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Executive of the Year

Dieter Zetsche has a history of turning troubled companies to gold. His turnaround plan as president and CEO of the Chrysler Group will be his crowning achievement.

Come to the edge.
No, we will fall.

Come to the edge.
No, we will fall.

They came to the edge.
 He pushed them, and they flew.

Those words, by French poet Guillaume Apollinaire, capture the essence and magic of Dieter Zetsche, president and CEO of DaimlerChrysler AG’s Chrysler Group and Automotive Industries’ 2003 Executive of the Year. Zetsche’s 27-year history with DaimlerChrysler is rife with examples of how he took floundering Daimler divisions from poverty to prosperity through disciplined planning and a gentle “push” to make them realize that they could fly.

His accomplishments include being the savior of a failing Mercedes-Benz Argentina in 1989, a role he reprised in 1992 when he moved on to rescue the flagging Freightliner Division. After restoring the commercial group to prosperity, Zetsche returned to Germany and was instrumental in reviving the Mercedes-Benz product line to include a modernized and wider range of vehicles.

In November of 2000, DaimlerChrysler CEO Juergen E. Schrempp called on his trusted colleague again, this time to execute the biggest challenge of his career. Zetsche was chosen to save the dying Chrysler Group and salvage the $36 billion merger that was bleeding life from the company and credibility from Schrempp himself.

Zetsche now admits that even with his briefings, he was not prepared for the magnitude of problems at Chrysler. The division was almost beyond help; everything was wrong.

A Company in Chaos

“I like a challenge, but it doesn’t have to be a hurricane all the time.”

“We are far too proud at Chrysler to just piggyback on the Mercedes brand.”

“I do not judge investment in the future by the input, but by the output.”
“The most obvious condition was that it was losing tons of money every month,” Zetsche recalls. “There was a major problem on the cost side. Many of the cost elements were out of control and we had to bring that back. On the other hand, the product plan was inconsistent, seeing the barrage of new products coming from everywhere and from everybody. We weren’t set up to take on this challenge. We had to simultaneously address the two basic parts of any business, the cost side and the revenue side.”

Zetsche’s arrival followed a CY 2000, third quarter loss of $512 million and came in the midst of what would prove to be a $1.3 billion freefall in the fourth quarter. Drastic measures would be the only thing to save the company now and Zetsche came prepared to do exactly that.

His strategy was a three-year turnaround plan. Details included immediate layoffs of 26,000 workers, deferring earned bonuses, eliminating shifts, closing factories, slowing production, sharing componentry with Mitsubishi, Hyundai and Mercedes divisions and even a controversial mandate to suppliers that they immediately cut prices by five percent, followed by an additional 10 percent over subsequent years.

Critics, suppliers and the press pounced on the latter point as an omen that the “old Chrysler” was gone and that a new era of German dictatorial tactics was taking hold. Zetsche was under attack, but it proved to be an opportunity for the new leader to demonstrate a skill that no one had anticipated.

Dieter Zetsche, as it turned out, was an open book. He dealt in fact not opinion, he was accountable, accessible and to the shock of many that expected him to be a dictator, he was likeable.

“Our relationship with suppliers was always better than what was described,” Zetsche chuckles. “But definitely when we asked for those five percent cuts we didn’t get any thank you notes from any of them. I’m not saying every supplier loves us, but I think in general terms we have a very good, performance oriented relationship.”

The vast majority of Chrysler’s suppliers have come to understand the necessity for what was done and have also come to accept that the new system has Zetsche’s fingerprints all over it — a fact that has become a source of comfort rather than concern.

“My perception is that suppliers like two things about our current relationship,” Zetsche says. “The first one is that the relationship is fact and performance based. We have very clear rules and the suppliers that perform in a positive way have a very good future with us; those who fail don’t. The second part is that we are committing very high capacity, strong tooling and high commitment to our mutual work of getting out cost. It has nothing to do with squeezing the supplier to disadvantage his bottom line, but rather becoming more efficient together.”

Steady Progress

Two years into the turnaround plan, the changes Zetsche ordered have the Chrysler Group in the black. And that’s with the majority of the unpleasant work behind it. As planned, 26,000 jobs have been eliminated but with complete buy-in by the UAW and CAW. Plants have been closed, but newer, more efficient facilities are also being considered. And Zetsche has even made the best of a corporate belt tightening when DaimlerChrysler chopped nearly $10 billion out of his five-year product plan. Even though his budget was slashed from $40 billion to $30.5 billion, he still managed to add seven new products to the list. That means his group will introduce 21 new or refreshed products between now and 2005.

Far from resting on his success to date, Zetsche is now laser focused on the defined targets for his turnaround plan for year three. He confides that just because the Chrysler Group earned money last year — even though he only planned to break even — he doesn’t see the challenge getting any smaller.

“We are as committed to this third year as we were the first two and we intend to deliver,” he stresses. “We said without being specific about the year, that we want to get to a level of about five percent return on sales, which for a volume brand is pretty good. That is the next objective of ours which has to be driven by benchmark cost position with operational excellence and great exciting products.”

To the latter point, Zetsche has set an incredible sales goal for the next decade that calls for selling an additional one million units annually. That would bring Chrysler Group sales to 3.8 million units, a number that begs the question: At whose expense would they come?

“Well I should say I couldn’t care less as long as it’s not Mercedes,” laughs a beaming Zetsche. “Actually we do not have a strategy against any competitor but we do have a strategy for Chrysler. Therefore we don’t define a market share objective either — just a volume objective. Certainly it will be an increase in share so it will be at the cost of someone else. But we are convinced that our strategy, which is based on value and brand equity, is the strategy that will prevail. Competitors who base their strategy on buying market share, I do believe, will have more problems and probably will be the ones who enable our growth.”

Privately, analysts balk at Chrysler’s aggressive growth strategy but have wisely been reluctant to openly criticize Zetsche. That’s because the Chrysler Group leader has over delivered on everything he promised so far, making it a reasonable assumption that he already has a detailed plan to hit his sales targets as predicted.

Targeting Higher Quality

Certainly, some of the biggest obstacles to such growth are Chrysler’s quality problems, which have haunted it over the last decade. Zetsche admits that the division was not competitive when he took over, but points to some obvious indicators that it has turned the corner and is rapidly getting quality under control.

Using warranty-cost-per-unit in the first 12 months as a yardstick, Zetsche claims a 21 percent improvement from the 2001 model year to 2002. He further notes that after the first quarter of model year 2003, the division expects about the same range of improvement over the substantially higher 2002 figures.

“We measure our quality against the benchmark in the volume segment,” Zetsche offers. “In North America today, that is Toyota and that is not a secret. That is our benchmark and we intend to match that performance with our brands. When we do that it will have two impacts. First, of course, it is good for the bottom line and the other is that it is good for our customers which will help us enhance our brand image and make us a top quality manufacturer which is where we want to be.”

Zetsche goes on to paint a more complex, Mercedes-like view on quality, saying that initial quality is only one of three parts of his new measurement. He also has established a teardown program for competitive products that will take place 3 to 5 years after they were first sold. Competitive products will be compared to Chrysler’s own vehicles to make sure the Chrysler cars hold up as well or better. It may even create a different benchmark vehicle than is targeted for initial quality, but Zetsche demands best-in-class performance on both fronts.

He also has given orders about quality perception, which involves first impressions, touch points, sound and visual design. He points to the company’s new vehicles like Pacifica as evidence of the effectiveness of those initiatives.

The Right Leader

Zetsche mingles with lineworkers during the launch of the Jeep Liberty at the New Toledo North Assembly Plant in Toledo, Ohio.
Zetsche is an optimist in the truest sense of the word. Associates at the Chrysler headquarters in Auburn Hills, Mich., admit that out of fear they may not have given him the warmest welcome, but Zetsche himself sees the same events through a more upbeat set of eyes.

“My welcome was different than what you read in the newspapers,” he brags. “It was very positive. We didn’t get credit in advance but we got a chance to prove our case by everybody. Very soon we had good support. Perhaps I should have known better from the Midwestern hospitality and friendliness of the people.”

Indeed, one of the keys to Zetsche’s acceptance is that he embraces Chrysler’s history and the local culture as his own. He works diligently to retain the essence of Chrysler, while at the same time introducing Daimler’s strengths. He says Chrysler’s strong element of creativity and out of the box thinking must be preserved. But during the execution of these products, the Daimler culture will demand that each follow brutally disciplined rules.

Zetsche’s disciplined approach leads him to look to the future with inviolate goals that support his vision. He speaks in matter-of-fact terms about things that haven’t happened yet, but with a resolve that makes them seem inevitable.

“Five years from now there will be no manufacturer offering better quality than we do,” he confidently predicts. “But our task beyond that is that this will be in synch with our image and perception and therefore we are not just working on the facts but also on perception. The 7/70 warranty is one element we are using to show our customers that we are convinced of our quality. We will continue this campaign to proudly talk about the fact that Chrysler is a different company and has become different because of the merger. Not piggybacking on the Mercedes brand, but saying that the combined strength enables us to do better things than we could do in the past.”

Critical New Products

Zetsche climbs aboard the V-10 powered Tomahawk concept cycle during the 2003 North American International Auto Show.

Part of that combined strength is a long history of diesel powered cars from Mercedes-Benz, an asset that Zetsche quickly capitalized on by announcing a diesel version of Jeep’s successful Liberty SUV for the North American market. While acknowledging obstacles in infrastructure, fuel quality and previous bad experiences with diesels in the U.S., he notes that heavy towing, zero-to-sixty acceleration and off-road driving are the homeland of diesels and the American SUV experience.

Asked how he thinks the diesel will fare in 2008 when the EPA’s emissions noose tightens, he falls back on his training.

“By education I am an engineer,” he states. “This makes me believe that in many cases facts will prevail. We were concerned about the answer to that question two years ago, but today we think we will be able to meet the challenge, provided clean diesel fuel is available with less than 50-ppm sulfur content. Most likely it will take some pressure from legislation, but basically that is the only request we are formulating in the direction of the government. We think there is a great opportunity for the nation with its objective of becoming less dependent on foreign oil and lowering CO2 emissions.”

With new products and powertrains on the horizon, costs under control, spending in check, quality improving and manufacturing efficiency targeted for improvement, it seems most of Chrysler’s work is done. But Zetsche wants to not only change Chrysler’s current fortunes; he wants to change its business philosophy from idealistic to realistic to prevent an economic relapse.

His mandate is that no product in the future will ever be approved without a strong business case based on realistic assumptions. He expects the precondition for approval of any project will be strong profitability, even in cases of “brand” vehicles like Viper or Prowler, which have historically lost money. Past management has called such a proposal impossible; Zetsche calls it “doable.”

For all of his discipline, there is a sentimental side to Zetsche that rounds him as a leader and a person. He revealed it when asked how he wanted to be remembered.

“I would like to be remembered as a fair partner who listens, someone who has good judgement, who trusts his colleagues and likes to work together with people. And also someone who is seen as reliable and who over the years has gained some valuable experience for this specific business and who has a lot of fun working together with others.”

We congratulate Dieter Zetsche on his career achievements and are proud to honor him as Automotive Industries’ 2003 Executive of the year.

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