Smoothing the Bumps at Chrysler

By TERRIL YUE JONES

Feb. 25, 2001 12 AM PT

TIMES STAFF WRITER

AUBURN HILLS, Mich. —

Just one day after announcing he would eliminate hundreds of millions of dollars in dealership advertising and showroom subsidies, Dieter Zetsche, Chrysler Group’s recently named chief executive, faced an angry audience of about 80 Los Angeles-area Chrysler dealers.

Many were indignant about the subsidies being taken away from them. “It was extremely hostile,” Clay James, owner of Huntington Beach Dodge, recalls of the Jan. 30 meeting at the Renaissance Hotel near the airport. “People were feeling stung and wondering how badly all this would hurt us.”

Zetsche spent 20 minutes explaining the straits in which Chrysler has found itself and how dealers could earn back financial support by meeting monthly sales targets that Chrysler would set. Then he spent two hours patiently fielding sometimes irate questions, demonstrating a solid grasp of the topics thrown at him--from product planning to dealer issues and advertising--and promising never to cut back on product development.

And then, at the end, Zetsche got a standing ovation.

“He was amazing. He went light-years with me,” James says. “He’s as good a salesman as I’ve seen in 25 years.”

Zetsche has his work cut out for him. Third-quarter losses were $512 million; fourth-quarter red ink is expected to be about $1.2 billion. Market share has declined steadily since its high five years ago and, after two record years, the U.S. auto market is expected to shrink appreciably this year.

Zetsche was greeted with suspicion and resentment by many when he arrived in November to pull Chrysler Group--the former Chrysler Corp.--out of its deep hole. Zetsche, whose formal title is chief executive of DaimlerChrysler Corp.--Chrysler Group plus Mercedes-Benz operations in North America--was appointed just three weeks after published comments by Juergen Schrempp, chairman of the parent company, DaimlerChrysler AG, that he had never planned the union as a merger and that he had always intended to make Chrysler a division of the German conglomerate.

That provoked outrage among Chrysler employees and shareholders and caused morale to tumble even further after the cashiering, resignations and retirements of most of its top executives. Even Zetsche acknowledges they were “unfortunate comments.”

He deflects some of the criticism of Schrempp by stressing that he is the one in charge. “This company is run here out of Auburn Hills, and we have got the full authority to act here as management,” he says in an interview at headquarters in this suburb north of Detroit.

The 47-year-old Zetsche is about as unpretentious a CEO as one might imagine. Although he inherited a 15th-floor corner office and has a penchant for three-piece suits, the slender, balding German with an earnest, personable demeanor and a huge walrus mustache hasn’t bothered redecorating the office formerly occupied by his ousted predecessor, Canadian-born James Holden.

The bookshelf stands mostly empty, and Zetsche hasn’t even removed the large Canadian flag Holden left behind. It seems almost deliberate, to show that he’s been sent to do a job: Turn around Chrysler’s sagging fortunes and not concern himself with the trappings of his position.

“I didn’t change anything. I just went in and found my chair and went from there,” he says with a thick German accent. “There are more important things than having decorations in my office.”

Zetsche certainly hasn’t wasted time. In his first 100 days, he has laid out strict price cuts that suppliers must agree to or lose Chrysler’s business. He has decided to slash 26,000 jobs from the payroll--one in five--and to close six factories while significantly reducing production at seven more.

He eliminated the subsidies to dealers, and has done what no one expected after the departure of most of the troubled auto maker’s top leaders: He has lured senior executives from competitors to Chrysler to help rebuild the company.

He’s also shown that there is something of an impish actor lurking behind his round eyeglasses.

Monday, Zetsche and his right-hand man, Chief Operating Officer Wolfgang Bernhard, will stand before DaimlerChrysler bosses and shareholders in Stuttgart, Germany, and lay out how Chrysler lost some $1.7 billion in the second half of last year, announce an extraordinary restructuring charge of as much as $3 billion and present his full restructuring plan, which is likely to include the eventual sale of non-core assets such as DaimlerChrysler Aviation, the Dayton Thermal plant, the Dearborn glass factory and other components facilities.

“It’s definitely the right direction, but we need to see further measures: more plant closings and fixed-asset reduction,” says auto analyst Michael Bruynesteyn of Prudential Securities.

“They need to get considerably leaner in their asset base because of the lower revenues they’re now generating and their decreased market share.”

Nonetheless, Zetsche “has impressed everyone he’s come in contact with,” Bruynesteyn says. “No one has anything bad to say about him. He’s made a fantastic impression.”

Zetsche made necessary cutbacks, says Rebecca Lindland of Standard & Poor’s North American Automotive Group, but he did spare the key engineering group. “There’s been a minimum cut in their future product plans, which is good,” she says. “You need to feed their creative department and keep it well-stocked. If you don’t keep them fat and happy, you’re doomed.”

Furthermore, she says, “He doesn’t seem to have any ego, like Schrempp does.”

That’s reflected in how Zetsche goes out of his way to meet rank-and-file Chrysler workers.

Alex Gertsmark, who works in international dealership identity, was eating lunch with some colleagues in the cafeteria at headquarters just before Christmas when someone appeared at his elbow and asked whether he could join them.

Gertsmark looked up and was stunned to see it was Zetsche, fresh from the salad bar. “He was talking about missing his family, the hardship of staying in a hotel, looking for a house. It was trivial stuff, very down-to-earth,” Gertsmark recalls.

Zetsche has since become a familiar sight in the canteen.

“He didn’t try to be artificially ‘one of the guys,’ ” Gertsmark says. “Everybody at the table felt very good, almost inspired that the senior executive would eat with us.”

Zetsche is no stranger to taking over a company in crisis. When he headed Freightliner, DaimlerChrysler’s Portland, Ore.-based commercial truck subsidiary, in the early 1990s, Zetsche cut 25% of the jobs and weathered a strike at one of the division’s three plants.

But he set Freightliner, which now has some 15 factories, on a path toward growth and strong profitability.

Now he’s at it again, trying to turn around Chrysler. Helping him is Bernhard, a 40-year-old cost-cutting expert with an MBA from Columbia University in New York and a doctorate in political science from Goethe University in Frankfurt.

Bernhard is in charge of four areas, all dealing with cost cutting: material, plant and fixed-cost management, and operations. Zetsche oversees revenue management and product strategy.

Bernhard was most recently head of Mercedes-AMG, the luxury car maker’s performance tuning division. From 1994 to 1999 he headed the notoriously bloated S-class plant in Sindelfingen, Germany, which he transformed into a much leaner manufacturing enterprise.

He was a chief architect of the plan to close the six Chrysler factories, five of them in Latin America. The sixth, an engine plant in Detroit, had already been scheduled to close.

With their records to back them up, Bernhard and Zetsche say, “Restructuring a company isn’t rocket science.”

Less than a month into his new job, Zetsche declared that Chrysler’s suppliers would have to offer a 5% price reduction starting Jan. 1 and an additional 10% over two years. Several suppliers balked, and there have been intense negotiations with a number of component manufacturers unwilling to concede so much.

Since then Zetsche has backed down somewhat, easing the Jan. 1 demand. “We feel very comfortable with the 15% and that we can get there, and how this combines in the end doesn’t matter to us as long as we get the bottom-line effect,” he says.

The Jan. 29 announcement about the job, plant and dealer subsidy reductions was a surprise given that Zetsche had set Feb. 26 as the date he would unveil his master plan.

“The moment we were ready with any package, we wanted to go and get the impact still for this year,” he says. “Take the supplier piece: Our intention was to see a price reduction the first of January, so waiting till the end of February would have cost us two months.”

A key to making that announcement possible was getting the unions on board.

“The very first expectation from the unions hadn’t been very favorable; I had some baggage with me from my Freightliner times,” Zetsche says.

“We were convinced we would get further along by trying to come to a common understanding and have a very transparent process trying to build some confidence, rather than going to war and seeing bloodshedding and thereby proving to the world that you’re a real tough guy but in the end not getting anything,” he says.

Barely a peep has been heard from the United Auto Workers, which issued a toned-down statement saying it would ensure that workers’ rights were respected. The UAW declined to comment for this article.

Zetsche has shown he has a sense of humor and can play along with Chrysler’s tradition of outrageous showmanship at car unveilings. At a Chrysler dinner during the Chicago auto show this month, guests were picking with chopsticks at delicate shrimp-and-seaweed salads when Zetsche slammed through a fake wall in an enormous 2002 Dodge Ram pickup truck.

“You call this a Dodge dinner?” he exclaimed. “I’ll show you a Dodge dinner!” He snapped his fingers, and waiters emerged with large buckets filled with beer bottles and slammed them down on top of the flower arrangements on each table. Curtains at the side of the room fell to reveal steaks being served.

Such acts of bravado aside, Zetsche admits he harbored some doubts about taking on the huge task of turning Chrysler around.

“I went through some ups and downs” in considering the Chrysler job, he says. “Obviously some risks could be seen as to how this venture could end.” But he prefers to be constructive and creative rather than question what might happen.

“I’m an optimist, and there are a lot of good people here; there are a lot of positive things going on,” Zetsche says. “We’ll be able to deal with critical issues together and solve them.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

On the Slide

Despite a run-up in market share to a peak in the mid-1990s, Chrysler Group (the Chrysler, Dodge, Jeep and now-defunct Eagle and Plymouth brands) has seen its share fall again in recent years.

Chrysler market share 2000: 14.2%

Source: Chrysler Group

Dieter Zetsche

A look at the president and chief executive officer of DaimlerChrysler Corp.:

Born: May 5, 1953, in Istanbul, Turkey (father was engineer for construction firm).

Raised: Frankfurt, Germany.

Family: Married; one daughter, two sons.

First job: Driving a beverage truck.

First car: 1971 Volkswagen Beetle.

Favorite authors: John Irving, Gabriel Garcia Marquez.

Favorite music: Classical, blues.

Education: