Slash-and-burn management, integration, and the roller coaster
Following Chrysler has become more of a roller coaster than ever since the company was taken over, under false pretenses, by Daimler-Benz.
The massive profits of Chrysler Corporation have long disappeared along with its cash hoard - somewhere between $5 billion and $12 billion of it, more than enough to keep Chrysler Corporation afloat and happy had they remained independent, and much more than Daimler has spent on the losses caused by Daimler. Many of the customers have also gone, following insult after insult - the word Daimler always shoved in front of Chrysler; constant references to the worthlessness of Chrysler in an equity sense and in an engineering sense; the capricious dropping of the Plymouth brand coupled with the creation of Maybach; and of course the usual de-valuing of any car previously built, with the subtle insult to the owners of such cars, who must be fools for having purchased them.
We have had the regular kool-aid, which apparently most analysts and journalists drink - the idea that Chrysler can learn about quality from Mercedes, despite consistently having higher quality ratings than Mercedes; the laughable idea that Chrysler can learn about cost reduction from the world’s most wasteful large-scale automaker; and the insane idea that Chrylser has dragged down Mercedes, even though everyone must know by now that Daimler has taken Chrysler Financial, a huge moneymaker, while increasing Chrysler’s costs by making them use overpriced Mercedes parts, making them advertise the benefits of the “merger,” and making them pay for technology and components they don’t need or could have gotten more cheaply elsewhere, while Mercedes has, as far as we know, had a free hand in taking anything Chrysler has.
Now we are learning about the latest restructuring. There is nothing new here. A consulting firm with a poor track record and huge prices has been brought in, presumably to justify whatever compulsive, anti-American, ethnocentric decisions are made in Stuttgart. Costs will be cut willy-nilly and presumably with the same common sense that saw Chrysler lose its total dominance in minivans, and will see Chrysler eventually become the #2 minivan maker when Toyota or Honda builds a second mini plant; interiors will continue to be far less ornate than other brands; and loved options like the minivan wiper heater will forever be consigned to competitors. Quality problems will be inevitable as the focus will always be on the bottom line numbers, despite the advanced manufacturing systems that have helped Chrysler to keep its place in the average area of reliability (near the top for some models, like the PT Cruiser). We are told it was cost-cutting that led to the disastrous Neon head gasket and exhaust donut issues, before the takeover; and to the ball joint fiascos on the trucks, afterwards.
Yes, more plants will be closed. That is inevitable. Engineers will be laid off. The short-staffed areas of Chrysler Group will become more so, yet there will be ever-more engineering work as the new Mercedes vehicles are engineered in Auburn Hills. And that’s the strange part. We have so much to be optimistic about.
The next Mercedes V6 engines will be created in Auburn Hills, we are told. A new four cylinder may be under way; or it may be victim to cuts. New diesels will be under the hoods of many cars, increasing gas mileage and giving Chrysler an edge should fuel prices change or biodiesel become widely available. A new small car, replacing the Neon, is reportedly under way in Auburn Hills and Stuttgart both, to show up as both a Dodge and a Mercedes.
There have been some benefits to the Mercedes tie-up, too. The expensive rear suspension in the LX cars is probably better than what Chrysler would have used. The stability control system is quite good and Chrysler must have saved a few dollars by using Mercedes’ system, presuming the royalties weren’t too high. Supplier costs supposedly dropped, but that’s a matter of measurement; under SCORE, we saw that parts could be more expensive but save money, by being easier to install, longer-lasting, or more fully featured. So far we have no reason to believe costs have really dropped as a result of the takeover, especially since in some cases Chrysler had to use overpriced, underwhelming components (LX steering columns come to mind). And of course stability control systems are available from all sorts of suppliers; just about every automaker has one these days. Chrysler could have merged with other automakers - in real mergers, or with Chrysler on top - and gotten the same technologies. The same goes for the five-speed automatic; ZF could have sold (or licensed?) five or six speed automatics that would have been better overall, probably for the same or lower cost. GM and Ford went in together on a six speed automatic…overall, there have been some benefits, but not nearly as many as the analysts claimed there would be, and not nearly as many as the journalists would have us think. Unless you’re willing to give credit for the Hemi, PT, and Liberty reliability, and general quality gains to Mercedes, a company whose quality remains quite low in most surveys, and which had no hand in hemi, PT, and Liberty.
The key reason for optimism behind the implementation of the merger is that Mercedes will not be able to Fokker Chrysler - that is, shut them down - nor can they AdTranz Chrysler - that is, lie about their profitability and sell them to an insuspecting, honest company. They can however Freighliner Chrysler - that is, cheapen the product and destroy the company’s future through foolish, short-sighted cost-cutting. After all, Mercedes management knows there are many other profitable companies that can be tricked into being taken over, and then sucked dry. All they need is a senior management group that likes the looks of the hundreds of millions of dollars in personal profit they’ll get from a merger or takeover. The happy kool-aid drinking analysts and journalists will do the rest, noting Daimler’s success with Freightliner, spoiled by those dumb Americans, and their valiant efforts to keep Chrysler afload, spoiled by those dumb Americans, while ignoring any reality that might happen to show up. But the Fokker and AdTranz routes are not really open to a Mercedes that is relying on Chrysler engineers for their next generations of cars and engines - a Mercedes whose top executive has realized that the only way to compete against Lexus may be to use the innovative people at Chrysler, which started as an engineering firm and has, despite many leaders’ attempts to derail it, maintained enough of a culture and enough people to stay strong in its engineering and capabilities. Of course, if Zetsche is a figurehead, or if he loses power, all bets are off. Daimler wouldn’t be the first company to commit suicide just to prove a point.
The key reason for pessimism is the restructuring plan itself. You know what a good plan would look like, because we described it here already. Take off the constraints from Chrysler, stop insulting its employees and customers, and start trying to build it up, and you’d bet both an engineering source and a profit source. That’s not even on the table. If Chrysler is ever separated, it’ll be with the reason of incompetence and incapacity, because, they’ll say, it dragged Mercedes down.
One of the worst parts of the restructuring, other than the losses of yet more facilities and apparent across the board cuts (with some exceptions for vital but understaffed departments) in Auburn Hills, is the leadership of Rainer Schmückle, who the Detroit News fell over themselves to praise as a great savior. Let’s look at what Allpar folk had to say about him:
“Call me cynical, but I see 46-year old Shmeckel replacing LaSorda within a few months when soon as he becomes familiar with things.”
“Shmeckel is a slash and cut executive. He knows nothing other than to demand wage cuts, supplier pricing concessions and consolidated manufacturing capability. He does not have the testicular fortitude to see how a merging of Mercedes and Chrysler platforms, technology, etc is the *real* way forward for both companies. A fight with suppliers, the UAW and employees all at once will result in the demise of DCX.”
“My concern is not with the changes-Lord knows I have supported Dieter Zetche and Tom LaSorda. My concern (hell, my FEAR) is the schmuck. ESPECIALLY after he gutted FTL into the mess they are in now. Dan’s comments are reasonable-something the schmuck doesn’t understand or practice. … Blindly dictating a straight percentage of departmental headcount reductions WITHOUT understanding or CARING what a given department does is the method used at FTL. He doesn’t “have to take over” officially…that is what happened at FTL…all behind the scenes authority. That is why he is so dangerous to Chrysler. Look at the history of FTL…Deiter ran FTL when MB first took over…….”
“Schmuckle doesn’t take orders from anyone. He is kind of like a virus, only he was asked to come in a do it because someone sees greed in their eyes. Schmuckle is slash and cut efficiency person, he is being asked to slash and cut so more profit can be had. So far, prior to him being asked to squeeze the last drop of blood out of the turnip, more than 400,000 cars less are being built after nine years, and what else did the stats say, 50,000 fewer jobs for the accomplishment?
“What does the other side have to lose by simply have a merger agreement share parts, technology and ideas and let C/D/J be on their own. We have not for a single second done anything to take anything away from Mercedes Benz, they have charged us billions and taken billions, and yet they have to slash us, cut us, sell us, destroy us, for what? Greed?”
MB has back charged Chrysler for every person assigned to Auburn Hills, JTE, FREC, and various plants. All they did was drain CHRYSLER resources.
“Freightliner is bereft of cash. It squandered the last 5 years chasing low-profit sales. If the downturn is serious, it will take another make-over to save them. Of course, management rarely understands that the slash-and-burn guy is the one who positioned the company for short-term gain, but long-term failure.”
“There is and will continue to be a difference between what happens deep in the labs and offices at JTE/AuburnHills/Stuttgart and what ‘has’ to be spun publicly to maintain perception of branding. Think outside the box, and if you want the entire company to succeed you have to maybe not tell the whole truth. It’s AMC chapter 2 (with a German twist).”
On the other hand, one observer of the international auto industry wote:
“Dieter Z didn’t spend those years getting a feel for what makes Chrysler tick, without gaining empathy for this side of the biz. LaSorda wasn’t put in by DZ to be just a patsy. There’s a BIG plan a brewing, and the MB side is going to be kicking and screaming perhaps even more so than CDJ.
“Things will be different–different isn’t always bad, it’s just different. The cards aren’t all out on the table yet–and probably won’t ever all be shown, but most likely what’s happening, is DZ has had exposure to the good & bad of each side of the Corp., and is finally going to integrate this beast.
“Doesn’t mean the end of CDJ, doesn’t mean the end of MB. What is does mean is that it ain’t gonna be CG or MB anymore–everything will be DC stuff. Think GM-like and you’re probably close, plus China’s a big component in all of this.
“It won’t be fun getting there, unless one really enjoys upheavals. So, if you’re going to perform massive surgery–it’s best to get it over with quickly. It’s time to either get off the pot, or you know what…”
Decide for yourself. The plan will be revealed one week from today. I predict that Detroit News and others will portray it as yet another Mercedes rescue of ailing, incompetent, low-quality Chrysler - even though surely they know better. The real question is what the future holds - a death spiral of cost-cutting begetting lower sales and higher incentives, begetting more cost-cutting, with each slash-and-burn move sacrificing more - automated manual transmissions, home-grown diesels, new engines, new bodies, good interiors, weight reduction, and always quality and morale? Or will we see something better come from the ashes of Chrysler? Will there be any corresponding cuts at Mercedes, now that Chrysler has been kind enough to take over so much engineering work? Will Mercedes finally have to start paying consulting fees to Chrysler, for the expertise, patents, and techniques they’re using, not to mention the engineering done by Chrysler for Mercedes? (For that matter, did Mercedes ever pay for UConnect, as Chrysler reportedly did for the less-than-stellar Mercedes five-speed automatic?) It would be a surprise given the current atmosphere in Germany, but one never knows.
Oh, and for the source of those quotes - http://www.allpar.com/forums/index.php?showtopic=88305
And when you’re done, pop by AutoExtremist’s take on the subject.