Chrysler fights back: Dieter Zetsche has stopped the bleeding. Now Chrysler must go on the offensive in the most brutal auto market in history.

In a video that has become a hit inside the Chrysler Group, CEO Dieter Zetsche is driving a red Grand Caravan minivan around the Detroit area, demonstrating the vehicle's versatility. "During the week, I'm the CEO of a Fortune 500 company," says the droll German family man, in a voiceover. "But on Saturdays, I do car duty like everyone else."

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So the chieftain-cum-chauffeur drops off a group of young girls in tutus at ballet practice. He loads all the equipment for a rock band of teenage boys, impressing them by stowing flat the second and third rows of seats in just 20 seconds. Then Zetsche drives a group of elderly ladies who are crooning "Moon River," followed by a bunch of Elvis Presley impersonators. Finally, he swaps greetings with the "Hemi Boys," the pair of dullards featured in Dodge commercials drooling over the company's robust new engine.

Employees grouped at "town hall" meetings guffaw and cheer at their boss's star turn. Dealers who've seen the video beg Zetsche to run it as an actual TV ad for the minivan. With each showing, associates nod knowingly at how Zetsche has been able to establish loyalty among a work force that seemed more inclined to lynch him than to embrace him when he came to America nearly four years ago to rescue Chrysler for its new owners at DaimlerBenz. "He's really the opposite of what the stereotypical expectations were," says David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "It was: 'Here's a German storm trooper, and we're in deep trouble. But what Chrysler has found is an affable guy with excellent leadership qualities who thinks like a coach and has no problem delegating authority as well as responsibility."

The question is whether even a great leader can keep Chrysler on the comeback trail. Zetsche, 50, has steered Chrysler through the thicket of troubles he confronted when he arrived, salving wounds created by the merger while at the same time slashing payrolls, overhauling and accelerating new-product programs, establishing companywide benchmarking, rationalizing manufacturing, juicing up marketing and reshaping the ranks of senior executives. That was all part of an emergency three-year plan he initiated in early 2001. Chrysler did return to profitability in the first quarter of 2004, posting an operating profit of $366 million.

Becoming a Predator

But now, amid the most brutally competitive conditions the auto industry has ever witnessed, Zetsche must script an even more impressive second act: ensuring Chrysler's status as a long-term player in the North American market. Already, Toyota Motor is baltling Chrysler for the third-largest market share in the United States. While Chrysler is bringing out an unprecedented stream of new products this year and for the next few years, so are its competitors. In addition to its own challenges, Chrysler is tangled up in the global difficulties of DaimlerChrysler, as the managing board in Germany--of which Zetsche is a member--struggles to decide what to do with its 37 percent stake in Mitsubishi Motors, which is flirting with bankruptcy and shares vehicle parts with Chrysler.

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But while corporate intrigue is swirling in Stuttgart and Tokyo, Zetsche insists his focus is solely on Chrysler. He's got new goals and another three-year timetable, which will conclude in 2007. He likens the Japanese automakers to predators and the traditional Big Three to their prey. "The challenge of the first turnaround time frame basically was to try to make us the fastest of the prey," he says. "I'm very confident that we've accomplished that But this can't be the ultimate goal, because ultimately, you want to become a predator. That's basically our objective."

To do that, Zetsche is riding a blitz of new products that began last year with the Chrysler Pacifica crossover vehicle, the Crossfire sports car and a new version of the mainstay Dodge Durango SUV. The company promises to keep new offerings coming for the next couple of years at the fastest pace in company history. And Zetsche is spending heavily on marketing as he attempts to strengthen the Chrysler and Dodge marques into distinct and flavorful brands that do nothing less than rise above the industry's competitive bloodbath.

One reason that will be hard is that Chrysler has long been, at best, a struggling player in the world's largest automotive market. During the 1990s, Chrysler did manage to go on a winning streak, thanks largely to its dominance of high-margin market segments with its trailblazing minivans and Jeep sport utility vehicles. Looking for a bigger foothold in America as a long-predicted industry consolidation began. DaimlerBenz decided to move on Chrysler, acquiring it for $36 billion in 1998.

Things began messily. DaimlerBenz executives had portrayed the transaction as a merger even though it was an outright takeover, and the facts of the matter quickly became apparent to outraged Chrysler executives and employees. Chrysler CEO Robert Eaton and his successor, Jim Holden, had no chance of surviving, and the company drifted. Furthermore, little about Chrysler turned out to be as good as the Germans' due diligence had concluded it would be. It was dead last in the industry in hours required to build a vehicle. It was spending about 10 percent of revenues on capital expenditures, double the industry norm. Its supplier costs were the highest among the Big Three. In short, Chrysler had hidden considerable shortcomings. But as competition and margins tightened, and the merger disrupted momentum, Chrysler began to bleed red ink. By the middle of 2000, DaimlerChrysler was desperate to turn around what looked like a colossal mistake.

The Turkish-born Zetsche already had developed a solid reputation for turnarounds. Raised in Frankfurt, he had worked at Daimler since graduating from college in 1976. For a time, he was the company's chief engineer. By 1989, he helped revive a failing Mercedes-Benz Argentina. He moved to America in 1992 to rescue the flagging Freightliner heavy-truck division, then returned to Germany to help overhaul the Mercedes-Benz product line. Zetsche became a member of DaimlerBenz's managing board in 1992.

But Zetsche's status as a golden boy within DaimlerChrysler meant little to Chrysler employees, dealers or suppliers when he first rolled into Detroit. Immediately, Zetsche had to commence with some dirty work. Under the first three-year streamlining plan, he began to cut what ultimately would amount to 26,000 of the company's 126,000 jobs. He trimmed prices paid to suppliers by 5 percent immediately and pledged to cut another 10 percent over the next three years. Also as part of the overhaul, Zetsche ditched some new-product programs, moved up others and initiated desperately needed new ones.

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At the same time, he had to try to win over all of Chrysler's constituencies. That's where Zetsche's combination of business savvy and personal style began to pay off. "Independent of culture or nationality or whatever, you come to a new place and you don't pretend that you know it all," Zetsche says. "You listen and start with the assumption that everyone wants to do the best and that there are lots of strengths and capabilities around you."

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A Bitter Sea of Incentives

Eric Ridenour, Chrysler's executive vice president for product development, appreciates Zetsche's "ability to wait until the last data are in to make a decision. There have been many times when I've thought that he'd already made up his mind, but then he asks a few more questions and asks for more data--and he makes a decision opposite of what I'd thought."

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At the same time, Zetsche has demonstrated that he isn't afraid to pull the trigger on important decisions. For instance, it was Zetsche who decided that Chrysler should introduce second-row fold-away seats in its minivans last fall rather than to wait another couple of years until the vehicle's entire mechanical platform was replaced. "Most of the people on the platform team at the time said it couldn't be done," says Trevor Creed, Chrysler's senior vice president of design. "And it was an investment. But the payoff is that now we're the only minivans out there with this feature."

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Where Zetsche has fallen short of expectations is on Chrysler's crucial top and bottom lines. The sluggish economy and the need to compete by offering heavy factory incentives combined to depress revenues and sap Chrysler's profits in 2002 and 2003. That culminated in last year's second-quarter net loss of more than $1 billion, leaving the company a far cry from the $2 billion annual profit Zetsche had projected for last year.

Yet after the first quarter announcement, Zetsche provided a glimpse of his competitive nature. "He was very clear," says Jeff Bell, who joined Chrysler as a marketing vice president in May 2001. "He said that we can wait to receive advice on how to improve our performance from others--he was talking about the supervisory board of DaimlerChrysler--or we could take destiny into our own hands."

What emerged was Project Rebound, whose goal was to halt margin erosion during the second half of 2003 by tweaking the pricing and positioning of many Chrysler products--a stop-gap until this year's deluge of new products. "We ended up basically breaking even in the second half." Bell says. For the year, Chrysler narrowed its losses to just $645 million overall.

Zetsche's coming-out party with Chrysler's 5,000 dealers was the company's "road show" last fall, when more than 6,000 product-starved dealership managers crammed sessions at hotel ballrooms and convention centers in eight cities to hear about the nine new and overhauled Chrysler, Dodge and Jeep vehicles that are debuting from late 2003 through 2004. And for the first time, beginning in December 2003, Chrysler is formulating quarterly plans for incentives and other marketing activities and sharing all of those with dealers; it used to be a month-to-month affair that left dealers in the dark until the last minute.

Zetsche also has made strong impressions in Detroit with the genuine depth of his involvement in various community causes, especially for a foreign national. "What it comes down to," says Zetsche, who lives in suburban Bloomfield Hills, Mich., with his wife and three teenage children, "is very simple: You just act like a reasonable human being."

He will need all the goodwill in his reservoir if he is to make Chrysler a true industry "predator" by 2007. He is managing to carry out the company's flood of new products on a budget of $29 billion over five years, which he reduced from the original $40 billion. The torrent of new sheet metal is leaving dealers feeling well-stocked for the first time in years, increasing consumer buzz, and giving Zetsche the confidence to predict that the company actually will begin picking up market share again, after a five-year slide from 16 percent of the U.S. market to 13 percent last year. The Chrysler 300C, for example, is an aggressively styled sedan with a blockish front end that screams for attention. It also exemplifies Zetsche's increasing will ingness to blend German and American engineering, because the 300C relies on a rear-wheel-drive design that Chrysler borrowed from Mercedes.

Nevertheless, the 300C, the redesigned Dodge Durango SUV, a well-designed new Dodge Magnum sport wagon, a convertible PT Cruiser and all of Chrysler's other new and improved products must compete with an unprecedented number of new-vehicle introductions by the entire industry. And by now the time is well past, Zetsche admits, when Chrysler could define and hold onto new segments for years, such as with the minivan that it introduced in 1984, which really wasn't matched by competitors until a few years ago. "Product offerings are so fragmented today that it's very, very difficult still to find white space between all those products out there," Zetsche says. "And even if you do, the industry today is able to copy a good idea within two years." Still, he adds, "we are striving for product leadership."

One of Zetsche's clearest new-product scores to date isn't a car but a powerplant: a new version of the Hemi, an immensely powerful engine that was designed along the lines of the 1950s-and '60s-era Chrysler V-8 known for its hemispherical combustion chamber. Chrysler already has managed to create a popular sub-brand out of the Hemi, which is being introduced as a high-margin option on a variety of Chrysler vehicles these days.

Turning out hit products, of course, requires manufacturing flexibility and efficiency, an area where Chrysler has been weak. Zetsche corrected Chrysler's egregious problems with production quality and signaled factory improvements as a priority by recruiting Thomas LaSorda from General Motors last summer as his new plants chief; he has since promoted LaSorda to chief operating officer. But Chrysler remains the least flexible of the Big Three in what its plants can produce, with most of them still dedicated to a single model. "They're working on remedies, but we won't see huge improvements for the next few years," says Ron Harbour, president of Harbour & Associates, a Troy, Mich., firm that produces the most authoritative research on manufacturing competitiveness in the industry.

Zetsche's job would be difficult enough, but it is made far tougher by the swirl of headlines about not only Mitsubishi but also Zetsche's associates within Daimler-Chrysler. The company's CEO and Zetsche's mentor, Jurgen Schrempp, has come under fire for the problems at Chrysler and Mitsubishi. And the Daimler-Chrysler board reversed its appointment of Wolfgang Bernhard as head of the Mercedes division; he was Zetsche's COO at Chrysler until returning to Stuttgart in May. The tumult has only increased speculation that Zetsche might replace Schrempp long before the latter's recently extended contract expires in 2008.

For now, it may all boil down to whether Zetsche can keep his emotional and intellectual cool in the midst of such turbulence; he has to keep Chrysler's recovery going and hope it is robust enough to allow DaimlerBenz to survive as one of the few remaining players amid global consolidation. Chrysler employees and dealers have traditionally responded well to strong leadership. David Cole, who as the son of GM's late president Ed Cole knows the auto industry leadership well, says he thinks Zetsche has what it takes: "He has to have the whole team pulling behind him--and I think Zetsche does."

RELATED ARTICLE: Q & A

Zetsche on the record.

In an interview, Dieter Zetsche spoke of the victories he's achieved and the challenges he still faces. Highlights:

It seems you've come into this job not as a representative of DaimlerChrysler, but rather as Chrysler's representative to Germany. Do you see it that way?

That's certainly true. I don't think there could ever be any choice but that. I'm not in this job to get a paycheck at the end of the month. This is an emotional business, and generally you cannot perform a job without full dedication. The minute I got this assignment, this was my company in the sense that I live and breathe it.

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Have you won the hearts and minds of Chrysler people?

They have been open-minded and fair from Day One. They gave the new team and leadership a chance to show whether we could add some value and bring something good to this company.

There were about 120,000 people at the time in the company, and not everybody from Day One was 100 percent excited. But very soon, the vast majority was clearly very supportive.

How did you do that?

What it comes down to is very simple. You just act like a reasonable human being. You respect people. You respect their accomplishments even in tough times. This is independent of culture or nationality or whatever.

So the company is being run from Auburn Hills?

It's ridiculous [to think otherwise]. This is a $60-billion business, which has 92 percent of its dealings within North America. There's just no chance whatsoever to try to run this company from anywhere else than this chair.

Where are you in the turnaround effort?

Our turnaround was defined relative to the starting position of the company at the end of 2000. We said within the next three years we want to make this kind of improvement in these areas; these are the metries. In this regard the turnaround is done; three years are over. We accomplished everything and more except on the revenue side, where we fell short of our targets.

Now we've changed focus to how much do we want to and have to improve to be at benchmark levels in all of those areas at a given point, which is 2007? So the speed has to mcrease because those targets obviously are moving targets. We want to be at the level of the best in the year 2007. This basically goes across the board with all of the different key metrics except for products, where we are striving for product leadership. Not to beat the best, but to take leadership. That's a very bold statement.

Can Chrysler position itself as an upscale brand?

We've got Crossfire and 300C and the PT Cruiser convertible and Pacifica. We know it takes lots of patience to move a brand. Three years ago, Chrysler was already perceived as moving out of the box of no-name volume brands. With this lineup of new products, the brand will move even further out of that box and will become a premium brand.

But there's an incredible blitz of excellent products coming to market this year.

Some are luxury brands. We do not intend to turn Chrysler into a luxury brand. Ours are volume brands. Generally, all consumer-goods markets, including automotive, are polarizing. You've got the commodity part of business where you prove to your neighbor that you're very smart by getting the best deal. Or you prove to your neighbor that you're smart through the product that you have bought and you put that name on your sweater or whatever. You really get into trouble when you're left in the middle. That's what we do not intend to do.

Are you worried by Toyota?

First of all, market share on a worldwide basis doesn't belong necessarily to the most successful companies. The biggest company doesn't have the highest returns; the smallest company, Porsche, has the highest returns. The biggest one has almost the lowest returns. We want to be successful and this is very much defined by profitability. I'm not sitting up at night worrying that Toyota might take the No. 3 position.

Obviously, imports have for a number of years been successful in taking market share away from the Big Three. There are predators and there is prey. The challenge of the turnaround time frame basically was to try to make us the fastest of the prey. This can't be the ultimate goal, though, because ultimately you want to become a predator. First, it's about survival; then it's about becoming a winning party.

Tell us how the swirling management changes at Daimler-Chrysler in Germany are going to affect Chrysler here.

The most recent one [DaimlerChrysler's reversal of its plan to make former Chrysler chief operating officer Wolfgang Bernhard head of its Mercedes division] formally does not affect Chrysler. The fact that Wolfgang left Chrysler two months ago was very relevant to Chrysler. Wolfgang was a very important part of the team making the turnaround happen.

At the same time, this company has an impressive bench of talent, and I'm the most senior guy on the executive committee now. After 3 1/2 years, that might not be too surprising; it might be more surprising to learn that the next most senior guy was appointed last year. So this is a pretty young team and is a very strong team. I'm extremely proud of every single one of those guys and wouldn't want to swap any one of them for the best of the competition in this country in their respective fields. A lot of management depth and strength has been developed over the years. I'm absolutely confident that this team will accomplish the target we have set for ourselves.

Is it possible to keep Chrysler isolated from the turmoil in Germany?

That's where leadership is required. That's my role: to reinstill confidence where it's lost, or to maintain where it's still there.

For more, go to www.chiefexecutive.net.