Batman and Robin at Chrysler

From: Richard A Pyburn (rap777@juno.com)
Date: Thu Mar 22 2001 - 17:16:28 EST


Here's an interesting article that I read a few weeks ago in Forbes
magazine. I'm encouraged by the part about the designers and a few other
things like Dieter only bringing one assistant and really finding out the
attitude at Chrysler before jumping in.

Richard in San Antonio
                         Batman and Robin
                         Robyn Meredith, Forbes Magazine, 03.05.01

                         Scores of DaimlerChrysler employees were tucking
into their lunches in
                         the company cafeteria when their newest bosses,
Dieter Zetsche and
                         Wolfgang Bernhard, walked in carrying lunch
trays. Two days earlier they
                         had announced that the company would shed 26,000
jobs, about one-fifth
                         of Chrysler's workers. Zetsche, a lanky German
with a disarmingly dry wit
                         and a walrus mustache, sat down at a table with
seven workers. Within a
                         few moments he had them laughing—even though at
least one of his
                         lunch pals will likely be out of work soon.

                         Zetsche and Bernhard are the Batman-and-Robin
team sent from
                         headquarters in Stuttgart to fix all-American
Chrysler. But jovial lunches
                         aside, they don't have a lot of time for
niceties. The company's announced
                         recovery plan, involving massive layoffs and
shuttered factories, must
                         work quickly—or DaimlerChrysler (nyse: DCX -
news - people) Chairman
                         Jürgen Schrempp could be out of a job. He
probably has less than a year
                         to get Chrysler making money again—an even
tougher job if the American
                         economy stays in a funk.

                         Chrysler executives face a Faustian bargain.
They have no love for
                         Schrempp, who admitted his duplicity in
promising a "merger of equals."
                         Yet without him, they know they have even less
leverage in
                         DaimlerChrysler's poisonous palace intrigues in
Germany, where
                         Mercedes executives largely rule. With Schrempp
gone, there would be no
                         telling Chrysler's future. It might be nursed
back to health. But it could also
                         be broken up and sold for scrap—or left
withering within
                         DaimlerChrysler's empire.

                         If Schrempp is fired he has only himself to
blame. Chrysler's immediate
                         troubles stem not so much from a faltering
economy but from a
                         spectacularly ill-timed push by Schrempp to pump
up earnings early last
                         year.

                         Here's what happened. During the throes of the
merger, DaimlerChrysler
                         predicted that Chrysler would earn more than $5
billion in 2000, about
                         what it earned in 1999. In late 1999 Chrysler
President James P. Holden
                         began telling Schrempp and DaimlerChrysler's
management board that
                         Chrysler could be counted on to deliver only
$2.5 billion. The reason:
                         Chrysler would have to spend billions gearing up
factories to churn out
                         new model introductions just as an economic
slowdown was expected to
                         hit.

                         This comes from an ex-Chrysler executive who is
an ally of Holden and of
                         Robert J. Eaton, the retired DaimlerChrysler
cochairman: "We kept
                         adjusting the forecast as we went through the
year, telling Schrempp, ‘It's
                         not there, it's not there.' " But the mandate
from headquarters was "Save
                         the second quarter at all costs."

                         Under pressure, Chrysler built about 75,000 more
cars and trucks than its
                         dealers could sell—a 15% overage—and shipped
them to dealers in the
                         second quarter as fast as it could.
Channel-stuffing is what they call this
                         behavior in the electronics business. But it's
legitimate under the
                         accounting rules. That Dodge Neon is revenue to
Daimler when it arrives
                         on a dealer's lot, not when it leaves.

                         While other automakers were piling on
ever-higher rebates, Chrysler
                         didn't. That slowed sales by dealers but not—at
least, not right away—by
                         the manufacturer. Chrysler turned in profits of
$1.1 billion, on top of the
                         $1.3 billion it earned in the first quarter,
putting it just short of its $2.5
                         billion target for the first half.

                         But the boost was predictably short-lived. The
pile-up of inventory forced
                         higher rebates and other incentives in the third
and fourth quarters, which
                         drained profits. Chrysler showrooms overflowed
with unsold, old-model
                         minivans just as the new models began to arrive
in August, and
                         competitors flooded the market with incentives.

                         In the third quarter, with car sales slowing,
Chrysler lowered prices of
                         popular minivans by $380 to $19,800. In addition
it offered $3,000 rebates
                         on the old models and $1,000 on some of the new
models. A $3,000
                         mistake on monthly sales of roughly 30,000
minivans quickly adds up to a
                         $90-million-a-month mess. Do it for three months
and you're halfway to
                         losing half a billion in the quarter.

                        Chrysler executives messed up without Schrempp's
help, too. Flush with
                         record profits in the 1990s, the company added
costs to its cars and
                         trucks, expecting to be able to charge more for
them. Instead, car pricing
                         turned deflationary. A base model of the new
Chrysler minivan costs $500
                         more to build than the comparable old model, but
it sells for less.

                         Chrysler's troubles have led to wishful thinking
of bringing back its "dream
                         team" executive suite, including Robert A. Lutz,
Holden, designer Thomas
                         C. Gale and engineer François J. Castaing. They
have been approached
                         by investors, but no one appears to have
financing to make a credible bid
                         to buy Chrysler.

                         Instead, Chrysler is now led by Zetsche and
Bernhard, two of the most
                         hated men in Detroit when Schrempp appointed
them last November. To
                         understand what they faced, the two read
Internet chat-room dialogues
                         that were filled with anti-German diatribes.
Three months later they're
                         finding remarkable support. By the time they
announced Chrysler's job
                         cuts no one was bashing in Mercedes-Benzes with
baseball bats. They've
                         come across as credible and have been able to
distance themselves
                         from Schrempp.

                         Zetsche, 47, built credibility by bringing only
Bernhard with him, not a big
                         team from Germany. And to stem the potential
brain drain, he has
                         convinced many senior Chrysler execs that he
needs most of them to stay.

                         The duo has also embraced Chrysler's traditional
emphasis on innovative
                         design. The shrinkage in white-collar employment
will be 20%
                         companywide, but only 10% among the staff
working to develop future
                         cars and trucks. In meetings "Wolfgang wants to
know why the PT Cruiser
                         we're showing doesn't have 18-inch wheels," says
Trevor Creed,
                         Chrysler's senior vice president of design.
Bernhard, 40, an intense
                         engineer with an M.B.A.from Columbia, is both an
unabashed car-lover
                         and a stickler for cost-cutting.

                         Still, there will be more bad news soon. On Feb.
26 DaimlerChrysler is
                         scheduled to report its fourth-quarter results.
Chrysler is expected to lose
                         $1.25 billion, more than twice its third-quarter
loss. Look for kitchen-sink
                         charges of at least $2.5 billion in the first
half of this year. The company
                         will also lay out a strategy for fixing
Mitsubishi, in which it owns a
                         controlling 34% stake, and for shoring up its
struggling Freightliner truck
                         operation. DaimlerChrysler's stock price has
fallen from $84 when the
                         merger was completed in November 1998, to a
recent $48.

                         Chrysler is settling back into its traditional
role: the scrappy, underdog car
                         company planning yet another comeback. Rev up
the Batmobile.

                         -
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