Blogs » Politcs Plus » How Chrysler came back to life



I'm a sucker for a success story so naturally Bill Saporito's article in Time magazine, stirred my interest. It's a story of how a fallen company, the U.S. government and a man named Sergio Marchionne (owner of Fiat) pooled their resources and brought an American company back to life.

Fiat's engine technology, its superior manufacturing capability was what Chrysler's remaining minivan, SUV and big pickups needed. All it needed was someone to fund it and a president willing to give it a shot. Sergio had nothing to lose since they were playing with taxpayer bailout money. At the time Fiat was even in worse shape than Chrysler ,losing $5 million a day. Obama's car czar, Steve Rattner, said the negotiations were clearly one-sided in Segio Marchionne's favor and extremely brutal. The Italian executive refused to put in nickel of Fiat's money into play but got billions in government loans. Marchionne said, " You've got more than money on the table....You've got me...You've got Fiat."

Sergio Marchionne operated as if he had no financial risk because he was playing with White House money, and he realized than even in a poor economy people need cars and trucks. In 2009, only 10.4 million vehicles were sold in the United States down 35% from the 16 million that were sold in 2007. The automobile scrappage rate is 5% annually, meaning that the U.S. needs ~ 11 million to 13 million new vehicles just to keep people on the road.

When Fiat took charge of Jefferson North Assembly plant, one of the of the last auto-assembly lines in Detroit, it was a total wreck, the roof leaked, bathrooms were falling apart and one entire shift was idled. Rather than close the plant down for renovation, he paid the assembly-line workers to make repairs, paint and reconfigure all the conveyance systems. They also installed new locker rooms and an atrium break area. Besides the obvious physical changes that were needed, he also changed the entire attitude of the workforce. Marchionne set up his office on the fourth floor of the engineering department not the executive penthouse, which is now empty, where the chairman and three vice chairmen used to rule. After flattening out the organization the new CEO emphasized that he was blind to rank and would entertain ideas, no matter where they came from. He then brought in people into the management team who normally would have been buried underneath the classic hierarchy of corporate America. Mr. Marchionne gave everyone a chance but with that came responsibility and the raft of his temper, if he thought, you were not operating at your best.

The next step was dealing with the union, which wasn't difficult at all. In fact, the United Auto Workers (UAW) also negotiated with GM and Ford. The union crafted a competitive labor agreement which stripped pension legacy and health care costs allowing them to compete with Japan. Fiat now owns 53.5% of Chrysler, which will likely increase to 58% next year and UAW, owns 46.5% of the company.

Today, Chrysler Group which includes Chrysler, Dodge, Ram and Jeep are up to 23% through the third quarter of 2011 and are expected to hit $55 billion for the year. That's outstanding when you consider Chrysler was losing $1 billion a month in 2009; now its operating profit could reach $5 billion. Sales have increased 45% in November over the prior year. Chrysler is selling so many Jeeps that it's investing $500 million in Toledo, Ohio for a body shop. It's also adding a second assembly line. Many of the Italians who moved to the U.S. to transfer Fiat's marketing and technology skills to skill understand Sergio Marchionne's turnaround skills, so they're staying in America for the sequel.In May Chrysler transferred $5.9 billion to the United States Treasury,paying off the bailout loan six months ahead of schedule.Mr. Marchionne said " I don't think people really understand what the implications would have been or a lack of decisiveness at that point in time."

The Center for Automotive Research, in Ann Arbor, Michigan believes that the auto industry (including foreign brands) will add 47,000 direct manufacturing jobs and 120,000 indirect jobs at part suppliers in the next four years.

I seriously doubt that the Chrysler/Fiat bailout model will be taught at our top business colleges, or the conditions that made this venture successful will never be duplicated but economist will discuss the pros and cons. That’s all we should want instead of always being led by ideology. What Chrysler did, goes against all economic principles, but it worked. This was a joint venture with our government, a company from Italy, and the United Auto Workers. The article never mentioned taxes, unions or regulations and barely mentioned health care costs as being the barriers to their success. This was a gamble or a desperation move but as Mr. Marchionne said, "Leadership is a not a quantitative thing." People need to trust you that you're going to pull them out, and that they will follow you when you pull them out. If they don't get that comfort, they going to drop you. This is true of organizations and countries."