How Marchionne Will Run Fiat-Chrysler

When Fiat-Chrysler Chief Executive Officer Sergio Marchionne spoke for the first time to his new U.S. employees in June, he quickly dispensed with the rah-rah rhetoric. Standing in the four-story atrium at Chrysler's Auburn Hills (Mich.) headquarters, a couple thousand people hanging on his every word, the new chief thanked U.S. taxpayers for their forbearance and praised Chrysler veterans for their fortitude. Shortly after that, Marchionne, a rumpled figure in slacks and a black polo shirt sporting a Chrysler logo, cut to the chase. "In this business," he said, "mediocrity will kill you. We can't accept it."

For the third time in 11 years, Chrysler is bracing for the vagaries of new ownership. First it was the Germans, then the private equity guys, now the Italians. Many executives who watched Marchionne that day express relief that he and Fiat (FIA.MI) want to revive an automaker many had given up for dead. On the other hand, they have heard about the new boss' operating style. Marchionne, who declined to comment, demands teamwork while pitting divisions against each other. He isn't afraid to promote from deep in the ranks, and he expects executives to put in seven-day weeks as he does. That's how he brought Fiat back from the brink. "Only two people have turned around car companies [recently], Sergio and Nissan's (NSANY) Carlos Ghosn," says Ron Bloom, who heads the U.S. Treasury Dept.'s Auto Task Force. "His decision-making moves quickly. He's a firm believer in meritocracy."

Man in a Hurry There is little time to waste. Bankruptcy harmed a company that already had lost much of the buying public. Chrysler's models are older and less fuel-efficient than rivals'; not one vehicle gets the Consumer Reports seal of approval. Then there are the gaping holes in the lineup.

Marchionne will have to restore luster to Jeep, Chrysler, and Dodge, and plug those holes with small, fuel-efficient vehicles designed by Fiat. His biggest challenge will be replacing misfires such as the Sebring sedan, Jeep Compass, and Dodge Caliber—with the kind of mass-market vehicles that will make or break Chrysler. "Getting that right is where a lot of energy is being poured because that's the cake and the rest is icing," says a Chrysler executive, who expects Marchionne to approve a five-year product plan this month.

It doesn't help that Marchionne, 57, is inheriting a company suffering a crisis of confidence. The Chrysler of yore was a swaggering place—agile and unafraid of taking chances. In 1998, Daimler (DAI) bought the company and over the next nine years managed to squelch much of the Chrysler esprit de corps. Two years ago Cerberus Capital Management gained control. Faced with a far worse market than anyone had predicted, Cerberus cut and cut—and then cut some more.

Marchionne assumed Chrysler still had a brain trust. He wasn't about to bring in a bunch of outsiders. "He thinks there are good people at Chrysler," says Stefano Aversa, co-chief of the consultancy Alix Partners, who has worked with Marchionne. "He wants to retain the U.S. culture." Of Marchionne's 23 direct reports at Chrysler, 3 came from Fiat.

Rather than rely on suggestions from top management, Marchionne asked more than 100 middle- and lower-ranked staffers what they thought of their bosses. Then, say people familiar with the process, he picked people most respected by their subordinates. "If he didn't hear expressions of leadership voluntarily from people, he took it as a sign that they didn't view the executive as a leader," says a staffer Marchionne interviewed. Several senior people have since left, including the sales and marketing chief and the product development czar.

Marchionne then reached deep into the company to find talent. For example, he grabbed Peter L. Fong, who was running sales for the mid-Atlantic states, and made him president and CEO of the Chrysler brand. An outside executive who was privy to the process says Marchionne had heard Fong was a great sales guy and well-respected.

Brands as Internal Rivals To help strengthen and focus Chrysler's brands, Marchionne decided they should compete with each other for marketing and development resources. He has turned Dodge, Jeep, and Chrysler into separate companies, each with its own CEO. The risk is that the brand chiefs wind up undermining each other. To prevent that, Marchionne gave these executives corporate responsibilities, too. For example, Fong runs the Chrysler brand but is also in charge of sales for the whole company. The Dodge chief is responsible for the marketing strategy of all three brands.

No lover of hierarchy and process, Marchionne has stripped people of fancy titles and moved the CEO's office from the 15th story to the ground floor, where designers and engineers dream up new cars. He encourages low- and midlevel staff to keep the work moving even if they have to bypass a supervisor to get a project or expenditure approved. Before, says a Chrysler executive, "People guarded the chain of command and their titles like mother lions."

Marchionne is at heart a delegator. He sets goals and expects his reports to tell him how to proceed. For example, the chief was set on quickly bringing Fiat to the U.S. and ditching the Chrysler brand. His team persuaded him that doing so would be too expensive right now. But there is one area where Marchionne gets deeply hands-on: marketing, a discipline that Chrysler desperately needs to get right. Marchionne personally approves every ad and already has been meeting with BBDO, the automaker's longtime advertising agency.

Marchionne's plan to combine the best of Fiat (small cars) with the best of Chrysler (pickups, minivans, and SUVs) makes sense in theory. But today's auto market is every bit as Darwinian as Marchionne's management philosophy. As he told his troops in June: "We have been given this incredible second chance to rethink everything we do. There will not be a third."

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