Detroit News: Big Changes Loom for New Chrysler
- August 4, 2007
- Chrysler, The Car Biz
- Posted by George Peterson
- Comments Off on Detroit News: Big Changes Loom for New Chrysler
This article citing input by AutoPacific’s George Peterson appeared on Thursday, August 2, 2007 in The Detroit News
Big changes loom for new Chrysler
Bill Vlasic and Christine Tierney / The Detroit News
While CEO Tom LaSorda, left center, will continue to lead Chrysler’s executive team, analysts expect Wolfgang Bernhard, Chrysler’s former COO, right center, to drive most of the changes on the product side. This photo was taken at the signing of the Chrysler/VW minivan deal. © bilde 2007
AUBURN HILLS — The concept car had been shown publicly and critiqued internally. Business plans had been written, and Chrysler Group executives had debated for months whether to build the flagship luxury sedan.
But it would be up to Wolfgang Bernhard to ultimately approve or kill the Chrysler Imperial.
In mid-July, the incoming chairman of Chrysler made his call in dramatic fashion at a final product review, according to people familiar with the event.
“That car,” Bernhard said, “will never see the light of day.” [VehicleVoice Comment: Thank you. Thank you. Thank you for preventing another blight – the Aztek-ugly Chrysler Imperial – on the American roads]
His swift decision is a preview of how Chrysler will operate under Cerberus Capital Management, the secretive private-equity giant that will soon complete its $7.4 billion buyout of the No. 3 U.S. automaker.
With Cerberus exec Bernhard as its hands-on chairman, Chrysler is expected to move quickly and forcefully to turn around its sagging domestic operations and grow its international business.
Cerberus is expected to close on its acquisition of Chrysler from DaimlerChrysler AG as soon as Friday, according to people close to the process.
It’s the deal of the decade in the global auto industry and the beginning of a new era for Chrysler, the smallest of Detroit’s struggling Big Three automakers.
Big changes are in store for the new Chrysler, including the possibility of an expanded alliance with Korean automaker Hyundai Motor Co. and a deal to build cars in Russia, The Detroit News has learned.
But overseas projects and U.S. product moves are only part of the transformation awaiting Chrysler, which lost $680 million in 2006.
After nine years as a division of a domineering German parent company, Chrysler will get a much-needed fresh start as the prized possession of Cerberus.
‘We bring a fresh set of eyes’
Led by its hard-driving founder Stephen Feinberg, the New York-based private-equity firm owns more than 50 companies and applies cutting-edge business techniques to its corporate turnarounds.
“We are a lot more than a financing company,” said John Snow, Cerberus chairman and a former U.S. Treasury Secretary. “We bring a fresh set of eyes that looks at a company’s problems from another vantage point.”
Since agreeing to buy Chrysler in May, Cerberus has sent squads of financial and management experts to Auburn Hills to assess the company’s strengths and weaknesses.
Bernhard, Chrysler’s chief operating officer from 2000-04, has swept through the organization like a whirlwind — poring over product plans, brainstorming with executives, checking on even routine events like press previews for the minivan launch.
The level of oversight by Cerberus might surprise outsiders who expect the firm to stay in the background at Chrysler, said one private-equity expert.
“A lot of people think private equity is just all about financing, and it’s not,” said David Brophy, director of the Office for the Study of Private Equity at the University of Michigan.
Brophy said the bulk of Cerberus’ attention will focus on Chrysler’s core activities — purchasing, manufacturing, product development and sales and marketing.
Sources close to the situation said Cerberus insisted that detailed performance goals for Chrysler and its executives be written into the buyout deal.
“The trademark of private equity is to set high goals for a company where it’s not doing well,” Brophy said. “With Chrysler, you’ve got to turn your attention to making cars that customers want.”
Chrysler slipped behind Toyota Motor Corp. to fourth place in U.S. sales last year, and seems stuck at a 13 percent share of the market.
This year, Chrysler’s U.S. sales are down about 2 percent through July.
A new minivan model this fall should boost sales, but Chrysler’s longer-term challenge is to differentiate its products and brands from rivals General Motors Corp. and Ford Motor Co.
“They need to really decide who they want to be, and make sure the product line supports that,” said Wes Brown, a California-based automotive brand consultant.
Chrysler insiders said the flashy Imperial concept clearly didn’t fit the brand’s “premium” image, and Bernhard was correct to dump it.
People close to Chrysler also said the retro-styled PT Cruiser will go out of production when its current model ends in 2009.
The resurgence of Chrysler’s lineup will depend on the success of restyled versions of bellwether models such as the 300C sedan and Ram pickup, as well as all-new products, such as the Dodge Challenger muscle car and a crossover vehicle slated for production in Mexico.
“They need to recapture their spark,” said George Peterson, president of the consulting firm AutoPacific in Tustin, Calif.
“They need to pay more attention to the interiors of their vehicles, and just do a lot of the product stuff better.”
While CEO Tom LaSorda will continue to lead Chrysler’s executive team, analysts expect Bernhard to drive most of the changes on the product side.
A charismatic leader with experience at Mercedes-Benz, Chrysler and Volkswagen, Bernhard is known as both a champion of edgy designs and a disciplinarian on costs.
“Wolfgang will be good for the product because that’s his skill,” said Dennis Pawley, who headed Chrysler’s manufacturing operations in the 1990s. “If they can successfully execute the right products, they’ve got a chance.”
Chrysler looks abroad
Under Cerberus, Chrysler will also be pushing harder to build its international presence.
The automaker is committed to launching eight new vehicles outside of North America this year, but other moves appear to be in the works.
People close to the company said Chrysler is in discussions with Hyundai to expand ties beyond their three-way alliance to build engines with Mitsubishi Motors Corp.
A Hyundai source said “the door is always open to new talks on new proposals,” but declined to specify potential areas of cooperation with Chrysler.
Chrysler already has cut a deal to purchase Chinese-made small cars for sale in the U.S., and is working on a partnership with a Russian automaker, according to a person familiar with the plans.
Extending its global reach is critical for a company that sells about 90 percent of its overall volume in North America.
“You can’t gain the scale you need just from a regional perspective,” said a consultant to Chrysler, who spoke on condition of anonymity. “You need to look outside North America.”
Chrysler is also gearing up to purchase more components in low-wage nations in Asia. The effort began before DaimlerChrysler put the U.S. automaker up for sale in February, but has intensified since Cerberus agreed to acquire it.
In fact, Chrysler insiders said the Cerberus deal has been like a shot of adrenaline throughout the entire organization. “Things are moving very, very fast here,” one Chrysler official said.
Cerberus has kept its specific plans for Chrysler close to the vest. Feinberg declines all interview requests, and Cerberus officials speak only in the most general terms when discussing their corporate holdings.
“Our job is to ask the difficult questions and to create an environment where management teams can succeed,” Snow said in an interview in Detroit last month.
The tone is set, however, by Feinberg, the reclusive financier who masterminded the buyout.
‘They need to deliver’
Operating out of a suite of offices on the 22nd floor of a Park Avenue skyscraper, Feinberg runs a lean organization with fewer than 200 full-time executives.
“There’s very little bureaucracy at Cerberus,” said one former executive of the company, who asked not to be identified. “Things go right to the top at Cerberus, and Steve is known for making decisions on the spot.”
Executives at Cerberus-owned companies are given performance targets, and are said to have an unusual amount of autonomy to achieve the goals.
“He gives each management team a chance to deliver the goods,” said the former Cerberus executive. “But they need to deliver.”
People close to Chrysler said LaSorda has made several trips to Cerberus’s New York offices in recent weeks. Chrysler insiders said Feinberg already has a deep understanding of the company’s inner workings.
“This is a guy who never asks a question he doesn’t already seem to know the answer to,” said one Chrysler official. “He really does his homework.”
People familiar with the Cerberus buyout said that LaSorda and other senior Chrysler executives stand to earn huge cash bonuses if they achieve performance targets.
Unlike a publicly traded company, Chrysler will not have to disclose its compensation plans.
“The newspapers were full of pictures of the big smile on Tom LaSorda’s face after the deal, and that’s because there’s a big payoff if Chrysler succeeds,” said Brophy of U-M.
But with Cerberus looking at perhaps a five-year time frame to return profits to its own investors, Chrysler can’t afford to get off to a slow start.
“The key to private-equity deals is to get a return on the investment in a relatively short period of time,” Brophy said. “If the limit is five years, well, there’s not a lot of room for mistakes.”