It all comes down to cost.
Jim Holden's fate at DaimlerChrysler was sealed by this: In the hypercompetitive market of 2000, the Chrysler group let its costs rise as transaction prices for its cars and trucks fell. As Chrysler Corp.'s former leaders left, the company lost the cost discipline that had made it the most profitable automaker of the 1990s.
'Many of the current vehicle programs are $1,000 to $2,000 over their targets in variable costs,' says former Chrysler President and Vice Chairman Robert Lutz. The company confirmed the figures.
Lutz was the leader of Chrysler's 'dream team' of executives who created hit vehicles with the industry's lowest cost. He and other members of the team say Chrysler has lost the cost discipline.
Now DaimlerChrysler's Dieter Zetsche is crossing the Atlantic to replace the fired Holden.
'What Dieter has to do is re-instill the discipline,' Lutz said Friday, Nov. 17. 'He can't run a popularity contest. He's got to keep pushing good product that meets stringent investment targets and variable cost targets.'
Holden blamed Chrysler's shocking fall into red ink on product decisions made years ago by the 'dream team,' including himself. The team spent more to make vehicles better, but then couldn't recoup that spending when retail incentives effectively lowered prices.
For instance, the new 2001 minivan has an expensive flexible body shop, and the vehicle itself is much quieter and more sophisticated than the van it replaces. But it also costs more and has tougher competition. Thus, big rebates were needed in its first weeks.
Dennis Pawley, the former executive vice president of manufacturing, says cost targets need to change when the market changes.
'Lutz was just ruthless in driving cost cuts when conditions changed,' Pawley says. Under the old system, executives did product reviews every six to eight weeks and changed financial targets based on the market, he says. And if executives couldn't cut investment in a program, Lutz forced cuts somewhere else.
Lutz takes pride in being a penny-pinching financial taskmaster in the mold of Ford Motor Co.'s Red Poling, with whom Lutz worked in the 1980s.
Lutz describes the old Chrysler system this way: He and former engineering chief Francois Castaing would set variable cost targets no higher than those of the existing vehicle. For instance, the original LH large cars were to cost no more than the Dodge Dynasty.
Chrysler's recent programs were built on the assumption of higher prices. 'I never assumed (higher) pricing,' Lutz says.
Today, says Lutz, now chairman of battery-maker Exide Corp., 'The checks and balances are gone. If you relax that, then the product program determines the spending, rather than the spending determining the product program.'
It's not Stuttgart's fault, Lutz says.
'The Germans are getting blamed for this,' he says. But after the departure of Castaing, Pawley, platform chief Chris Theodore and Lutz himself, 'this would have happened anyway.'