Chrysler Corp. is on a roll with record first-quarter profits of just over $1 billion and various new cars and trucks coming this fall.
Robert Lutz, Chrysler's former president who was named vice chairman on Dec. 5, now sees his job and the automaker from a slightly different perspective.
Lutz talked with Automotive News associate publisher and editor Peter Brown and staff reporter Ralph Kisiel at his Auburn Hills, Mich., office May 9.
Is Chrysler continuing to emphasize trucks over passenger cars?
We're not ready to give up on passenger cars.
We've gotten to basically 70 percent trucks. Since we had considerable investment in passenger cars and our dealers had a lot of investment in passenger cars, and since the international markets in which we want to participate tend to be car-dominated markets, we felt it was certainly worth one more cycle of a maximum effort on passenger-car platforms.
If the passenger-car market continues to shrink, everybody's going to have to rethink how much investment they put into passenger cars.
How do you compete internationally in passenger cars when your emphasis here is in trucks?
That's why you'd like to keep cars going. But as our overseas business grows, the fact that our emphasis here is all on trucks didn't prevent us from doing the joint venture with BMW for production of 1.4- and 1.6-liter engines, which, guaranteed, we won't ever use in a truck.
I wouldn't preclude the possibility of some day the Chrysler engineering group right here in this building fully engineering a car for production and sale in world markets that would never have a domestic application.
Your sales are down a little bit. How is the U.S. market shaping up?
It's soft. The industry in April was down to I think about 14.7 million on a seasonally adjusted annual rate, and that's with everybody leaning on the market -everybody having either fairly heavy incentives or a lot of subsidized lease deals. So it is not a buoyant market right now, and it's a little bit hard to figure out because certainly the economy is in good shape, employment is high, and the consumer ability to buy is certainly there.
Are you going to spend enough money on incentives and so forth to keep things humming?
We'll do what it takes to keep our dealers competitive. But we certainly are not going to get ourselves in the position that we did in the '89 to '90 to '91 period, where Chrysler was spending $2,500 a vehicle when everybody else was spending $1,200 or $1,500. We don't have to do that anymore.
We see ourselves spending less per unit this time around as the market goes somewhat soft and squishy, especially early on with the new generation of large cars and the four-door Ram pickup coming out this fall. We will have a whole bunch of hot products, which hopefully won't have to carry any incentives for a long time.
Are you willing to take some production out?
Oh, sure. Absolutely. Bob (Eaton) and I both feel that way very strongly. If the demand isn't there, the only logical thing to do is cut back production.
You hurt yourself two ways when you go in with heavy incentives. In the old days you only hurt yourself one way, which was you lost margin on the sale. Now you're not only reducing your margin on that sale, but you have just trashed your residuals on all your older cars of the same model. If you put $1,500 on them, the year-old used one goes down by $1,500. I think all of the domestics to varying degrees are finding themselves in that situation.
Does Chrysler need to modify its turn-and-earn allocation system?
It's impossible to come up with a distribution system or allocation system that satisfies everybody. We just have a tough time coming up with something better or more reliable or fairer than turn and earn. I can see where some dealers get frustrated with turn and earn in times of extremely high demand for hot products.
We will override and give judgmental allocations if we see that some region or some dealers as a result of the system really have not been able to get what they need to get off the ground. It's not by rote and all computer-driven. There's some human judgment and adjustment that goes into it.
How badly have relations been strained with the UAW in the wake of the Mound Road engine plant strike?
I would say not at all with the International. It was always conducted on a very businesslike and nonemotional plane. I think Dennis Pawley said it, 'Sometimes you have fights with your wife, but that doesn't mean you don't love her.'
I would honestly say that our relationship with the UAW has just never been better.
Will the rank and file take a hit in their profit-sharing checks?
Without question. Everybody loses in a strike. The company loses, the workers lose, the shareholder loses, executive bonuses get affected, probably pretty significantly. It's like war. It's a very, very unfortunate way of resolving issues.
How has your job changed?
For the last three or four years, I've gotten out of the business of actually telling people what to do. What you try to do more and more is to encourage continual change and encourage continual progress and to be a discussion leader and kind of coach. I would say up until Jan. 1, the executive vice presidents reported directly to me and therefore, I had more direct access, which I now don't have. That really has put me in more an advisory role and less direct operational responsibility. The direct operational responsibility now lies with the executive vice presidents.
What's the kind of thing that the executive vice presidents would have brought to you a year ago?
I suppose there's a subtle difference in that before you could argue that even though we're trying to drive fear out of the organization, given the fact that I wrote these guys' performance reviews, even if I tried to make it a noncoercive and nonintimidating environment, there still was the knowledge that ultimately I was writing their performance review.
Now that pressure is gone. Now if they want to tell me, 'Thank you very much, that's a very interesting view, but we think we'll do something else,' that's perfectly all right too.
Who makes decisions such as whether Chrysler moves ahead with the next-generation LH cars?
That comes out of a process that we call 'group grope.' The group gropes are where we get all of the people who are intimately involved, mostly officers, for a free-ranging discussion of our future product strategy.
We look at such things as the regulatory climate, the competitive climate, the amount of money that we believe we can reasonably expect to have available based on our calculation of our future cash flow, where we see open niches in the market, crazy things we might do, new ways of putting America on four wheels that nobody else has thought of.
What's changing at Chrysler Corp.?
I think what we have in place is the basic mechanism that has broken the paradigm of senior management doing everything.
If you have senior management doing everything, you literally are restricting the speed of the company. Imagine an 8-liter Viper engine that has to get its air through a hole the diameter of a knitting needle. That's what it is when top management tries to run the whole company.
That we've gotten out of, where top management sets the overall direction and monitors results.
How long do you plan to hang onto the Eagle brand?
Eagle will get a significant new product with the advent of the new large cars. Then it really is up to the Eagle retail distribution organization. If they pick up the ball and run with it and the brand remains viable, fine. But we're not going to do anything to kill it, nor are we going to be putting hundreds of millions of new money into the brand. If Eagle takes off with the new product, then fine. If it doesn't, at some point it will be permitted to fade out of the picture.