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The Chrysler Corporation Returns

Chrysler is Back in Private, American Hands; Current Management Stays On
On Monday, May 14, DaimlerChrysler and Cerberus announced the pending sale of the Chrysler Group, including Chrysler Financial. Among the firestorm of conferences, board meetings, and announcements following, we attended a Chrysler press conference where the new Chrysler Corporation boss Tom LaSorda gave a short briefing and took some direct questions.

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Perhaps the most significant element of the change in ownership is not who makes up the management team, or even in which country home base now is. It isn’t whether or not Wolfgang Bernhard returns to Chrysler, or even who is the boss. It is that the new company is privately held.
The new Chrysler Corporation is not required to report quarterly (or annual) sales, profits, returns, management salaries, production, or most of the other indicators that Wall Street watches so closely. The negative of quarter-by-quarter reporting and evaluation is a tendency to think short term, which can be deadly for a business whose core products have a four- to six-year natural lifecycle. (Including LaSorda’s and other managers’ salaries, which he seemed nearly gleeful that he’ll no longer report.) When pressed, LaSorda cited short-term focus as the driver for the ill-fated sales bank strategy, and as something done to please the German bosses and done against long-term strategy and goals. As a private company, LaSorda says, they “will be able to run it as we want, without worrying about quarterly numbers and what people think of them.” Chrysler Corporation will not report quarterly earnings (nor management salaries/benefits), and LaSorda would not commit to continued reporting of monthly unit sales.
LaSorda expects a Cerberus to demand a similar level of governance than they are used to, and they will have to ultimately make money for them. They will also need, as LaSorda recognized, to clearly define goals and metrics for employees to be able to target and meet. But these elements need not be part of the public forum or debate, and ownership support for long-term over short-term objectives can significantly impact overall strategy.
LaSorda was clear and emphatic that the Chrysler Corporation’s management team will not change from that today at the Chrysler Group. No further job cuts are planned as a result of the new ownership, but the 13,000 cuts spelled out in February are still on the chopping block. Speculation will continue as to whether or not Wolfgang Bernhard is brought aboard again, but plans to make that change were vehemently denied.


Chrysler Corporation’s Sharing Options May Expand, Relationship with Daimler Continues
With Daimler maintaining a stake in the new Chrysler, Chrysler still gets to buy the Bluetec diesel technology and the two-mode hybrid system. Among the less obvious areas where sharing and cooperation will continue are safety systems and procurement. LaSorda described the new situation as a win/win, as the new Chrysler Corporation is still tapped into Daimler for technology but also now tapped into a strong financial company.
Involvement in the Global Engine Alliance will not change as a result of the new ownership. As far as the LX platform goes, though based on the previous generation Mercedes-Benz E-Class, Chrysler says they’ve developed it into a proprietary platform.
Months ago, a tentative deal was worked out between Chrysler Group and Chery in China. Chery plans to build and export a small car for Chrysler to sell globally, likely under the Dodge brand. Assuming that goes well, Chrysler would be interested in expanding the arrangement. But they will look to another partner to meet objectives as well. LaSorda indicated options for partnerships may be easier with Cerberus and as a private company. Specific markets where he says Chrysler Corp needs to be active include Southeast Asia, India, and Russia. Cerberus is a global company with contacts all over the world, and Chrysler may be able to tap into that network as they struggle for an operating foothold in various markets.
Cerberus: In it for the Long Term
From Cerberus, the Chrysler Corporation gets a talented management team as well as cash and a long leash. Cerberus, according to LaSorda, brings a blue-collar background and a vision of a long-term investment. They know the business “backward and forward.” When asked if he expected Cerberus to still be the boss in five years, the answer was yes. As to why Cerberus should have any more success in making Chrysler Corporation profitable than Daimler did, LaSorda pointed to the general success of privately held companies versus publicly traded ones. But if the product strategy does not improve along with overall quality and specifically interior quality, Cerberus doesn’t have any stronger chance than Daimler. Success will ultimately be decided by choices made by Chrysler management team, whether this team or some other. LaSorda recognizes this issue, saying “We still need to make the right decisions.”

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Regarding splitting up Chrysler, Jeep, and Dodge brands, LaSorda says he’s been reassured that the scenario is “absolutely not gonna happen.” Another interesting element is that LaSorda says the Chrysler Corporation is basically on its own when negotiating with the unions. Cerberus is not going to take a direct role in those negotiations.
New Pressure, New Bosses, Same Old Challenges
With the change will come different pressures, but no relief from the challenges the Chrysler Corporation faces in the automotive marketplace. The new owners have blessed the Recovery and Turnaround Plan that Chrysler announced in February 2007, but Chrysler still has to meet the goals set forth in that three-year plan and be successful afterward. The 13,000 jobs and plant closing laid out in that plan will go forward, as will investment in a new Michigan engine plant announced in March 2007.
Chrysler still has overcapacity, too much inventory, a reliance on trucks and V8 engines, and huge legacy costs. Their forward product planning is weak, as their inability to bring the clearly successful personality and dynamic of the 300 into the Sebring and other subsequent Chrysler brand products demonstrates. Whether you like or hate the new Sebring, the brand walked away from its biggest hit of the decade and the opportunity to turn the 300 from a one-hit wonder to a harbinger of things to come. There remains the problem of poor interior quality, too; plastics look and feel cheap and fit and finish isn’t as high as the competition.
In discussing the advantages of the new situation, LaSorda indicated some decisions under DaimlerChrysler had been made to beef up the short-term outlook at the expense of long-term profitability and strategy. When pushed for an example, the bloated sales bank issue was cited. As of April 2007, Chrysler Group still has 480,000 units in inventory (for perspective, Jeep only sold 460,000 units in all of 2006, and the whole group sold more than 2.1 million units). The goal of reducing inventory by at least 100,000 units has been met, but repairing the relationship damage with dealers is ongoing.
The Wolfgang Question
Wolfgang Bernhard was part of the Chrysler Group management team under Dieter Zetsche; after leaving DaimlerChrysler and then Volkswagen, he is now on Cerberus’ board. LaSorda acknowledged a great friendship between the two and confirmed Bernhard’s involvement as this deal was being developed. As far as Bernhard’s future, LaSorda was emphatic that he will not be a member of the Chrysler management team: Bernhard “clearly works for Cerberus and will not be on the Chrysler management team,” he said.
While describing his current team as one with “great vision and focus,” LaSorda recognizes a talent pool in Cerberus and says they will look to them “where we might need strength.” Bernhard’s cost-cutting and product-development skills were cited as an example. But developing products isn’t necessarily the same as developing the strategy, and it is in overall strategy where Chrysler is weakest.
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Bernhard’s past does not indicate strength in product strategy. Involvement with the Chrysler ME-412 supercar and Dodge Tomahawk motorcycle showed a clear passion for product and an eye for big ideas, but neither displayed brand values. Wild concepts are a strong part of Chrysler’s personality and process, but they should push a brand’s limits and boundaries, not present something wholly unrelated. Though equally outrageous, the later Jeep Hurricane concept, with four-wheel steering that allowed it to turn on its own axis and twin HEMI engines, built on Jeep’s go-anywhere values. Bernhard was also involved in the upcoming Volkswagen-DCX minivan venture (still on, as much as we’ve gathered), and one can very reasonably question Volkswagen’s need to re-enter a contracting segment.
In any case, LaSorda’s strong statements were not enough to convince watchers, pundits, and gossips that Bernhard will not resurface. Speculation continues that an unverified non-compete clause from his recent VW departure may be in the way of Bernhard’s officially joining the Chrysler team. Others wonder if he may be brought on board after the union deals are struck. If LaSorda and his team are successful with the turnaround plan and find a way to revive Chrysler, there will be no reason for a more direct role for Bernhard. If they are not, Cerberus may revise their hands-off approach.

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