Project failures from top to bottom – can save Marchionne Chrysler

When Chrysler merged with Fiat on June 10, 2009, there was cause for hope and optimism. After an endless stream of bad news, the auto industry might not be dead yet.

On paper, it looked like a good deal for everyone. Fiat would return to the US market and sell its popular 500 (Cinquecentro), Chrysler would acquire a range of cars that consumers could actually buy, and tens of thousands of workers would keep their jobs.

But the real prize might just be Sergio Marchionne, CEO of Fiat and now CEO of FiatChrysler.

When he first became CEO of Fiat in 2004, Marchionne inherited a company that was on the brink of failure. It manufactured a lackluster product line and had suffered more than $12 billion in losses over the past five years.

To transform the company, he launched several strategic and operational projects. He fired senior managers, turned a bloated bureaucracy on its head and brought on board a team of young, aggressive managers. Then he reviewed all the projects and killed those that failed the market test. And he hired new designers and called for a portfolio of exciting projects that would bring customers back to dealer showrooms.

In less than three years, he achieved one of the most impressive turnarounds in automotive history.

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

If we look at Marchionne’s record, it’s not only impressive, it also suggests he could be the right person at the right time. But before we can jump to that conclusion, its ability to succeed must be placed in the context of what has happened to Chrysler over the past decade. In this case, success cannot be guaranteed.

DaimlerChrysler

In May 1998 Daimler-Benz merged with Chrysler. Jürgen 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 top three auto companies in the world.” The merger of two companies from Europe and the USA was not considered a hurdle either; Robert A. Lutz, Chrysler’s Vice-Chairman, argued that there was “definitely no culture war.”

But behind this display of public enthusiasm and corporate affinity, Schrempp took full control and made it clear with his actions that it was in fact not a “merger of equals”. Eaton responded by yielding to Schrempp, often retreating to the safety of his Auburn Hills office; His top executives responded by defecting to Ford and General Motors. Soon Chrysler was leaderless, projects were lackluster, and within a few years not only was the product line in trouble, but so was the merger. While there were many reasons for failure, the most commonly cited was a corporate culture clash.

Cerberus

In 2007, DaimlerChrysler sold Chrysler to Cerberus Capital Management, a private equity firm with no auto manufacturing experience. Bob Nardelli, former CEO of Home Depot, was elected head of the company. It was clear to many that the deal was purely a financial deal, and few believed that Cerberus was committed to building a competitive business in an increasingly competitive auto industry plagued by overcapacity.

Nardelli was a “badass” CEO. Business Week said in August 2007 that he “alienated virtually all of the management he inherited”. While many thought its military style was just what Chrysler needed, it didn’t work. In this Business Week article, a University of Michigan professor, Gerald Meyers, said that Cerberus had the right idea, but Nardelli was the “wrong one.”

Then Chrysler was hit by the perfect storm. Oil soared above $140 a barrel, the economy took a tumble, and Chrysler was caught with a product line dominated by gas guzzlers 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 aloof but dominant style and Nardelli’s “stubborn” style. He inherits a workforce that has endured job losses, wage cuts, declining benefits and fears of an uncertain future. But most importantly, he inherits a workplace that has suffered from lackluster project after project and a project culture that has failed to emphasize markets rather than methodology.

Here’s the problem; His leadership style, shaped by the rapid and disruptive changes he made five years ago, may not differ much from the leadership style of his two predecessors at Chrysler.

But it has to be different if it is to make lasting changes.

Is he flexible enough to become the transformational leader that Chrysler so desperately needs, or will he ignore Chrysler’s bumpy ride over the past decade, seize the reins, ignore the cultural differences, and just repeat history? Can he tackle the issues hard, but at the same time restore morale and create a project-based environment that motivates, not alienates, his project teams?

Or will he be the third in a line of tough CEOs and continue to smack until Chrysler’s morale improves?