Keeping the Crisis in Chrysler

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.