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Management in Action
Shifting Gears in the Auto Industry
“We’ve been sticking to our guns, and it’s worked well so far.”
—Chrysler Group CEO Sergio Marchionne on his strategy for reviving Chrysler
In November 2008, U.S. automaker Chrysler announced that it was cutting
25 percent of its workforce and acknowledged that domestic sales had dropped
35 percent in 12 months. Then-CEO Robert Nardelli also admitted that the
company could survive only by means of an alliance with another automaker
and an infusion of government cash. In December, Chrysler announced that it
would shut down all production through January 2009, that it planned to file for
bankruptcy, and that it ultimately expected to cease production permanently.
Federal aid to both Chrysler and General Motors was authorized in the same
month and had topped $17 billion by March 2009, when the Obama
administration gave Chrysler 30 days to finalize a previously announced merger
agreement with the Italian carmaker Fiat or face the loss of another $6 billion in
government subsidies.
Fiat? Things, it seems, had changed since the days when, for many American
car buyers, Fiat stood for “Fix It Again, Tony.” As recently as 2005, GM had been
only too happy to pay $2 billion to bail out of a joint venture with Fiat, which was
wallowing in debt after accumulated losses of $14 billion. A year later, however,
Fiat had actually shown a profit—its first since 2000—and its stock price had
doubled. By 2009, it was on Fortune magazine’s list of the “World’s Most
Sergii Tsololo/Photos.com
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Admired Companies.” It’s now Europe’s third-largest car company, behind only
Volkswagen and Peugeot Citroën and ahead of Renault, Daimler (Mercedes Benz),
and BMW, and number nine in the world, producing more cars than Hyundai or
Mitsubishi.
The credit for this remarkable turnaround goes to CEO Sergio Marchionne, an
accountant and industry outsider who, in 2004, became Fiat’s fifth CEO in two
years. Billie Blair, a consultant specializing in corporate change management,
reports that Marchionne brought an “unconventional approach” to the task of
managing a car company in the twenty-first century. In the process, she says—
citing Marchionne’s own explanation of his success at Fiat—he “revolutionized
the [Fiat] culture in a way that will keep the company competitive in the long
term.” Adds David Johnston, whose Atlanta-based marketing company has
worked with Chrysler: Marchionne “has been able to garner respect for Fiat
again after its down years and reestablish it as a business leader.”
What was Marchionne’s “unconventional approach”? It’s the same approach
that he’s trying to bring to Chrysler. Taking over Fiat after nearly 15 years of
continuously poor performance, Marchionne was forced to lay off employees,
but he focused his job-cutting strategy on longer-term goals: He cut 10 percent
of the company’s white-collar workforce of about 20,000, stripping away layers
of management and making room for a younger generation of managers with
experience in brand marketing rather than engineering. Refocusing the company
on market-driven imperatives, he cut the design-to-market process from 4 years
to 18 months, and, even more important, he spurred the introduction of a slew
of new products. The Grande Punto, which was launched in mid-2005, was the
best-selling subcompact in Western Europe a year later and spearheaded the
firm’s resurgence. The Fiat Nuova 500, a subcompact with a distinctive retro look
Jim
W
est/Alam
y
Chrysler Group CEO Sergio Marchionne has astutely used control to turn around first Fiat and then
Chrysler.
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