When Chrysler merged with Fiat on June 10, 2009, there was cause 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 CEO of Fiat in 2004, Marchionne inherited a company on the brink of failure. It manufactured 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 upside down a bloated bureaucracy and brought on board a team of aggressive young managers. Then he went through all the projects and killed those that failed 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 he achieved one of the most impressive changes in the history of the car.
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 it save another company whose circumstances are in many, but not all, ways strikingly similar to those facing Fiat just five years ago? Can your leadership style, as well as the Fiat 500, be successfully exported to this side of the Atlantic?
Looking at Marchionne’s track record on its own, it’s not only impressive, it suggests he could be the right person at the right time. But before we can come to 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. Daimler-Benz CEO Jurgen Schrempp called it a “merger of equals.” Robert Eaton, CEO of Chrysler, promised that “within five years we will be among the three great automobile companies in the world.” Even bringing together two companies from Europe and the United States was not seen as an obstacle; Robert A. Lutz, a vice president at Chrysler, 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 office in Auburn Hills; His top managers responded by failing Ford and General Motors. Soon, Chrysler was rudderless, projects were lackluster, and within a few years, not only was the product line in trouble, but so was the merger. 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 experience in car manufacturing. 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 automotive industry plagued by too much capacity.
Nardelli was a “tough as nails” CEO. Business Week, in August 2007, said that he “disposed of … practically all the management that he inherited.” While many thought his military styling was exactly what Chrysler needed, it didn’t work out. In that Business Week article, a University of Michigan professor, Gerald Meyers, said that Cerberus had the right idea, but Nardelli was the “wrong guy.”
So Chrysler was hit by the perfect storm. Oil climbed above $140 a barrel, the economy took a nosedive, and Chrysler was 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 “hard as nails” style. You inherit a workforce that has suffered job losses, pay cuts, deteriorating benefits, and the anxiety of an uncertain future. But above all, he inherits a workplace that has suffered from one lackluster project after another, and a project culture that has failed to emphasize markets and not methodology.
Here’s the problem; His leadership style, characterized by the rapid and disruptive changes he made five years ago, may not be too different from the leadership style practiced by his two predecessors at Chrysler.
But it must be different if you want to achieve sustainable changes.
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 simply repeat history? Can you be tough on issues 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 string of tough CEOs and continue to bang until morale improves at Chrysler?