let him screw it up.’ I believe that's something unique about this country and the Midwest. This is a country of immigrants; you get a chance here. We had to face the music. We said not everyone will be euphoric. Some in the company will be scared about their jobs and future. But there was nothing personal in this. We had to make decisions and as a team gain confidence over time. It was not easy but it helped because of the people we met.”

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,” he says. In restructuring, he did not set up an additional group to oversee the effort, putting responsibility on line managers. And he didn't resort to outside consultants, saving an estimated 80% in direct costs of developing the turnaround plan, he says.

Zetsche doesn't blame Chrysler's prior management for its dilemma. “There are long cycles in this business,” he says. “This is a risky business to be in if you believe you'll fall off the cliff, so it's tough to make tough decisions when you're successful.”

Although not previously directly involved with Chrysler, as a member of DC's management board since 1997, Zetsche says he was “entirely aware of the situation” at the Chrysler Group, had seen its forecasts and knew of its “obvious problems.”

Acknowledging differences between American and German corporate cultures, he says stereotypes sometimes get in the way. Still, as an engineer he likes “the strong daring — the creativity of this company, and the pioneering attitude of the United States.” Conversely, in Germany greater emphasis is placed on discipline “with a more analytical approach.”

He was somewhat surprised at Freightliner and then at Chrysler that, when he made a decision, his underlings would say “Yes, boss,” and move ahead. “In Germany 15 people would say, ‘it's the dumbest idea I ever heard’ and argue for four hours. Then the boss would say ‘I like your controversial style,’” he quips.

Zetsche sees meshing the two cultures as creating a strong management team. Eliciting diverse viewpoints where everyone gets a chance to contribute from his or her experience is more his style, he says. “Yes, boss,” is heard less frequently at Chrysler these days because “I do believe we have a great team here. But if we don't have agreement, I make the decisions and I am prepared to do so.”

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. “We're trying to set the stage for levels of excellence. That's a lot more challenging and rewarding because you don't have to worry about next year,” he says. “It's now the ‘art’ part of the business; that's the part I like. It takes time. The other part was just positioning us for the future.”

As he sees it, the future is loaded with unique new vehicles that stand out from the competition and appeal to younger buyers — a group he calls “the Millennials,” one that includes his three teenage children.

The boldly styled Dodge M80 concept truck and Dodge Razor concept coupe fit that category, he says, while the upcoming Chrysler Crossfire and Pacifica are aimed at creating exclusive niches among affluent older buyers.

A major key to Chrysler's future product success will be increasing component sharing with Mercedes and 37%-owned Mitsubishi Motors Corp., he says. The Crossfire, for example, combines Chrysler's creative design and German technology, he points out. Mercedes diesels already power Chrysler cars sold in Europe, and antilock brakes from the Mercedes C-Class are planned for several Chrysler vehicles. Mercedes-designed automatic transmissions are planned for future fullsize Chrysler and Dodge models, built in Kokomo, IN. And it'll rely on Mitsubishi to help shore up its small-car stable.

With the moves it's making, Zetsche is convinced Chrysler can achieve major gains in productivity and quality, areas where it has fared poorly in independent surveys. During the first half of 2002, productivity jumped 7.6%, he says, and the 7-year/70,000-mile (112,700-km) powertrain warranty launched in July backs up its claim that quality is on the rise.

Zetsche is nothing if not an optimist. He thinks Chrysler will be able to compete head-to-head with the world's best, and he backs that up by boldly targeting a 1 million gain in annual sales to 3.8 million units by 2011. Between 2003 and 2005 Chrysler will introduce 21 new or refreshed products.

Asked if Chrysler can catch up with competitors such as Toyota Motor Corp. and Honda Motor Co. Ltd., already global product and profit leaders, Zetsche observes: “There are a number of areas where they are ahead of us, but we believe we know how to close that gap in a reasonable time frame. If we do it right, we have an opportunity. I haven't seen a PT Cruiser from Japanese companies. They've done a marvelous job. We know they're a moving target, but I feel confident that five years from today” Chrysler will rank among the world's best in every category, he says. Chrysler has, and is, benchmarking Honda, he says, “but we're not copying them. We want to have our own unique appeal.”

His job was made tougher last summer when DC slashed Chrysler's 5-year product spending plans from $40 billion to $32 billion. It now sits at $30.5 billion. “We've pulled three products but added eight” to the plan, he says. “We'll do it with derivatives, parts sharing and other means and become more efficient in the design of processes. Sometimes you can get more with less.”

A “car guy” since he worked on Volkswagens as a teenager, Zetsche says he has quickly acclimated to the U.S. automotive scene because “I believe you can only run a company if you put your heart and soul into it.”

Chrysler's 100,000 employees take note: “The Boss” is on the job.