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Online Extra: Zetsche: "It's Not Mission Impossible"

Dieter Zetsche, 50, Chrysler Group chief executive, got his marching orders in late 2000. His mission: Turn around a hemorrhaging Chrysler. His plan included a $4 billion restructuring charge, pruning 26,000 jobs, and closing six factories. Despite those efforts, Detroit's No. 3 auto maker has steadily lost market share since the 1998 merger with Daimler-Benz and failed to produce cars that galvanize sales. Chrysler Group has also been a victim of General Motor's (GM) punishing incentive wars, which forced all three carmakers to sell cars with profit-eroding rebates of as much as $4,500.

Zetsche, a highly regarded electrical engineer, is a 27-year Mercedes-Benz veteran who worked in development, research, and sales as well as at the group's truck division before taking the top job at Chrysler. He's also one of three top candidates frequently mentioned as a successcor for DaimlerChrysler (DCX) Chief Executive Juergen Schremp.

However, DaimlerChrysler isn't alone in wanting to tap Zetsche's expertise. He has been wooed this year by Ford Motor (F), according to top DaimlerChrysler officials. Although the affable executive has one of the toughest turnaround jobs in the auto industry, he seemed relaxed under the spotlight at the Frankfurt Auto Show in mid-September. There, he met with BusinessWeek Senior European Correspondent Gail Edmondson. Edited excerpts of their conversation follow.

Q: Some auto-industry experts believe that despite your best efforts, turning around Chrysler may be a mission impossible. Could that be the case?

A: I have a task that isn't a piece of cake. But it's not mission impossible. We're faced with a tougher market than we expected in the beginning. We were able to cover shortfalls with incremental improvements on the cost side until the second quarter of this year, when the hole was too big to fill.

Looking forward, the market isn't going to get any easier. But our new-product effort is beginning to bear fruit. With nine new models coming out next year, we have a significant opportunity to address the missing link on the revenue side.

Q: But you've already announced "aggressive incentives" -- to use your own marketing language -- on the newest 2004 models. Doesn't that move contradict your strategy to make Chrysler a more premium brand that doesn't sell based on incentives?

A: The 2004 models that we introduced early in the year are further through their cycle and carry [higher] incentives to attract the customer. We aren't changing our strategy. Clearly, it's a major challenge to move a brand. You can't do that from one day to the other.

The absolute prerequisite is great products. You can't do it without products, and there's a time lag. We're totally convinced [bringing Chrysler upmarket] is the right direction to take.

Q: Some industry experts warn that Chrysler's core customer isn't a premium car buyer and that you risk alienating the bulk of loyal Chrysler clients if you reposition the brand. Isn't that a valid consideration?

A: The Town and Country was a premium product and commanded a premium price. I agree that [such an] endeavor is something that takes years. But I disagree that making Chrysler a premium brand is opposite to the core of the brand image.

Q: If it takes 5-10 years to reposition an automobile brand, such as Audi did, how are you going to improve Chrysler's margins in the meantime?

A: First we expect that the products by themselves will be successful. They will give us the volumes and the prices we're shooting for. In 2004 we'll have excellent product and competitive price positioning. It's all about hitting the right spot. We'll be closer to a net pricing situation rather than a huge incentive situation. We're expecting to be able to do that with higher-quality products.

Q: Chrysler's market share has shrunk from 16.3% at the time of the merger to 13% this year. What's your target for market share?

A: I don't have a market-share target. I have volume targets. We are hoping for share gains. We had a slight decrease, but new launches will provide the opportunity to reverse the market-share slide.

Q: Don't you have to choose between being a lower-volume premium auto maker and a high-volume mass-market company? If you take Chrysler upmarket, doesn't that translate inherently into lower volumes, requiring cuts in production?

A: It isn't our intention to lower our volumes. The first step is to differentiate ourselves from the competition.

Q: Is there a risk that the turnaround at Chrysler could take much longer than expected and that the problems could spill over and have an impact on DaimlerChrysler again?

A: It comes down to mathematics. Given the size of Chrysler, whatever it does impacts DaimlerChrysler. We're very confident that we'll be successful on the cost side and have the arms to fight the war in the market with strong products. We have a base now to build on.

Q: You've vowed to reach the productivity level of Toyota (TM), which now ranks No. 1, by 2007. Do you mean to match Toyota's level today -- or the level they reach by 2007? And how will you achieve that?

A: Productivity is a moving target. We set clear goals.... This year we went from 44 hours to build a car to 37. The best [Toyota] is 29 hours. Whatever the number is in 2007, we'll be there. We'll close the gap by that time, whether it's Toyota or someone else in the No. 1 position.

Q: You also need to improve factory flexibility. Isn't that going to require billions of dollars of investments?

A: Not necessarily. That's a question of planning and design.

Q: Does Chrysler need another radical restructuring?

A: Markets love restructuring packages. Some of it is just accelerating depreciation and adjusting the workforce to the running volume. The main point is what variables you bring down. Altogether, we have a good track record on the cost side.

Q: Top Daimler officials don't rule out additional job cuts at Chrysler. Are more cuts likely?

A: No manufacturer can rule out job cuts.

Q: At the time of the merger, Chief Executive J?rgen Schrempp promised to create the most profitable auto company in the world. No one believes any longer that DaimlerChrysler will fulfill that promise. What level of profitability is possible at Chrysler, and how long will it take you to achieve?

A: Our profitability objective at Chrysler is 5% return on sales. When you combine that with a reduction in net assets, you produce a nice return on net assets figure. We're not there obviously. It can be accomplished in the medium term -- in three to five years.

Q: That's a long time. Maybe it would have been better to buy Nissan (NSANY) instead of Chrysler.

A: There are things in life where hindsight offers additional intelligence. We have to deal with the hand we have and turn it into a winning hand. That's what we are doing.

Q: Would Mercedes be better off without Chrysler? Was the strategy behind the merger flawed?

A: We continue to believe there is tremendous opportunity in the global position of the company. The work is harder than we originally foresaw to leverage the opportunities. But we're on our way to producing results. EDITED BY Edited by Patricia O'Connell

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