DETROIT – There are more than one million Americans who are directly or indirectly tied to the survival of the newly independent Chrysler, a fact that its new chairman and chief executive officer said that he takes very serious.
“We take the weight of returning Chrysler to profitability very seriously because there are over a million families who are depending upon us,” said Robert L. Nardelli, who was the keynote speaker at the Automotive News World Congress, January 22, 2008. “(Chrysler) is very important to Detroit. This is a great family. This is a great job with great people and they’ve been tremendously warm and welcoming to me and my family. Chrysler is very important to the auto industry; it’s important to America.”
Exciting new products are coming from Chrysler for 2008, including the much-anticipated Dodge Challenger SRT8, a car Nardelli showed off with a quick montage of beauty shots. The rest of the world will have to wait until Feb. 6 when the Challenger SRT8 is unveiled at the Chicago Auto Show.
This is one car that promises to give the company a much-needed boost. The first production model was sold last weekend for $400,000 at the 37th annual Barrett-Jackson Collector Car Auction in Scottsdale, Ariz.
Though it will be a challenging year, or Challenger year, Nardelli also talked about new minivans – the Chrysler Town & Country and Dodge Caravan. He said, the company will also introduce hybrid versions of its Chrysler Aspen SUV and the Dodge Durango which has been touted as a “Hemi hybrid”
At the 2008 North American International Auto Show at Detroit’s Cobo Center, Chrysler had taken off the wraps to three concept green vehicles with lithium ion batteries. The vehicles included the four-seat Chrysler ecoVoyager, an electric vehicle mated to a hydrogen fuel cell range extender; the two-seat Jeep Renegade hybrid, that had a 1.5-liter, 3-cylinder Bluetec diesel engine (a Mercedes product) along with the battery for a 400 mile range; and the Dodge ZEO (Zero Emissions Operation), a four-passenger, all-electric powered car.
An alumnus of General Electric, where he observed the tactics of the legendary business leader John Francis “Jack” Welch, Robert Nardelli joined Chrysler LLC in August 2007, when the automaker’s fortunes are at an ebb. The “marriage of equals,” as it had been called when Daimler-Benz (later renamed as DaimlerChrysler and now Daimler) bought the American icon ended in a partial divorce after years of acrimony.
Daimler had sold 80.1 percent of Chrysler to the private equity firm Cerberus Capital Management, and retained 19.9 percent, to meet the demands of its German stockholders who had watched about half of the financial equity of both corporations disappear between 1998 and 2007. Product problems at Chrysler, then Mercedes-Benz, and a lack of the promised savings of the “merger” had doomed it to failure.
Although Nardelli had a rocky term as chairman, president and CEO of Home Depot (he was forced in January 2007 out by the board of directors after the home improvement retailer’s sales slid with the housing industry) he joined long-time Chrysler President Tom LaSorda, a Windsor, Ontario, native. In order to rebuild Chrysler from a division of Daimler and return it to an operating company, the Nardelli-Lasorda team was soon joined by Jim Press, formerly of Toyota. The only American (and foreigner) to be made a member of the Japanese automaker’s board of directors, Press is credited with having overseen the highly successful expansion of Toyota’s sales in North America.
“My mission, along with Tom LaSorda and Jim Press, in the office of the chairman, is to build upon this proud heritage and restore Chrysler to its rightful place, as a benchmark company, not only in the automotive industry, but among the world’s best,” Nardelli said. “We also understand that a thriving American auto industry is crucial for the economic health of Detroit and our country. One of every nine jobs in the U.S. is related to developing, building, selling, or caring for motor vehicles. These jobs create salaries and wages that total $335 billion dollars which predominantly goes back into our local and national economies.”
A native of Old Forge, Pennsylvania with degrees from Western Illinois University and the University of Louisville, the 59-year-old Nardelli laid out his vision for the newly independent Chrysler at the Automotive News World Congress. The congress is a gathering of hundreds of automotive managers, analysts and other experts around the world who gather to hear opinions and industry forecasts while the public peruses the new vehicles at the nearby 2008 North American Auto Show.
“The biggest potential advantage (of being owned by the private equity company Cerberus) is that it encourages an owner-operator mindset,” Nardelli said. “This attitude enables us to move quickly in order to provide our customers with great value and performance. At Chrysler, we are focused on utilizing our speed (to make decisions with) a quick yes or a quick no, but not a slow maybe.”
For example, when Chrysler’s sales dropped in the later half of 2007 as troubles in the housing market caused a credit crunch and talk of recession in the economy, Nardelli said that his team quickly called their owners at Cerberus. Within seven minutes, the decision was made to reduce the company’s projected inventory by 19 percent for the rest of the year – representing more than 100,000 unwanted cars, trucks, minivans and SUVs that the automaker did not force on Chrysler, Dodge, and Jeep dealers.
Part of the cuts made at Chrysler included canceling the PT Cruiser convertible, the Pacifica crossover wagon, the two-seat and extremely slow selling Crossfire coupe, and the Dodge Magnum. Additionally, the company slashed 4,900 hourly and 2,100 salaried and contract workers by the end of 2007. The job cuts were in addition to a plan unveiled by Daimler in February 2007 to eliminate 13,000 positions in three years.
Although the decision to cut production was financially painful for the automaker (on the manufacturing side, with economies of scale, an automakers’ factories run profitably only when they are near to full capacity), Nardelli said that the decision showed the company’s commitment to support its 6,000 dealers.
“We shouldn’t pass our mistakes on to them,” he said. “It is more about their profitability for us to be profitable. I think it went a long way to demonstrating our commitment, as the new Chrysler, to go to more of a pull than a push.
We took a hard look at our product line and portfolio,” Nardelli had said in an interview. “We looked at it from a customer acceptance standpoint. Those are always tough decisions, gut wrenching, to separate our products that we took a tremendous amount of pride. But the reality is that consumers votes with their hard-earned dollars and based on that we made those tough calls and took out four of our cars. We will continue to assess the receptivity and purchasing power of our consumers and see where that takes us.”
During the question and answer session, Keith Crain, publisher and editor-in-chief of Automotive News, grilled the Chrysler chairman with inquiries from the audience including, “In all your experience, have you ever seen an industry that burns through cash quicker than an auto company?” Which brought some uncomfortable laughs from the crowd. Before Nardelli went into his answer, Crain added, “Particularly when you’re not selling any cars.”
“I’m not sure I agree with the last statement, Keith,” Nardelli responded. “Last year we sold a few last year – over 119,000 Jeeps, for example, but there is an interesting set of dynamics relative to the auto industry that certainly I’m learning a lot about. But, I’m learning a lot from a great team at Chrysler. Men and women who are truly dedicated and have a tremendous level of intellect and loyalty with an average tenure of a Chrysler employee is 24.4 years.”
The new labor contract worked out with the United Auto Workers in late 2007, will also help Chrysler’s bottom line, the automaker’s chairman said. With reduced healthcare and pension liabilities, which will be shouldered to a great degree by the union, and a two-tiered wage structure where new workers will be paid a lower level than current workers, the company’s labor costs will fall more in line with the foreign “transplant” factories in the U.S. – such as Toyota, Honda, Nissan, Hyundai, and Kia.
Chrysler also will not abandon its Mopar business, Nardelli said, making sure that the aftermarket line did not become an “afterthought.”
“Our strategic vision is to raise the visibility (of Mopar), to invest in new technology, invest in innovative ideas, in the accessories, develop a stronger network, and to spend as much time at back of dealership in service, for customer satisfaction, as we do in the front of our dealerships,” he said.
Going forward, Chrysler will look to increase its tiny foreign presence by not only sourcing parts from overseas vendors, but opening up research and development, and manufacturing centers probably in the so-called BRIC countries – Brazil, Russia, India, and China – that are growing automotive markets.
“If you look at where we are, Chrysler has the opportunity and should seize the opportunity to bring some globality to the business,” Nardelli said. “Our international business is very small as a percent of our total sales and production. That’s the bad news. The good news is that it is small (and can grow).”
During his speech, Nardelli did wax about the historic qualities of Chrysler, as how small groups of dedicated leaders could drive change and create successful corporate turnarounds.
Reaching Back to History
Instead of focusing on the more recent example of how Lee Iaccoca’s team turned around Chrysler in the 1980s (though much of the groundwork had been laid by Iacocca’s predecessor, John Ricardo), Nardelli turned to talking about the automaker’s founder, Walter P. Chrysler. However, with only a few examples, some of Nardelli’s of the allusions were probably lost on listeners unfamiliar with auto history from 70-80 years ago.
Nardelli spoke about how Chrysler, founded had been a former engineer working for Alco – the American Locomotive Company – had rescued an early automaker, Willys-Overland from financial disaster during the severe 1920 recession. Chrysler ran Willys-Overland from 1920-1921 at a then unheard of $1 million a year salary. Prior to that, he had been president of General Motors’ Buick division in the 1910s.
Leaving the “well-paying job,” Chrysler took over the financially troubled Maxwell Motor Company, Nardelli continued. “He brought with him a small group of fellow engineers with a vision for an advanced new engine, and a revolutionary new car that would become a smash hit (the Chrysler Six), allowing Maxwell to reorganize into a new company (Chrysler).”
Actually, Walter Chrysler also merged the financially troubled Detroit-based Chalmers auto company and Maxwell together to found his company. Later in 1928, he purchased the much larger, but also troubled, Dodge Bros. Inc. into his corporation.
Nardelli briefly mentioned the “Dodge Brothers” without naming them or their accomplishments. Known for carousing and their hard drinking, John and Horace Dodge had grown up poor in the tiny community of Niles, Michigan. Machinists, they had moved to Detroit, entered the bicycle and nascent motor businesses, and eventually became suppliers and shareholders of Ford Motor Company. The Dodge Brothers entered the auto manufacturing business after a protracted dispute with Henry Ford, but both were struck down due to complications of from influenza within months of each other in 1920.
Lastly, Nardelli mentioned another “inspiring” founder of Chrysler Corp. – which his speech’s transcript says is “John North Willis.” That probably is a reference to John North Willys – the head of Willys-Overland that Chrysler had bailed out in 1920. Ironically, Willys had taken over Overland in 1908, saving the company from bankruptcy himself.
The historic relic of Willys-Overland – and the John Willys’ example – came into Chrysler’s portfolio in 1987. That’s when Iaccoca bought American Motor Corp. (AMC) from Renault, primarily to acquire the Jeep brand. Willys-Overland had trademarked the Jeep name after World War II, having been one of the original builders (along with Ford and Bantam) of the go-anywhere reconnaissance vehicle. We’ll save the convoluted story of how Jeep and Hummer are related for another day.
An interesting side note is that the “new Chrysler” and the Renault-Nissan alliance have discussed a deal to share technology, engines, and vehicles toward the end of 2007. This led to the early January 2008 announcement that Nissan would supply Chrysler a version of its Versa sedan for sale in South America.
When asked if there would be any further deepening of a Chrysler alliance with Renault-Nissan, Nardelli demurred, though said Cerberus would handle any such discussions.
“Cerberus has really entrusted running Chrysler to our team,” Nardelli said. “They are there for support. They are there to bounce ideas off of, but they leave the management to us.”
Headquartered in New York, under the control of co-founder, Steve Feinberg, Cerberus also owns 51 percent of General Motors Acceptance Corp. (GMAC), which it bought in 2006. A native of the Bronx and son of a steel salesman, Feinberg is purportedly a very private person. His team at Cerberus includes its president, John W. Snow, who had served as U.S. Secretary of the Treasury under President George W. Bush.
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