Fast Company

Keeping the Crisis in Chrysler

Chrysler has always been at its best when its back is to the wall. CEO Dieter Zetsche is taking the lessons of a disaster and making them company policy.

When Dieter Zetsche took over as president and chief executive officer of the struggling Chrysler unit of DaimlerChrysler in November 2000, one of his first orders of business was to interview the company's veteran executives. The main topic of conversation: How could the company once and for all break the boom-and-bust cycle that had defined it since the late 1970s?

It was a problem that had bedeviled his predecessors from Lee Iacocca to Bob Lutz. Each time the company dragged itself back from the precipice, its leaders promised "never again." But almost like clockwork, Chrysler would find itself facing a crisis nearly every decade. While other industries and companies, including Chrysler's rivals, experienced cycles of their own, Chrysler's busts and booms were notable for their especially deep dives and soaring heights.

High on Zetsche's interview list was Trevor Creed, senior vice president of design and a 20-year veteran of the company. Creed had joined Chrysler in 1985 just as the company was on the upswing from its first of three near-death experiences: the 1979 brush with bankruptcy, which was averted only with a government bailout. He lived through the scary downturn of the early 1990s and had also suffered through the most recent crisis, which came after the merger of Daimler-Benz and Chrysler in 1998.

Zetsche -- a former chief engineer with Mercedes and a top lieutenant of DaimlerChrysler's chief executive Jurgen E. Schrempp -- little imagined what Creed would suggest for pulling Chrysler out of its most recent slump. Car designers typically see more freedom and bigger budgets as key to turning around an ailing car brand. But Creed had no intention of asking for either.Instead, he told Zetsche it was about time Chrysler figured out what made it so great during times of crisis -- and then learned how to apply those lessons during the good times as a way to build Chrysler into a great company.

Creed's unusual demand was echoed by the other executives Zetsche met with over the next several weeks. As they explained, reviving Chrysler would take far more than putting a new leader at the top or setting up a new org chart. And it would take far more, even, than learning from past mistakes.

Instead, they said there was real gold in Chrysler's hair-raising history: Each time the company faced the abyss, its people pulled off heroic feats to yank it back. In fact, Chrysler seemed to be at its best when its back was against the wall. The crisis of 1979 drove the company to create the first minivans by a U.S. automaker in the mid-1980s. The crisis of 1989 brought about the radical "cab forward" designs of the early 1990s, which would be mimicked by many competitors. The late 1990s crisis brought bold products such as the PT Cruiser. What if the company could somehow institutionalize the urgency, the dedication to consumers, the discipline, and the focus of its executives that repeatedly surfaced each time it teetered on the brink of catastrophe -- without, of course, actually landing Chrysler back in crisis?

Over the past four and a half years, Zetsche and his management team have worked to create what might be called a "controlled crisis" strategy. So far, the outcome has been astonishing. When Zetsche arrived in 2000, Chrysler was well into its third catastrophe. Just two years after its much-heralded merger with Daimler-Benz, the automaker was bleeding red ink and shedding market share. In 2003, Chrysler posted a loss of $637 million. But this past February, DaimlerChrysler announced that Chrysler earned $1.9 billion in 2004 -- almost as much as big brother Mercedes (whose profits have been dwindling because of quality woes and tougher competition.)

Unlike GM and Ford, Chrysler is thriving after years of losses. But CEO Dieter Zetsche knows not to celebrate. As one of his execs put it, "We get stupid when we start succeeding."

Most notably, Chrysler's results were driven in part by gains in U.S. market share. In 2004, Chrysler snagged 13.04% of the market, up from 12.76% in 2003, according to Autodata Corp., even as its domestic competitors Ford and General Motors lost ground to Asian automakers such as Toyota and Nissan. Such losses have brought yet another round of crisis to Ford and GM, whose credit ratings have been slashed to junk, while Chrysler seems to be holding off another downturn. But given the nature of the auto business and past experience, Zetsche and his team can't pause to celebrate. This is exactly the point at which past managements heaved a big sigh of relief -- and the company headed into another death spiral. As one executive put it, "We get stupid when we start succeeding."

Zetsche and his team of crisis-hardened veterans say they still have several more years of work to prove that they've overcome the Chrysler jinx. They are due for another slump at the end of this decade -- if not sooner. "What keeps us awake is the fact that we can think the turnaround is going pretty good and then lose a billion in a quarter," says Tom LaSorda, Chrysler's chief operating officer. "This business can turn on you so fast that complacency can't be in anyone's vocabulary. The game isn't over. It's never over."

Here, then, are the three lessons, forged in the crucible of crisis, that Zetsche and his team have been applying in their efforts to keep Chrysler at the top of its game.

It's the Company, not the Cult of Personality

Zetsche's willingness to listen to and learn from veteran executives spoke volumes to the company's more than 80,000 employees. Past executives who had helped lead the company out of downturns often ignored the accomplishments of the whole company after the crisis was over. They began emphasizing their own roles in the turnaround.

It was easy to see how the cult of personality could take hold. The car industry seems to breed bigger-than-life executives. Iconic leaders such as Iacocca (whose very name, serendipitously, is an acronym for "I Am Chairman of Chrysler Corporation of America") and Lutz became synonymous with Chrysler's turnarounds and were lionized in the press. Obviously, though, thousands of people worked long and hard to engineer the recoveries -- a fact that could become glaringly obvious when Chrysler honchos left the company to try their turnaround magic elsewhere. In 2001 GM hired Lutz to help engineer its own back-from-the-bust strategy. But early this year, GM's CEO Richard Wagoner took back control of the company's North American operations, which had been part of Lutz's portfolio, as the company's recovery continued to sputter.

Zetsche recognizes that he can't cast himself as the leader who saved Chrysler. Each executive who "saved" Chrysler went on to help put Chrysler back into a tailspin by hoarding authority and devaluing the contributions of others. By contrast, Zetsche depends on a team of executives, including LaSorda and Creed, to make decisions together even in the good times. And instead of assuming he knows what's best, he has spent a huge amount of time getting to know the company he leads by learning about its history.

Not long after he arrived at the company, Zetsche made the first of what would become many visits to the Walter P. Chrysler Museum, a glass-and-brick building housed on a quiet corner of the company's headquarters campus in suburban Detroit. Zetsche, 52, says the visits have been a way of connecting with a culture and company he knew very little about before he landed in the CEO's suite. "I grew up in the '70s and '80s, which weren't the best times for American cars," he says as he walks through the museum. But many of the older cars on display have been a pleasant surprise to him -- like one of his favorites, a cornflower-blue 1953 Chrysler Special with elegant European curves and an interior with soft leather and instrument gauges the size of dinner plates. "This is where I learned the rules of Chrysler," Zetsche says. "These are the cars that Chrysler was built on, and that heritage is going to help build the future of the company."

Zetsche's more understated approach to leadership has given executives such as Creed room for hope, finally, that Chrysler won't take a nosedive again. "I think we finally have the discipline, the decision making, and the leadership that is going to be sustaining," he says.

Keep Those Bellies Burning

One reason for Creed's more hopeful attitude is a newfound intensity about something that Chrysler rarely focused on: quality. During crisis years, Chrysler veterans say, there was a burning desire to design the best cars ever since they might be the company's only salvation. The formula for success was to find the undiscovered wants of consumers and then have Creed's designers wrap a sharp design around those ideas. That "fire in the belly" had given Chrysler some of the industry's best-selling vehicles, including the minivans and cab-forward vehicles, which brought far more interior space to the family sedan.

But that same intensity was never applied to the one thing that always came back to bite Chrysler in the boom times: poor quality. While the cool designs got people to come back to Chrysler, quality problems often meant they didn't repeat their purchase. It was the opposite problem facing a company like Toyota, known for dishwater-dull styling but great quality. The difference was that people were willing to overlook Toyota's boring designs while they couldn't overlook Chrysler's shoddiness.

What if, as Creed suggested in his conversation with Zetsche, the company applied the same crisis-driven intensity to quality? It was a lesson that fit perfectly with Zetsche's own background as an engineer on what was -- at least until recently -- one of the world's highest-quality vehicles. Zetsche had already planned to apply Mercedes's quality controls to Chrysler. But he knew that could cause problems with employees who were still chafing under the new German management. Still, if he could persuade engineers and designers to care as much about quality as they did about heart-stopping design, he might be able to finally get Chrysler to build better cars.

He didn't have to wait long to find out if the strategy would work.

In early 2001, a radically styled sedan called the 300 was slowly making its way through the company's development process. It had all the attributes of a Chrysler hit: With its long, straight hood, smaller horizontal windows, and big, aggressive tires and rims, the 300 didn't look like anything else on the road. It also didn't fail Chrysler's quality checks -- exactly. It just wasn't up to the standards Zetsche knew it needed to meet if it was going to break the jinx.

So he imported some of the quality-control measures adapted from Mercedes. If the cars didn't meet the tests, they didn't move to the next stage. But to make those measures feel less like metrics and more like passion, Zetsche took Creed's suggestion and heated up the fire-in-the-belly feeling by showing up at many of the initial test-drives. Input from chief executives isn't unusual in the car business. They often put their stamp on cars, picking the shape of headlights or suggesting engine changes. But this was different. "He would give them really detailed ideas," Creed says, from the way the car handled to its interior sound levels. "The people responded because it wasn't just a chief executive acting like he knew what he was talking about. He could actually detect the minute differences that needed improvement." The next time Zetsche showed up to take the latest version of the 300 out for a spin, the engineers had addressed his complaints, driven by his demands that the vehicle be the best-quality car the company had ever made. Zetsche would praise the changes. Then he would point out yet another problem he wanted solved.

By 2003, the 300 was ready for its final executive ride-and-drive, when Zetsche's team would decide if it was really ready to go into production. If it wasn't, everyone knew Zetsche would have no qualms about holding it back. In the past, especially when Chrysler was riding an upswing in sales, "we would have gotten close to the quality we wanted and said that's okay," says Eric Ridenour, executive vice president of product development, who has been with the company almost 20 years. "Now we stare the problems directly in the face and ask, How do we fix them?"

After a few laps around the racetrack, the 300 was putting a smile on Zetsche's face, and, as Creed remembers hearing from others, "tears in his eyes." The 300 has been a hit almost since it appeared in dealerships in April 2004. Chrysler sold 120,857 of the cars last year and received a slew of awards and rave reviews, including several that highlighted the quality of a car that has a starting sticker price under $30,000. While long-term reliability results are still at least two years out for the 300, Creed says it is finally beginning to feel as if the company learned another vital crisis-born lesson: Apply intensity to every nut and bolt in the car.

Never Take Your Focus off the Consumer

When Zetsche arrived in 2000, one of his biggest concerns was fixing the botched launch of the company's redesigned minivans. The original minivans came out of Chrysler's 1979 near-death experience, when the cash-strapped company had taken an aging family sedan platform -- the K car -- and refashioned it as a boxy, bare-bones people mover. Despite its lack of panache, the minivan became part of the American landscape.

But by 2000, Chrysler had been joined by a dozen competitors including the Honda Odyssey and Toyota Sienna. In the late 1990s, flush with cash, Chrysler executives took their eyes off of what consumers really wanted from its minivans and instead spent billions redesigning them to keep up with the Japanese Joneses. The updates -- things like remote-control doors and rear hatches -- put Chrysler's price tag higher than its rivals', a premium budget-minded families who bought Chryslers weren't willing to pay.

What Chrysler's former executives hadn't learned -- but what Zetsche would strive to learn in the third crisis -- was to stay focused on the consumer, not the competitor. The early '80s minivans broke through the clutter because they were so different but made so much sense. Almost no one else was making minivans. Now it was far tougher to come up with wholly new ideas for the mature category. But Zetsche demanded the minivan team go back to the drawing board and conjure up an innovation that would make Chrysler's vans stand out from the crowd. In the meantime, he cut the minivans' prices to get them moving off dealer lots.

The result of the team's efforts was "Stow and Go" seating, a design that made it far easier for people to reconfigure the vehicle by stowing seats in the floor. Before Stow and Go, customers had to completely remove the seats, which could weigh more than 50 pounds. Stowing seats in the vehicle itself solved a huge customer complaint: Drivers wanted to be able to reconfigure their vans for more parcels or people on a moment's notice.

Some other carmakers were trying to address the problem, but their solutions were often clunky and hard to figure out. Chrysler's design let drivers transform a minivan with seating for eight to one that could carry two passengers up front and a full-size motorcycle in the back in less than a minute. By April 2005, Chrysler's minivan sales were booming, up more than 20% for brands such as Dodge Caravan and Chrysler Town & Country.

But that wasn't the end of the consumer-focus lesson. Zetsche and his team took the idea and applied it to another big issue: expanding the Jeep brand from just three nameplates -- Wrangler, Liberty, and Grand Cherokee -- to a mainstream brand with five all-new nameplates expected to be launched by 2007. To make such an expansion work would require listening intently to what consumers wanted from a Jeep, not what competitors were doing.

With Jeep, of course, Chrysler had gotten a jump on sport utilities, one of the biggest trends in the auto industry. But once again, rivals had leapfrogged Chrysler with more creature comforts, and Jeep needed to catch up. Still, Zetsche and his team guarded against making the mistakes of the 2000 minivan team -- adding cost and features drivers wouldn't pay for. Instead, they demanded that Jeep stay true to consumers, instead of simply following competitors.

For the people working on the new Jeeps, that meant grounding themselves in what Jeep stood for -- and especially in what it didn't. The team pondered that as it began work on the Commander, the first new nameplate that would not only compete against full-size SUVs like the Ford Explorer but also giant sport-utes such as the Cadillac Escalade. Should Chrysler hop on the trend of "low profile" tires and big flashy rims? After all, those big tires had helped give the Caddy cachet among young drivers.

The answer from the Jeep team: No way. A Jeep with big rims would make it unusable off-road, says Jeff Bell, vice president in charge of the Jeep and Chrysler brands, and that was unacceptable to consumers, even if they never drove the Jeep on anything rougher than a supermarket parking lot. "It could never be 'trail-rated'," Bell says. To be listed as trail-rated by Chrysler, a Jeep has to be able to meet 37 different requirements as set down by the Nevada Automotive Test Center. That means things such as the ability to ford streams and having traction on steep grades.

Such requirements could be considered a straightjacket for a team charged with expanding the Jeep brand. But by creating rules prescribed by consumer wants, Bell says, the team wouldn't make minivan-style mistakes. That didn't mean the Jeep team wouldn't incorporate competitors' ideas that consumers said they wanted in a Jeep -- such as a third row of seats, a popular option on big sport-utilities. Engineering the Commander for a third row did stretch the team's creativity. To be trail-rated, the Commander could be only a couple of inches longer and virtually no higher than a Grand Cherokee with a luggage rack. Go much past those Grand Cherokee dimensions and the Commander wouldn't make it through tight canyons or turn around on hairpin mountain roads.

To balance the two competing consumer needs -- third rows and trail ratings -- the team decided to raise the roof of the Commander just a few inches. While it's still a tight squeeze in the third row, raising the roof gives passengers more headroom, so the back of the Commander feels spacious. From the outside, it's hard to see the change because a cargo rack hides the higher roofline. But it is clear evidence of something else: a big change at a company long know for its shoot-from-the-hip approach. Chrysler, Bell says, is finally learning that "creativity actually occurs when the boundaries are defined, not when they are limitless." nFC

Fara Warner (www.farawarner.com) is a Fast Company contributing writer and author of The Power of the Purse: How Smart Businesses Are Adapting to the World's Most Important Consumers (Prentice Hall, 2005).

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2 Comments

  • Alisa U

    Americans are fad of new cars, and when it comes to new model of cars, Chrysler Corp is known on producing new cars. Chrysler is in front of controversies because of the financial trouble that they are facing of. Just recently, Obama’s administration will make about millions available to Chrysler, which may also help General Motors Corp restructure outside of bankruptcy. However, in spite of this predicament, there are still good news, as the new Jeep Cherokee has made its debut at car shows. And it seems odd that Chrysler would unveil another SUV as its saving grace. I guess Chrysler hopes that the 23 mpg that the Jeep Cherokee is supposed to get will keep them out of bankruptcy or needing an cash advance from Obama. The Chrysler Company is trying to rescue themselves from insolvency by talking of a merger with Italian firm Fiat, and overhauling. In spite of this, industry analysts doubt that people will be lining up much money to get the new Cherokee.