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Top-Down Project Failures: Can Marchionne Save Chrysler?

When Chrysler merged with Fiat on June 10, 2009, there was reason 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 mediocre product line and had suffered more than $ 12 billion in losses over the previous five years.

To transform the company he embarked on various strategic and operational projects. He fired top managers, turned a bloated bureaucracy upside down, and brought in a team of aggressive young managers. Then, he went through all the projects and removed those that couldn’t pass the market test. And he hired new designers and demanded a pipeline of exciting projects that would bring clients to dealer showrooms.

In less than three years it achieved one of the most impressive changes in automotive history.

Now, as part of his plan to make Fiat a global competitor, he has taken on Chrysler. But can he perform his magic again? Can you save another company whose circumstances in many ways, but not all, are strikingly similar to those faced by Fiat just five years ago? Can your leadership style and that of the Fiat 500 be successfully exported to this side of the Atlantic?

If we look at Marchionne’s track record alone, it’s not only impressive, it suggests that he might be the right person at the right time. But before we can come to this conclusion, its 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. Jurgen Schrempp, CEO of Daimler-Benz, called it a “merger of equals.” Chrysler CEO Robert Eaton promised that “within five years we will be among the world’s top three auto companies.” Even bringing together two companies from Europe and the United States was not seen as an obstacle; Chrysler vice president Robert A. Lutz argued that “there was definitely no culture shock here.”

But behind this display of public enthusiasm and corporate kinship, Schrempp took full control and his actions made it clear that this was not a “merger of equals.” Eaton responded by caving in to Schrempp, often retreating to the safety of his Auburn Hills office; its top managers responded by defecting to Ford and General Motors. Soon Chrysler was left without a rudder, projects were mediocre, and within a few years, not only the product line was in trouble, but so was the merger. While there were many reasons for its failure, the one most frequently cited 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, a former CEO of Home Depot, was chosen to run the company. For many, it was clear that the deal was strictly financial, and few believed that Cerberus was committed to building a competitive company in an increasingly competitive auto industry plagued with too much capacity.

Nardelli was a “tough as nails” CEO. Business Week, in August 2007, said that it “disposed of … practically all the management that it inherited.” While many thought its military style 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 rose to more than $ 140 a barrel, the economy took a nosedive, and Chrysler was caught off guard with a gasoline consumer-dominated product line that no one wanted to buy.

Marchionne’s challenge

In this context, Fiat has acquired a 20 percent stake in Chrysler. Marchionne inherits an organization shattered by Schrempp’s distant but domineering style and Nardelli’s “tough as nails” style. You inherit a workforce that has suffered job losses, pay cuts, declining benefits, and anxiety about an uncertain future. But above all, it inherits a workplace that has suffered from one mediocre project after another, and a project culture that has failed to stress markets, not methodology.

Here is the problem; His leadership style, characterized by the rapid and disruptive changes he made five years ago, may not be much different from the leadership style practiced by his two predecessors at Chrysler.

But it must be different if you want to achieve sustainable change.

Is he flexible enough to become the transformational leader Chrysler so desperately needs, or will he ignore Chrysler’s rough ride over 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 does not alienate your project teams?

Or will he be the third in a string of tough CEOs and continue the beatings until morale improves at Chrysler?