Failed projects from the top down: Can Marchionne save Chrysler?

When Chrysler merged with Fiat on June 10, 2009, there was reason for hope and optimism. After an endless series of bad news, perhaps the auto industry wasn’t dead yet.

On paper, it seemed like a good deal for everyone. Fiat would return to the US market and sell its popular 500 (Cinquecentro), Chrysler would acquire a line of cars that consumers could buy, and tens of thousands of workers would keep their jobs.

But the real prize could be Sergio Marchionne, CEO of Fiat and now CEO of FiatChrysler.

When he first became Fiat’s chief executive in 2004, Marchionne inherited a company on the brink of failure. It made a lackluster product line and had suffered more than $12 billion in losses over the previous five years.

To transform the company, he embarked on several strategic and operational projects. He fired senior managers, turned a bloated bureaucracy on its head and brought on board a team of aggressive young managers. Then he went through all the projects and killed those that couldn’t pass the market test. And he hired new designers and demanded a portfolio of exciting projects that would bring customers back to dealer showrooms.

In less than three years it achieved one of the most impressive changes in automotive history.

Now, as part of his plan to turn Fiat into a global competitor, he has taken on Chrysler. But can he work his magic again? Can you save another company whose circumstances in many, but not all, ways are strikingly similar to those faced by Fiat just five years ago? Can your leadership style, as well as the Fiat 500, be successfully exported to this side of the Atlantic?

If we look at Marchionne’s track record on its own, it’s not only impressive, but suggests that he could be the right person at the right time. But before we can reach this conclusion, his ability to succeed must be seen in the context of what has happened to Chrysler in the last decade. In that case, success may not be assured.

Daimler Chrysler

In May 1998, Daimler-Benz merged with Chrysler. Jurgen Schrempp, CEO of Daimler-Benz, called it a “fusion of equals.” Robert Eaton, CEO of Chrysler, promised that “within five years we will be among the top three automotive companies in the world.” Even bringing together two companies from Europe and the United States was not considered an obstacle; Robert A. Lutz, Chrysler’s vice president, argued that “there was definitely no culture shock here.”

But behind this show of public enthusiasm and corporate affinity, Schrempp took full control, and his actions made it clear that this was not a “merger of equals.” Eaton responded by deferring to Schrempp, often retreating to the safety of his Auburn Hills office; His top managers responded by failing Ford and General Motors. Soon, Chrysler was left without a rudder, the projects were mediocre, and within a few years, not only the product line was in trouble, but the merger as well. While many reasons were cited for its failure, the most frequent was a clash of corporate cultures.

cerberus

In 2007, DaimlerChrysler sold Chrysler to Cerberus Capital Management, a private equity firm with no car manufacturing experience. Bob Nardelli, former CEO of Home Depot, was chosen to lead the company. It was clear to many that the deal was strictly financial, and few believed that Cerberus was committed to building a competitive company in an increasingly competitive auto industry plagued by too much capacity.

Nardelli was a “tough as nails” CEO. Business Week, in August 2007, said that he “alienated … virtually all of the management that he inherited.” While many thought his military style was exactly what Chrysler needed, it didn’t work. In that Business Week article, a University of Michigan professor, Gerald Meyers, said Cerberus had the right idea, but Nardelli was the “wrong guy.”

So Chrysler was hit by the perfect storm. Oil rose to over $140 a barrel, the economy took a nosedive, and Chrysler found itself stuck with a product line dominated by gas guzzlers that no one wanted to buy.

Marchionne’s Challenge

It is in this context that Fiat has acquired a 20 percent stake in Chrysler. Marchionne inherits an organization torn apart by Schrempp’s aloof but commanding style and Nardelli’s “tough as nails” style. He inherits a workforce that has suffered job losses, pay cuts, deteriorating benefits and the anxiety of an uncertain future. But most of all, it inherits a workplace that has suffered from one mediocre project after another, and a project culture that has failed to emphasize markets over methodology.

Here’s the problem; His leadership style, characterized by the rapid and disruptive changes he made five years ago, may not be much different from the leadership style practiced by his two predecessors at Chrysler.

But it must be different if you want to achieve sustainable change.

Is he flexible enough to become the transformational leader Chrysler so desperately needs, or will he ignore Chrysler’s rocky road of the past ten years, take the reins, ignore cultural differences and just repeat history? Can you be tough on problems but at the same time restore morale and create a project-based environment that motivates and doesn’t alienate your project teams?

Or will he be the third in a series of tough CEOs and keep hitting until morale at Chrysler improves?