In fact, Chrysler is about to open another barrel of red ink: company sources have told NEWSWEEK the automaker is planning to declare a writeoff of between $2 billion and $3 billion in restructuring costs for plant closings, early retirements and severance packages for laid-off workers. Zetsche declined to confirm the figure, but he admits Chrysler’s problems are even worse than he had guessed at first. He told NEWSWEEK: “There were quite some surprises for all of us when we finally got the total clear picture.”
That picture is one big jigsaw puzzle. Zetsche’s assignment is to figure out how to put the pieces back together, not only lining up new car buyers, but reconstructing the company’s shattered image among stock analysts, parts suppliers and its own employees. And the connections just keep getting trickier.
Can the old Chrysler ever come back? Car for car, it was the world’s most profitable automaker when Daimler acquired it in 1998. Investors saw the $35 billion merger as the perfect marriage of mass and class. But American managers allowed the product line to age while costs and rebates spun out of control. And now the U.S. unit, which once had the best supplier relations in Detroit, is confronting a revolt by its independent parts makers. They are infuriated by Zetsche’s demand that they cut their prices by 5 percent immediately and an additional 10 percent by 1993. Chrysler’s U.S. work force, upset when Stuttgart replaced their American bosses with Germans led by Zetsche, had been calming down lately. Many said they didn’t care where the boss came from, as long as their jobs survived. Last week the company announced plans to eliminate 26,000 of those jobs–20 percent of the payroll.
Zetsche is pressing on. He hopes to start winning new customers immediately–especially after January, when Chrysler’s sales in the United States plunged 16.2 percent. The company is looking for excitement at this week’s Chicago Auto Show when it rolls out a redesigned Dodge Ram pickup. Zetsche promises that the new truck, along with a new Jeep model coming this summer and a low-priced, stripped-down version of Chrysler’s minivan, will help him turn the company around.
He can’t do it without the parts makers. Outside suppliers have the power to shut Chrysler down entirely. The automaker depends on them for 70 percent of the parts in its cars. A few have even called back shipments of parts that were on the road to Chrysler factories. “They’ve gone back to the old management by mandate, where they’re the elephant and we’re the mice,” complains Neil DeKoker, a spokesman for a Detroit trade group representing many Chrysler suppliers. DeKoker says 70 percent of them are refusing to accept the 5 percent cut. Several have warned Chrysler that they will stop shipping parts unless the company backs down, and they are trying to negotiate a compromise. Others have succeeded in bargaining with the automaker to reduce its cuts.
Zetsche denies that he is backing down, but he says he has deployed 1,500 engineers to help suppliers find ways to reduce costs. Even if he does manage to quell the supplier uprising, he could still face more problems with parts makers down the road. “I worry what the long-term damage will be from a short-term dictatorial approach,” says Tom Stallkamp, the former Chrysler chief who built the company’s legendary rapport with parts makers. For outside contractors who flatly reject the price cuts, however, Zetsche has a warning: “I will think about the quality of these so-called ‘great relations’ if they are only there in good times and disappear in the bad times.”
Meanwhile, Wall Street is chanting for even deeper cost cuts. “The Chrysler turnaround plan is dependent on the kindness of strangers,” sniffs auto analyst David Garrity of Dresdner Kleinwort Benson in New York. “It’s all about hope, faith and charity.” There’s plenty of backbreaking work involved, Zetsche could add–but he’s busy handling one of the biggest repair jobs in automotive history.
