Melting Down at Chrysler

March 28, 2008

In his keynote comments at the New York Auto Show, Chrysler CEO Bob Nardelli took pains to present a positive picture. The automaker, he insisted, is on track to reverse its massive losses, with new product setting the stage for a market turnaround, even in the current, slumping U.S. auto market.

But despite the former Home Depot exec’s rosy picture, things are looking anything but good for Chrysler. Here’s the first of three reports that examine the problems Chrysler faces, and the steps it’s taking to get things under control.

Nearly two decades ago, Chrysler pulled out of another serious slump by lining up a “management dream team,” considered by many observers among the best the auto industry has ever seen. The line-up included President Bob Lutz, top engineer Francois Castaing and design wizard Tom Gale. Under Nardelli, Chrysler has attempted to assemble another powerhouse in the executive suite, starting with Vice Chairman Jim Press (shown above), formerly Toyota’s top American executive; and Deborah Meyer, a highly-regarded marketing manager imported from Lexus.

But things haven’t been going smoothly – at least not if you listen to folks inside Chrysler headquarters. It’s been hard to hide the open hostility between Nardelli and Press, numerous well-placed sources contend. And that’s not the only problem at the executive level.

Chrysler and its parent, Cerberus Management LLC, were rocked again this week, first by the departure of an another key executive and then by a broadside from the head of the Canadian Auto Workers union.

Chrysler's management, which has been fighting to contain the perception of turmoil inside the company, confirmed the departure of Mike Donoughe, a key engineering vice president. Only two months ago, Donoughe was handed the assignment of reviving Chrysler's mid-sized car lines and turning them into true global platforms, which the company could then sell around the world. At least one report suggested that Donoughe left after a clash with one of CEO Nardelli's chief lieutenants.

After the report appeared in the on-line edition of The Wall Street Journal, however, Chrysler fired off a press release, saying it wasn't so. "Chrysler denies that the departure had anything to do with a clash with management," the statement said. Nevertheless, the departure of Donoughe, who, over the years, had worked on several critical projects such as the minivan and Dodge Ram, and was one of the young engineers picked to work at a senior level in Germany during the abortive merger with Daimler, was a clear loss for the company.

Following Donoughe's departure, Chrysler announced the promotion of three other executives:

• Mark M. Chernoby was appointed Vice President and Chief Engineer for Chrysler's Future Midsize Product Team. "In this capacity, Mark will lead the development of future product in the critical midsize vehicle segment, targeting product with appeal in the global marketplace," the company said.

• James B. Issner succeeds Chernoby as Vice President - Core Components, Chrysler said. Issner also will oversee another of Nardelli's pet projects, expanding the company's engineering organization in China, India, Eastern Europe and Mexico.

• Louis Rhodes was appointed Vice President - Advance Vehicle Engineering and President of ENVI, the in-house subsidiary created to sharpen its focus on the environment and to integrate emerging technologies into Chrysler's future vehicles, Chrysler said in a statement.

If all the in-fighting wasn’t bad enough, Buzz Hargrove, the president of the Canadian Auto Workers, also took a dig at the management of Cerberus and Chrysler, saying he now believes Cerberus founder Stephen Feinberg misled him last summer. Hargrove, who supported the Cerberus takeover, early in 2007, said, in an interview with Bloomberg, that Cerberus was now trying to cut its way to profitability.

"That's great for Cerberus but it's not great for workers, because a lot of people are going to lose their jobs and a lot of people have lost their jobs," said Hargrove, who has to negotiate a new labor contract with Cerberus this summer. Chrysler vice chairman Jim Press, however, had said last week Chrysler is moving to right-size in the face of a very competitive market. —Joe Szczesny and TCC Team

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