The End of Detroit

by Micheline Maynard

  Besides, he contends, import companies have always offered incentives; they just disguised them, offering cash to dealers to help sell vehicles—“money in the trunk,” he said—instead of publicizing the size of their rebates. Lutz noted with delight during the spring of 2003 that Toyota was offering zero percent financing on some of its vehicles, while Honda was again offering low-payment leases on the Accord. “We’ve pressured them out,” he declared. “They’re no longer the little start-up companies that can nibble away with impunity” at Detroit’s market share. “They’re no longer the lovable little underdogs.” Going forward, Lutz said, there would be no such division between domestic and import companies. The winners would be the manufacturers who were able to execute their vehicles the best, to offer the best quality and the more desirable products.

  As in Europe, where companies compete across the Continent and in Britain by product, not by stressing their national origins, the American market eventually would put aside such distinctions and compete as one big marketplace, Lutz said. GM’s secret weapon, he said, would be vehicles that are pleasurable and satisfying versus the bland and boring. Added Cowger, “At the end of the day, we can style better” than import companies. But GM knew that its task was monumental, and one that could not be achieved unless its lineups were filled with exciting vehicles. Said Cowger, echoing DeLorenzo, “Each and every one of them has got to be a hit.”

  DeLorenzo, whose father, Tony, was GM’s legendary vice president for public relations during its glory years, is enthusiastic about Cowger and Lutz’s efforts. Regardless, he thinks GM faces an enormous task. “GM’s squawking that there is a perception lag for American consumers is absolutely true. But when you have almost a 20-year legacy of consistently bad or mediocre products, that perception gap will take time to reverse,” he said. Indeed, GM made the perception gap the center of a highly controversial series of ads that it began running midway through 2003. Officially called “The Road to Redemption,” and known around Detroit as “the apology ads,” the print campaign admitted that GM’s quality was terrible in the 1970s and 1980s, but assured buyers that they could now trust GM and that its vehicles, going forward, would be superb. The ad campaign sparked outrage from Bob Garfield, the astute columnist for Advertising Age.

  “This is a company that consistently fails to divine the desires of the marketplace and translate them into the right product for the right time,” Garfield wrote. “It is a company that, having spent decades and billions achieving quality parity, is unable in its ordinary divisional promotion to communicate that achievement to the world. And it is a company with priceless brands containing unimaginable reserves of equity—equity inaccessible to the owners who can’t seem to find the combination to the vault. So now they’re telling us this isn’t your father’s General Motors . . . and we’re supposed to believe them? We don’t believe them.”

  In the end, said DeLorenzo, GM stood a chance to stage a comeback only if it could follow through on its promises. Nothing short of that would suffice. If GM creates hits, as Cowger vows, and builds them with high quality, “all the doomsday scenarios are put on hold,” DeLorenzo said. But he added, “That’s admittedly a big ‘if.’”

  While GM plans to face down imports head-on, Chrysler would like to be considered as one of them—in every way but location. Like GM, it is striving to separate itself from old Detroit and to forge a path that moves away from its roots. But it is facing an enormously difficult time in doing so, given its past reputation for substandard quality. Further, there are real doubts in the industry about whether Chrysler has the resources to stave off GM and the imports long enough so that it can create vehicles that can shift consumers’ mind-sets away from its past quality mistakes. By mid-2003, the damage from GM’s incentives had become painfully clear. Chrysler, which had seemed on a clear path to recovery, stunned Wall Street and the industry in early June with an unexpected warning that it would not make the $2 billion profit it had predicted for the year, and would be lucky to break even. The turnaround, it appeared, would need a turnaround of its own. Once again, Chrysler, always trailing well behind GM and Ford, was in trouble. “They have turmoil in their DNA,” said Art Spinella, an auto industry analyst with CNW Marketing Research of Bandon, Oregon.

  But in the five years since the DaimlerChrysler merger, two things have become clear. First, Robert Eaton was right to link up with Daimler-Benz at the point in time when he did so. An independent Chrysler could be a fast-moving, innovative and highly profitable company, thanks to its lineup of light trucks, but it was in no way capable of surviving the onslaught from the import companies on its own. Simply for that reason, Chrysler is much better off under the umbrella of DaimlerChrysler than it would have been as an independent company. It is able to draw from the resources of brands like Germany’s Mercedes, Japan’s Mitsubishi and Korea’s Hyundai, of which DaimlerChrysler owns a 10 percent stake. Eaton’s reasoning for the merger, though denounced by distraught employees for years afterward as a betrayal, in the end proved sound. The mistake that both he and Schrempp made was in trying to sugarcoat the truth: calling it a “merger of equals” when in fact it was a takeover by the German company. The angst of the merger might have been over much more quickly if Schrempp had simply deployed the German executives he eventually sent in 2000 to rescue Chrysler from two years of postmerger bungling and crafted a strategy much sooner.

  In Zetsche, the chief executive, and Bernhard, the intensely focused chief operating officer, Chrysler has two of the smartest executives in the global auto industry. They have attacked Chrysler’s operations with vigor and determination, with new, streamlined processes for developing vehicles, a concentrated effort aimed at improving quality and theoretically well-defined plans for all of its brands, Chrysler, Dodge and Jeep. The energy that each of them exudes permeates the eighth floor of the executive tower at Chrysler’s technology center in Auburn Hills, 30 miles north of Detroit. When it’s time for his next appointment, Zetsche doesn’t wait for a secretary to usher in his visitors. He appears at the door of his office, hands in his pockets, eyebrows lifted in expectation. The conversation begins right away, Zetsche slinging his leg over the side of an armchair as he talks, completely relaxed, his eyes bright above his trademark walrus mustache. “We want to get out of this box of being one of the Big Three. That’s not us,” he said. “I don’t believe success in the marketplace is defined by location of headquarters, the shape of your eyes, or anything like that. It’s defined by your strategy.” Added Bernhard, who has a chiseled face, laserlike eyes and jet-black hair, “We have completely—in our business strategies, in our product strategy—turned away from what GM and Ford are doing. This is not the issue anymore. We do not even look at them anymore.” When it came to vehicle quality and product features, Bernhard said, Chrysler’s role models were the Japanese companies. On the cost side, it was the Korean companies, and on innovation, design and prestige, the Europeans. “No Ford. No GM. The cars that we are comparing are the Europeans and the Japanese. No Americans,” Bernhard declared.

  It is a blunt assessment, one that Zetsche and Bernhard began honing from the day they got to Chrysler in October 2000. Their arrival could not have been more inauspicious. Their first few months in Detroit were marked by financial and directional uncertainty, manifesting itself in anti-German sentiments spewed on Internet message boards and local talk radio. In breathtakingly quick fashion, Chrysler had lost not only billions of dollars but its reputation for efficiency. For the third time in a decade, it needed another rescue plan. The two executives wasted no time in rolling one out. By January 2001, less than 90 days after they began, they had delineated a strategy. First up came suppliers, who were asked to cut prices by 5 percent for 2001 and by another 10 percent over the next few years. Product spending was sliced from $48 billion to $36 billion. Finally, Chrysler said it would close or cut back six factories, forcing the loss of 26,000 jobs. At the same time, Chrysler made plans to grow. Zetsche lure
d Schroer, the marketing executive, from Ford, and they immediately began working on new identities for each of Chrysler’s brands, which are beginning to become apparent as the auto company introduces new vehicles. It wasn’t as difficult as it might have been were Chrysler laden with the nameplates of a few years earlier. Even before Zetsche and Bernhard got there, Chrysler had announced it would discontinue Plymouth, so the repair job was made simpler.

  And on paper, it all seemed logical. Schroer was satisfied with Jeep’s image as a symbol of outdoor ruggedness. He did little to tinker with Dodge, simply emphasizing its boldness, making the appearance of its cars and trucks as gritty and gutsy as possible. The real centerpiece of the strategy was to transform the Chrysler nameplate into something with style, class and elegance, instead of a collection of vehicles with little in common. The New York Times called it “upscaling” the Chrysler division. That would take an entirely new series of vehicles. But the first—and most important—of them stumbled from the starting gate.

  The Chrysler Pacifica, introduced in spring 2003, was the company’s first entry in the crossover category, where Toyota had competed for the past five years with the Lexus RX and the Toyota Highlander, and Honda with the Pilot and the Acura MDX. Pacifica’s design seemed like a combination of a Chrysler minivan and the PT Cruiser, as big as the first and with the retro influences of the second. What people primarily noticed, however, was its price: $32,000, more than many vehicles in the Chrysler lineup, and in the same strata as some luxury vehicles. While Pacifica initially received favorable reviews, some journalists who drove it felt it was underpowered and noted that it lacked the sophisticated, five-speed transmission that buyers of cars in that price range had come to expect. By summer, Chrysler was offering lease deals on the Pacifica and talking about how it could save the bungled launch.

  At the same time as it was pondering how to revive Pacifica, Chrysler began selling the Crossfire, a two-seater built in Germany that almost would seem more at home in the Mercedes lineup than in Chrysler showrooms. That wasn’t by accident, since the Crossfire draws heavily from Mercedes’s expertise and was a key part of a controversial strategy, unveiled by Schroer before his departure, to link Mercedes and Chrysler. And that is at direct odds with how the merger started out: Both Chrysler and Mercedes insisted their brands would remain separate, with no overlap in products or identity.

  But it is no surprise that Chrysler ultimately decided to travel that path, since both Zetsche and Bernhard each know Mercedes intimately. Zetsche had been chief engineer at Mercedes just prior to the merger, while Bernhard, born in Boehen, Germany, a town in Bavaria, had run AMG, the brand’s performance vehicle division. They both knew the resources that they could draw on at Mercedes, where engineering was not just a function but a craft. It took months of negotiations, delays and discussions to sort out, but going forward, Chryslers will be part German under their skins, the first being the Crossfire. More important will be the next generation of Chrysler’s mid-sized cars, known by the code name LX. They will be built in Ontario, on a chassis whose centerpiece is a transmission borrowed directly from Mercedes. With LX, Chrysler is taking a huge risk. It is moving away from the front-wheel-drive platform that has been the underpinning of its cars and minivans for the past 20 years. Instead, the LX cars will be rear-wheel drive, a feature that has not been on mainstream Detroit vehicles in years.

  Chrysler isn’t alone in offering rear-wheel-drive vehicles: GM and Ford both plan a return to the configuration over the next few years, although none of Toyota’s or Honda’s cars feature rear-wheel drive, with the exception of a couple of Lexus models. There’s no evidence that Americans are anxious for it to return, especially those who live where weather is a challenge (including California, where traffic can be slowed to a snail’s pace by heavy rains). Indeed, a whole generation of buyers has grown up driving nothing but front-wheel-drive cars, although rear-wheel drive is prevalent on SUVs. The thinking among car executives, however, is that rear-wheel drive results in a more enjoyable driving experience. Trevor Creed, Chrysler’s executive vice president of design, is clearly energized by the opportunity. Creed, 52, is a sandy-haired Englishman who has been on Chrysler’s design staff for years. During the 1990s, he participated in the development of some of Chrysler’s most notable cars, like the Dodge Viper, the Plymouth Prowler and Chrysler’s family of LH sedans, which introduced the idea of cab-forward design, in which the wheels are moved out to the sides and the passenger cabin slung forward, to maximize interior room. Yet Creed was overshadowed at Chrysler by Lutz, its swaggering vice chairman, and Tom Gale, his well-respected predecessor as Chrysler’s chief designer. It always seemed as if Creed was in the wings, waiting for his chance. He has it now, in the designs that will make or break Chrysler going forward.

  Sitting in his conference room at the Chrysler Technology Center, with big color drawings of Chrysler’s concept vehicles on the walls, Creed shows off photographs of what Chrysler has coming up, pointing out the long hoods and roomy passenger compartments that a rear-wheel-drive chassis makes possible. The Dodge versions have strong, almost growling front ends, while the Chryslers have a sleeker, more rounded appearance. In his stack of photographs, too, are a collection of future Jeeps that keep Jeep’s traditional prison-cell grille but look much more spunky and modern than the squared-off vehicles that have been in the brand’s lineup in prior years. “The challenge to me has been how can we grow and distinguish ourselves?” says Creed. “We’ve got to deliver now. We all know that.”

  But Chrysler has a huge hurdle to overcome in the perception of its quality. There are too many disappointed owners of Jeep Grand Cherokees and Chrysler minivans who will never give the company another chance. Dave Long, who lives in Dallas, is one of them. Long, 32, a software engineer and the father of four children, set out in 1998 to buy a minivan for his wife to chauffeur their family around. Price was an object: Long likes to pay cash for his vehicles and didn’t want to spend more than $25,000, which ruled out the higher-priced Honda Odyssey. He settled on a Plymouth Voyager, for which he paid $19,000, knowing going in that the vehicle wasn’t likely to be as durable as the Honda he’d passed up. However, Long got more headaches than he’d bargained for. “It’s garbage,” Long said of his minivan. First, his transmission went out at 18,000 miles. Then the electrical components stopped working. To protect himself from future repair bills, he bought an extended warranty in 2001, but he grumbled over it. “The car shouldn’t bleed money,” Long said. In spring 2003, Long went car shopping again, and this time he was ready to spend the money on an Odyssey or a Toyota Sienna. “It would take a long time to convince me” that a Chrysler minivan could match up to either vehicle, he said. “I will never look at another Chrysler again, and I can’t think of what they could do [for me] to look at another Detroit product. They’ve got to do something seriously to revamp their products. At the end of the day, this car is junk.”

  Chrysler executives are quick to insist that such experiences are rare and that the company’s rankings on surveys from J.D. Power and Associates and even Consumer Reports, which rated it the best among the Big Three for 2003, show it is doing much better. “A vehicle is a very complicated system. The possibility of having a glitch is very high. The likelihood that you will be perfect is very low,” said Bernhard. But he adds, “Without quality, there is no future.” One strategy that Bernhard has implemented is to demand better-quality parts from Chrysler’s suppliers. He was distressed upon coming to Detroit to see the shoddiness of the components the company was buying from some of the same suppliers that Mercedes dealt with in Europe. Digging for answers, Bernhard found that Chrysler, in many cases, simply wasn’t expecting enough. Without a knowledge of what suppliers were doing in other parts of the world, it simply accepted the parts that it was sold, not realizing it could ask for better materials and get them for the same price. “We are telling them that it matters,” Bernhard said. “I don’t want to be a second-class citizen any
more. I’m not going to accept wrinkled seams on seats. No more butts of elephants.” He continues, “It makes me freaking mad. It’s that attitude of ‘good enough.’ It’s over. ‘Good enough’ is not good enough. If we decide we’re fine, that our new car is so much better than our old car, and we just make incremental improvements, we’ll always be behind.”

  The Chrysler executives acknowledge that to catch up with the Japanese companies will take years. But they have a long-term horizon. Zetsche’s timetable stretches out to 2007, when he wants Chrysler to have returned to the 16 percent of the American car market that it held in 1998, before the merger. At the same time, he wants Chrysler’s vehicles to sell with minimal incentives, as against the thousands of dollars per vehicle in rebates and zero-interest financing plans that it has been forced to offer to keep pace with GM. That will be difficult. Chrysler tried in fall 2002 to cut off incentives cold turkey, alarmed at the damage they were doing to resale values of used cars and to the company’s brand image. “We’ve all become like Persian rug merchants around here, with our going-out-of-business sales,” said Schroer. But customers walked out of showrooms when they found that Chrysler was not matching GM’s offers, and its market share plunged from about 14 percent to 11 percent in one month. Until its lineup is remade, it will have to keep offering rebates, lease deals and zero-percent plans, said Schroer. He said Chrysler would be back on the programs as it introduces new vehicles, sharing Lutz’s assumption that the freshest cars won’t need them. A cold-turkey approach would be too abrupt. “We’ve got to get out of this slowly,” he said.