Graduates of Chrysler U.

August 1, 2005, by Bill Cawthon

Chrysler has had its own educational programs, including the Chrysler Institute of Engineering and Chrysler Institute of Design for many years. My Dad was a graduate of Chrysler Institute, as was John Z. DeLorean. But this time, I am talking about Chrysler U., the real-life institution which in recent years must have seemed like the automotive equivalent of the school of hard knocks. Successful completion of its curriculum required overcoming mistrust, resentment, despair, financial troubles and learning how to make silk purses out of some of the biggest sow's ears you ever saw.

Dieter Zetsche will take over DaimlerChrysler AG in January. Photo courtesy of DaimlerChrysler AG.

This year's honors graduate is Dr. Dieter Zetsche, recently named to succeed the flamboyant, but erratic Jürgen Schrempp as the head of DaimlerChrysler AG.

In November, 2000, Dieter Zetsche was sent to take over the reins at Chrysler Group. Resentment was already high in Auburn Hills, Michigan, as what had been presented as a merger of equals was unraveling, showing a future for Chrysler as a subsidiary of Mercedes-Benz. Thomas Stallkamp, a member of the Chrysler dream team that had produced the best earnings in the company's history, had been forced out after a management shakeup in 1999 that gave German managers more control of the company. More top Chrysler executives, some made newly wealthy by the merger, left during 1999. Robert Eaton, who was supposed to have been a co-chairman of the new DaimlerChrysler, had retired in February and James Holden, Stallkamp's replacement, had been dismissed following the disastrous rollout of Chrysler's vital new-generation minivans. The company was bleeding money, the product line developed under the leadership of Bob Lutz in the early 1990s was getting pretty old and there was little new product in the works.

There was friction between Chrysler and Mercedes, as well. Instead of sharing technology, Mercedes engineers looked down on their Detroit counterparts who, saddled with a Stuttgart-controlled management structure, were papering the industry with resumes.

Zetsche's early days at Chrysler were bleak. By the end of 2001, Chrysler had lost nearly two billion dollars. In November 2001, Zetsche brought in Wolfgang Bernhard from Mercedes as Chief Operating Officer.

Over the next couple of years, Chrysler's condition worsened. Market share dropped and word on the street was it wouldn't be long before Chrysler was surpassed by Toyota as the No. 3 car brand in the U.S. The PT Cruiser was popular but the hoped-for halo effect never materialized and sales of Chrysler's other cars continued to decline. The company flubbed another introduction, this time the Pacifica, flooding dealers with fully-loaded cars carrying big sticker prices to the tune of a Celine Dion ad campaign that fell flat with consumers.

Things weren't a whole lot better in Stuttgart. Mercedes was making money, but angry stockholders, who had lost big as the price of DaimlerChrysler stock plummeted, attacked Jürgen Schrempp for not having performed due diligence on Chrysler's actual financial state. Chrysler's cash nest egg looked nice at first, but it was becoming obvious that Chrysler had been grooming itself for a marriage of some sort and that dowry had been borrowed against its future. In addition, the company was now the defendant in a billion-dollar lawsuit brought by Las Vegas casino mogul Kirk Kerkorian who claimed investors had been mislead about the structure of the merger and wanted it dissolved.

Wolfgang Bernhard took over the leadership of the Volkswagen brand in May 2005. Photo courtesy of Volkswagen AG.

The path back from the brink wasn't easy. Zetsche and Bernhard led Chrysler through a three-year turnaround plan. 26,000 jobs were cut and people who had been with the company for decades were now unemployed. Six plants were closed. Demands for price cuts turned Chrysler's relationships with suppliers from some of the best in the industry to some of the worst before Chrysler began to work more closely to help the suppliers meet cost targets.

Fast forward to 2005: Chrysler is the hot brand with some of the best sales months in the brand's 70-year history. Jeep is riding high with its first really new Grand Cherokee in years. Dodge is rolling out its new Charger. PT Cruiser sales are up again. The Chrysler minivans are the unquestioned sales leaders, outselling the combined totals of all the minivans from Ford and GM. Alone among the Detroit Big Three, Chrysler is showing growth. Even when GM had its blockbuster month in June, Chrysler sales were still improved without having to play GM's profit-eating employee discount game. And the company is more profitable than Mercedes.

Now, almost like the hero of a dime Western, Dr. Zetsche is leaving Detroit. Far from the resentment and suspicion with which he was greeted, Zetsche's departure is being met with regret. Not just from the people at Chrysler, but from many organizations around the city to whom Zetsche had given his time and support.

The ABCs according to Mercedes. The A-Class, left, was supposed to be sent to North America following the 2005 facelift, but Mercedes decided it was too small. The larger B-Class, center, was developed for the U.S., but the closest it will get is Canada. The C-Class station wagon is the only one of the three offered to U.S. customers.

Wolfgang Bernhard is another graduate, though his route was a bit different and a little bumpier. In 2003, having set his cost control programs in motion, he turned to the other side of Chrysler's problem: new products, fumbled introductions and poor sales. Bernhard ended Chrysler's policy of not offering competitive financial incentives and orchestrated high-profile unveilings of important image vehicles like the Chrysler ME Four-Twelve and the 500-hp Dodge Tomahawk motorcycle. He also made Chrysler stretch its product development budget to get more new product in the pipeline. Radically styled cars powered by a new generation of the legendary Hemi engine were introduced to an approving press and a public eager for something new.

Brought back to Germany earlier this year to take over at Mercedes after the retirement of Professor Jürgen Hubbert, his strong style proved to be too much for the folks in Stuttgart. Bernhard had already made Hubbert unhappy and when he went up against Schrempp, the Mercedes post was given to Dr. Eckhard Cordes, a Schrempp loyalist who had done a magnificent job turning Freightliner around.

Of the four Volkswagens show here, the only one planned for the U.S. is the Golf (second from the left in silver). Let to right: Volkswagen Polo, Golf V, Golf Plus MPV and VW Touran minivan.

Mercedes might not have wanted him, but Volkswagen thinks he is just the person to fix deep-rooted problems in its namesake division. He became a full member of the board of Volkswagen AG on February 1, 2005 and assumed the chairmanship of the Volkswagen Group on May 1, 2005. He has already outlined a program to reduce costs by over eight billion dollars but acknowledges the challenges he faces are significant.

So from the disastrous situation in 2001, it was just four years until we saw a resurgent Chrysler with a North American (Tom LaSorda is Canadian) named as the next CEO and the Germans who were so resented hailed as heroes and tapped to run two of the world's largest car companies. I think if someone had predicted this outcome in 2001, they would have been advised to seek professional care. If that person had tossed in the additional prediction that Lee Iacocca would be back doing ads for Chrysler, they would probably been carted off to a comfy padded room somewhere.

When Zetsche assumes the lead post in January 2006, he will be facing another crisis, this time at Mercedes. It is likely Eckhard Cordes will leave the company at that time; he tendered his resignation at the meeting where Zetsche was named Schrempp's successor and was persuaded to stay on by Hilmar Kopper, chairman of DaimlerChrysler's supervisory board.

Cordes' departure will mean Zetsche has to devote extra attention to Mercedes, which is having serious problems with product quality perceptions, high costs and a management structure many feel is entirely too comfortable.

While they both will have their hands full, I would like to make a suggestion to both Dieter Zetsche and Wolfgang Bernhard: send more cars over here. Volkswagen especially could use the extra sales and both VW and Mercedes have an opportunity to be players in what could be an important new market segment, the multi-purpose vehicle. Like a minivan, but smaller, with the possibility of being fitted with all-wheel-drive systems to provide one of the most desirable characteristics of a SUV, the MPV provides an alternative to larger vehicles. Plus the availability of advanced diesel engines could be a welcome way to handle gasoline prices that are now forecast to top $3.00 per gallon in the U.S. within a year. Face it, guys: It couldn't hurt to have some new cars to sell.

Christmas in August? Nope, but Herpa has announced its holiday collection for 2005. Make your reservations soon to avoid disappointment.

I know it's just the first of August, but Promotex has opened the reservation books for the Herpa 2005 Christmas items. There is a new 24-model Advent Calendar filled with Herpa cars and a 4-model Wings Calendar. This year's Christmas Truck is a Mercedes-Benz Axor HD tractor with a bulk tank trailer instead of the usual box van. These always sell out well before the holidays.

The October releases also include a new Volkswagen Type 34 Karmann-Ghia and a Ford Taunus 1600 Coupe that Herpa promises will look much better than the pre-production version.

See you next time!

- Bill Cawthon

Bill Cawthon is a modeler and collector. His primary hobby interests are vehicle models in 1:87 and 1:160 scales and model railroading. He is senior editor of Route 1-87, the magazine of the 1/87 Vehicle Club, and a columnist and product reviewer for Model Railroad News. He is one of the creators of the award-winning "Grimy Gulch" model railroad layout.

In real life, Bill is a marketing and public relations consultant for MARK III Systems, a successful information technology company. He also writes for just-auto.com, an international auto industry publication, reporting on the U.S. light vehicle industry.

He lives in Houston, Texas with his wife, Marge, and their children.

Bill's columns appear twice monthly on Promotex Online. To learn more about him, click here.