A new book predicts the decline of the Motor City. Think again, say Big Three brass. It's an intriguing debate, with a lot at stake.
Ward's looks at the provocative book and talks about the future with three top U.S. auto executives: Gary Cowger of General Motors, a Kansas boy who says "only the paranoid survive": Jim Padilla of Ford, a hometown Detroiter proud of his Hispanic roots; and Dieter Zetsche of Chrysler, a German sent in to fix an American automotive institution.
Our year-end package concludes with straight-talking dealers offering their take on the topic.
On the Watch at Chrysler
Zetsche keeps eyes on the prize as a lot of people keep eyes on him
By Steve Finlay
A former Opel staffer recalls the folks at that General Motors Corp.-owned European unit taking notice in 1995 when Dieter Zetsche was put in charge of sales and marketing as a newly named member of the Mercedes-Benz board of management.
It was a big leap because Zetsche's career at former Daimler-Benz AG theretofore had been mostly in engineering since he joined the German auto maker's research division in 1972.
The Zetsche board appointment's wide shift to sales and marketing didn't go unnoticed.
“We thought, ‘They're grooming this guy for bigger things,’” says the ex-Opel employee.
Then Zetsche's career really started to take off.
In 1997 he was named as the sales-and-marketing point man on the board of management for parent company Daimler-Benz. In 1998 he got the same assignment for the newly morphed DaimlerChrysler AG.
In 2000, he became the President and CEO of the Chrysler Group when James Holden got the ax as the German owners showed who's boss two years into the merger. They sent in Zetsche, one of their own, to lead Chrysler after it tanked, losing $1.8 million in the last half of 2000.
Eyes were once again on the tall, lanky German auto executive with a Mr. Fix-it reputation garnered from his revitalization of Freightliner LLC truck company as its CEO in the early 1990s.
Eyes still are on him as he enters his fourth year as head of Chrysler, trying to execute a multi-year turnaround plan that's seen successes and shortfalls.
If Zetsche can indeed fix Chrysler, many industry observers predict he'd be a strong contender to succeed Juergen Schrempp, the bold DaimlerChrysler chairman who put together the merger that was once inaccurately and misleadingly characterized as a “marriage of equals.”
A lot is riding on what the future holds for the Chrysler Group in general and Zetsche in particular.
Things started looking good in 2002, two years into the restructuring plan.
But 2003 has not been a good year. Zetsche says the three-division group and former stand-alone U.S. auto company, did well cutting costs, but revenue shortfalls, which had been a problem in the past two years, became severe this year.
He's trying to stay the course, shore up morale, fend off gloomy headlines and keep his eyes on the prize. To do that means selling more vehicles than Chrysler has been able to do lately with a lineup that seems soft in spots.
That's about to firm up as Chrysler prepares to launch a product blitz. It's intended to stun competitors, spark consumer demand and deliver healthy profit margins.
Chrysler plans 25 new vehicle introductions in the next three years, nine in 2004. Among them:
- The Chrysler PT Cruiser convertible
- Revised Town & Country and Dodge Caravan
- Crossfire roadster
- 300C sedan and Touring wagon
- A Dodge Magnum cross-utility vehicle
- New Dakota pickup
- A new Jeep Grand Cherokee.
|2003* est.||12.8||Chrysler Group's market share since the DaimlerChrysler AG merger.|
They'll join the recently launched Dodge Durango SUV and Dodge Ram SRT-10 performance pickup in Chrysler's fresh-product stables.
The hope for the future now rests, as it often does in the auto industry, with delivering fresh vehicles — and an array of them that stirs consumer interest.
Chrysler has had some new product offerings in the highly U.S. competitive market lately. “But not a lot,” says Zetsche.
“Now we will have, by quantity and as important by quality, the means to becomes aggressive again and not just to defend but to attack with those new products,” says Zetsche in an interview with Ward's at his office on the top floor of Chrysler's headquarters and technology center in Auburn Hills, MI.
He and his team are sore from 2003. Last year at this time, Chrysler seemed past the crisis stage dating to the 2000 losses. This year was to be a time of promise.
But the auto maker stumbled here and there. The important Chrysler Pacifica launch was flawed: early models were overly optioned and accordingly priced at about $37,000, beyond what typical Chrysler buyers are used to paying.
Moreover Chrysler's incentive strategy seemed schizophrenic at times in an increasingly competitive U.S. market.
The bottom fell out during the second quarter, when Chrysler tried to stay out of the incentive game, then saw sales plunge. The auto maker posted a $1.1 billion loss during the quarter, derailing the plan's expected $2 billion profit for this year.
Chrysler clawed deeper in its cost-cutting efforts to help offset revenue shortfalls. The company managed to save an additional $1 billion over its original $2 billion estimate. It still wasn't enough.
Shortly after the second quarter results hit Wall Street, Zetsche and his team found themselves under growing pressure. Headlines questioned Chrysler's future. By June, James Schroer was out as marketing chief. Joe Eberhardt, a German native and Mercedes-Benz veteran, was in.
Employee morale became an issue, testing Zetsche's leadership skills.
In the hard times, he says he still tries to energize people, instill confidence, assure them that the problems are temporary and that as CEO he knows where to go and has “the will to get there.”
He adds, “This is the task of leadership, the leadership team. That's what we're going for. This job is easier the more confident you are yourself about the future. There's no lack in that regard.”
He's delivering pep talks, touting the new product and promising better times ahead during dealer road shows with Eberhardt.
“Were telling dealers that we'll deliver proof for our claims, including most importantly, that we are not only preparing new products but convincing new products, not just for 2004 but in a cadence for years to come,” he says.
In turn, he says he's asking dealers “to continue to do their part in investing in their business and supporting the overall quality demand we are putting on ourselves. From the customer's perspective, that first becomes visible at the point of sale with the dealer. The image we're striving for has to include dealers.”
The impending new vehicle ramp ups are intended “to pull customers into showrooms based on the strength of the new products and not on the ‘deal of the week’ that's often the ‘deal of last week,’” he says.
One of the critical pieces of Chrysler's product-based turnaround is the upcoming launch of the LX rear-wheel-drive platform.
Advances in traction control and vehicle stability systems make rear-wheel drive arguably superior to front-wheel drive, at least in big cars.
“We are convinced that for large cars, rear-wheel drive is technically the right concept,” says Zetsche.
Going there marks a significant step in spurring Chrysler to premium-brand status (not to be confused, says Zetsche, with luxury brand, a la Mercedes-Benz).
He's also focusing on bulking up the Jeep brand that's seen some strong competitive challenges of late. There may be a larger and smaller Jeep added to the lineup which currently includes the Wrangler, Liberty and Grand Cherokee.
For Jeep to grow significantly requires a “variety” of offerings, he says.
It's tough heading a U.S. car company under “normal” circumstances.
It's tougher yet being sent in by command control to head up and turn around an American car company that's faltered since it linked up with a German car company that bought it four years ago.
Zetsche says it's impossible to transform a company in months. “You have to ask for patience and be credible that in the end you'll be able to deliver. But clearly time is not your friend in this regard.”
He works about 12 hours a day and countless weekends.
“But I don't measure performance by the number of hours you put in,” says the 50-year-old Turkish-born, Frankfurt, Germany-raised auto executive who has a master's degree in electrical engineering and a doctorate in mechanical engineering and whose hedgerow mustache dates to when he was 16 (“I grew it to make me look older and now it does,” he quips.)
To relax, Zetsche enjoys time with his family, reading, swimming, skiing and playing the violin and viola, though he no longer has time to play in amateur Christmas-season chamber groups.
Relaxing includes “having a lot of fun with cars,” from seeing them in development to driving the finished products.
He adds, “I can get positive and emotional about successes we're having even though they don't all reflect on the bottom line.”
Friendly and often funny, he moves easily in Detroit circles where he's well regarded and well liked.
“I like being with people in general,” he says. “So, even in an environment that's not totally positive, there are many elements to draw satisfaction from still. Then it's your own mind-set to stay positive and keep your energy level up which some people do more successfully than others.”
Kevin Kelly contributed to this story.
Panning in Detroit
By Steve Finlay
DETROIT — In 1991, late film producer Julia Phillips published a provocative book, You'll Never Eat Lunch In This Town Again, referring to what a movie industry mogul told her would happen if she wrote such a Hollywood expose.
Micheline Maynard has just written a provocative book about another company town — Detroit — and its famous industry. The book is called The End of Detroit — How the Big Three Lost Their Grip on the American Car Market.
It has stirred sentiments here, putting Maynard in the position of fending off criticism that she says she “absolutely” anticipated.
But lunch was served for her, auto industry folks and journalists at a Detroit gathering of the Automotive Press Assn. where, as the guest of honor, Maynard dutifully signed copies of the book, discussed its content, clarified points (such as the title) and answered critics.
The luncheon was at the Detroit Athletic Club, a place that, over its 116 years, has counted past and present auto executives among its members, including many of the industry's pioneers and legends. It's a former all-male bastion that once barred women visitors from using the front door.
Step outside the DAC today, and the General Motors Corp. logo looks down at you from atop GM's world headquarters three blocks away. Right behind the clubhouse is Ford Field (namesake of the automotive Ford family, owners of the Detroit Lions football team). A few miles east is DaimlerChrysler AG's sprawling Jefferson Avenue assembly plant.
The Big Three have left their mark on the Motor City where so many people are their workers — and defenders.
It's a different story outside the Detroit “beltway,” where Detroit defenders are few and buyers of Big Three products are becoming fewer, says Maynard.
As they lose market share (10% in the last decade), the once almighty Big Three show signs of a decline that could ultimately reshape the industry, making the American car market look more like Europe: lots of players, a couple of them stronger than the others, but no real superstars.
That's the premise of Maynard's book. Critical reaction to it takes on different levels of intensity, from intellectual to visceral.
It includes Detroit Free Press business columnist Tom Walsh's rap that Maynard's book is flat and the premise old news. He says she “gushes” too much in her admiration of Japanese auto makers, particularly Toyota Motor Corp. (“I wonder if a guy wrote the book whether he'd be accused of gushing,” retorts Maynard.)
Then there was a woman who, according to Maynard, saw the book displayed at a metro Detroit bookstore, threw a copy to the floor and said, “That's not a nice thing to say!”
Maynard is taking it all in, making no apologies but clarifying a point here and there, starting with the title.
“Some people interpret it as, ‘The Death of Detroit,’” she says. “But when I say, ‘The End of Detroit,’ I mean Detroit as Mount Rushmore; a Detroit that thinks and acts as one. And I certainly don't mean the end of the City of Detroit.”
Essentially, she says the Big Three during the 1990s focused on profitable trucks and SUVs, consequently allowing the imports to make big market-share gains in car segments.
Now the imports are stepping up their truck offerings, including the fullsize Toyota Tundra and Nissan Titan pickups.
Maynard says, “There will always be Detroit buyers no matter what.” But, she adds, many Americans across the Republic are dissing the domestics.
“When you get outside of Detroit, you hear over and over people saying things such as, ‘I'll never buy a car from the Big Three again’ or ‘I had an American minivan with a bad engine that cost me lots in repairs.’
“I've done radio call-in shows all over the country, and only one in 30 callers will defend Detroit. I was surprised by the strong sentiment. I was defending Detroit. I said, ‘Give them another chance.’ They'd respond, ‘I did.’”
Another ominous sign, one that gets a chapter called Detroit South: 17 foreign-owned automotive plants employing 85,000 workers are in South Carolina, Tennessee, Kentucky, Alabama, Mississippi and southern Ohio. That number will near 100,000 when Toyota opens a Tundra plant in Texas in 2006.
They're all non-union workers in contrast to the Big Three's unionized workforce. That makes for a big difference in the cost of doing business, says Maynard.
She lives in Ann Arbor, about 50 miles west of Detroit, where she teaches business classes at the University of Michigan. She's covered the auto industry for The New York Times and USA Today. She's from a family of Toyota owners.
She says she's “sympathetic” with some of the reactions the book has sparked in Motown. The response isn't as bitter as she expected. But, “I struck a nerve here. Some real shots have been taken at me on the Internet.”
Some of the hue and cry is provoked by her publisher which, in hyping the book, says the American auto industry is “doomed.” Maynard doesn't go that far: “Detroit still sells a lot of iron and always will.”
She says much of the criticism focuses on the book's title and how Chrysler, GM and Ford logos are incorporated on the cover.
“Sometimes you need to see the big picture,” she says, “and a lot of people can't see it from here.”
An “American” auto executive treated relatively well in the book is Dieter Zetsche, a Turkish-born German president of the Chrysler Group.
He questions Maynard's prediction.
“It's not good to forecast the future by using the ruler of the past,” Zetsche tells Ward's. “If the three of us didn't do anything different, didn't change, then her forecast might be right. But we're not paid to not change.”
Says Maynard, “If I'm completely wrong, and the market share turns around for the Big Three, and their vehicles meet the needs of consumers who are happy with them — then great.”
Meanwhile, she's enjoying a level of celebrity that such a book brings in spite of — or because of — the panning in Detroit.
She reports sales on Amazon.com “went through the roof” after Walsh's column headlined: “Author gushes over Japanese auto brands.”
“OK, rap the book,” says Maynard. “Just show the jacket.”
A Worrier's Day In Paradise
Visit to Indiana dealership energizes GM's Cowger
By Brian Corbett
Gary Cowger, a confessed worrier, just returned from paradise.
No, he wasn't vacationing in Aruba or Bali. He was in Ft. Wayne, IN, where The Kelley Automotive Group — which sells virtually all GM brands — claims an astounding 48% share of the city's market.
“He's my new benchmark,” jokes Cowger, who attended the grand opening of Kelley's new Cadillac Saab dealership.
Then again, maybe he's serious. Cowger, the president of General Motors Corp.'s North American operations, is part of a hard-charging executive team that is trying to lead GM to three consecutive years of market share gains for the first time in more than 20 years.
The No.1 auto maker needs to post just under a 32% market share in November and December to beat the 28.6% stake it had in 2002. GM's market share hasn't been that high for two straight months since 1998, according to WardsAuto.com data.
But the confident Cowger, who spoke with Ward's in early November with just over 40 selling days remaining in 2003, still believes GM can pull it off.
His optimism isn't tempered by a schedule that calls for GM to launch eight vehicles at its assembly plants during the fourth quarter. Introducing new products often temporarily lowers productivity and inventories.
“We really had a very poor start in the first quarter this year. That kind of got us behind the eight ball,” Cowger says.
“But we've been coming on strong. We've been improving share through the year. So the question is: Will we three-peat? We've got a shot at it. I'm cautiously optimistic. But I feel really good about next year.”
What's the biggest challenge for 2004?
“The challenge is as it always is: best product wins. So we've got to get the best gotta-have products into the market place.”
Windows of his 37th floor office at GM headquarters in Detroit offer a panoramic view of the Detroit River. A freighter passes by. It moves slowly, unlike GM lately.
The auto maker's pace is feverish and sometimes unorthodox these days. It needs to be. After decades adrift in market share decline, bad quality and poor labor relations, a unique approach is needed to right this ship.
GM this year initiated the “Road to Redemption” ad campaign which took the unconventional step of mentioning GM's past quality problems vis a vis its improved quality and promising new products.
The ads are a direct and aggressive appeal to the public to put aside the past negative opinions of GM, and give the auto maker a fresh chance. GM leadership also took the risk of making similar appeals during speeches to the media and securities analysts in the last 12 months.
“We'll continue to do what we think is right to continue to build the brand back,” Cowger says.
The auto maker plans to introduce nearly 30 new models in 2004.
“Eventually someone will notice the amount of incredible product-portfolio refreshing that's happening at General Motors,” says Cowger.
They already are.
For instance, GM is restoring the luster to its luxury division by revamping Cadillac's lineup. In many circles, Cadillac is considered relevant again. The Cadillac Escalade is the preferred set of wheels for hip-hop artists and pro athletes.
“It was a key contributor to getting Cadillac back on the road to being cool again,” says Cowger. “The Escalade was big, powerful and bold and just hit the market.
“People say, ‘I get it with Cadillac.’”
Chevy's next, then Pontiac.
Late last year, Cadillac continued its lineup expansion by offering 99 special edition XLR roadsters, at $85,000 each, through the retailer Neiman Marcus. The cars were sold in 14 minutes. “That's the fastest they've ever sold out, with 2,000 people left on the line,” Cowger says. “My question was: ‘Did you get those names?’”
Sure enough, every sale counts, even in a market where industry deliveries regularly top 16.5 million units.
Cowger expects total industry U.S. sales to tally about 17.2 million in 2004.
GM currently is rolling out the Chevy SSR roadster, Buick Rainier SUV, Cadillac SRX cross/utility vehicle, Chevy Malibu midsize sedan, Pontiac GTO sports car, Chevy Aveo subcompact and GMC Canyon/Chevy Colorado midsize pickups.
Next year, GM's product introductions include the Chevy Equinox compact CUV, the Chevy Cobalt compact car, the Saab 9-2x and four new minivans (GM is calling them crossover sport vans).
The product onslaught overjoys dealers, says Cowger.
“We came off one of the best dealer meetings (in September) in Las Vegas,” he says. “We've been promising them that we're going to completely refresh this product portfolio. It's one thing to hear the words. It's another to actually start seeing the hardware coming at you.”
About 7,000 dealers attended the meetings in two waves. Says Cowger, “They were ecstatic. The Chevy guys acted like it was a revival meeting.”
But not all GM dealers are happy, or getting new products. The auto maker continues to phase out its 106-year-old Oldsmobile Div. The only Olds products still in production are the Bravada SUV and Alero midsize car.
Their last full year of production likely will be 2004. More than 2,600 Olds dealers have signed transition agreements. Less than 1,500 active Oldsmobile franchises remain.
Cowger keeps one eye in the sky looking for hawks and the other eye on the ground looking for rattlesnakes.
“Only the paranoid survive,” he says.
What about that new book, The End of Detroit, predicting a glum future for the Big Three?
“What's that Mark Twain quote? ‘News of my death is greatly exaggerated.’”
Wowed In Fort Wayne
By Steve Finlay
It wasn't just the size of the crowd at the grand opening of the Kelley Automotive Group's new Cadillac Saab store in Fort Wayne, IN.
It was the makeup of the attendees that really impressed GM North American Operations President Gary Cowger, who attended the reception.
“Eight hundred people were there, and almost all of them were customers,” says Cowger.
The 10-store group run by Tom Kelley and son Jim delivers more than 8,000 vehicles a year. It's 75th on the latest Ward's Dealer Business Megadealer 100 with total revenues of $394.7 million last year.
Cowger marvels at some of the ways Kelley Automotive stays close to its customers.
“They've got a car wash centrally located among the stores. They offer customers free car washes. They do about 120,000 a year. Think about that. You got customers coming back into your store once or twice a week.
“What a great idea.”
Spicy Recipe for Success
Padilla means “cook” and he's keeping cool in the hot kitchen
By Eric Mayne
Scorched by Standard & Poor's and singed by sinking car sales, Ford Motor Co. is feeling some heat.
But as the auto maker's revitalization plan enters its third year, James Padilla remains cool. “Padilla means ‘cook’ in Spanish,” says Ford's executive vice president and president-North America.
And he's cooking up some crow planned for the auto maker's critics.
“In '03, we made a lot of progress in North America,” Padilla tells Ward's. “We said our top priority was quality. And we've made tremendous improvement.”
Consider the recent accolades bestowed on the Ford Focus, he notes. Consumer Reports ranks it first among small cars in the publication's 2004 new-model preview.
Meanwhile, a solid showing in this year's J.D. Power and Associates' Initial Quality Study helps erase the bitter taste of 2001 and 2000, which were rife with recalls, Padilla suggests. His recipe for 2004?
“We're going to stay the course. We're going to continue to drive quality improvements. We know how to do that.”
Perhaps, but Standard & Poors — not unlike Moody's and Fitch — is unmoved.
Despite declaring Ford's outlook to be stable — which compares favorably with the negative tag hung on General Motors Corp. and DaimlerChrysler AG — the rating service downgrades the No. 2 auto maker's long-term credit rating to BBB-minus. And this invites the undesirable description: one step up from junk status.
“Several years of deep discounts have likely exhausted any pent-up demand for new vehicles among American consumers,” S&P Analyst Scott Sprinzen writes, while predicting industry sales will likely increase next year, inching over 2003's anticipated volume of 16.4 million to 16.7 million units toward 2000's all-time record of 17.4 million.
But Ford, he suggests, is heavily leveraged against cars. Indeed, sales of Ford-brand cars were down 7.6% through the first 10 months of this year, compared with a 1.6% decline for light truck sales.
Sales of Mercury cars and trucks are off by nearly equal amounts, but the disparity at Lincoln was wide enough to drive a Navigator through. Prior to Nov. 1, Lincoln car deliveries were down 21.2% compared with 97.9% increase for the brand's light trucks.
“Within their global operations, Ford and (General Motors) have little to mitigate the risks of their North American operations,” Sprinzen adds.
Publicly, the auto maker counterpunches with a statement by Chief Financial Officer Don Leclair. “We do not agree with Standard & Poor's conclusion,” LeClair says. “The facts speak for themselves.”
- Ford increases its 2003 full-year earnings guidance, excluding special items, from 70 cents per share to a range of 95 cents to $1.05 per share,
- $48 billion cash and cash equivalents affords the auto maker “exceptionally strong liquidity,”through September, cost reductions totaled $2.7 billion worldwide.
For Ward's, Padilla puts some meat on these bones. Ford has more than 120 teams tasked with identifying areas where cost reductions might be realized.
“Uniforms in our plants,” he says, illustrating just how far down the food chain Ford's efforts extend. “We defined some best practices … and we saved $3 million on coveralls. Can you believe it? Three million bucks!”
Then comes the main course. To satisfy product-starved dealers, Padilla offers an updated menu for '04.
“We've got a strong SUV lineup, as strong as anybody, the strongest Ford's ever had. We've got a great truck lineup.
“We're going to go after cars. We've got the Ford Five Hundred coming. We've got our first crossover with the Freestyle. Then we've got the Mustang.”
And the chef's special? Ford GT.
On the side, there's Mercury, Padilla adds. The storied brand will be benefit from introductions of the Mariner — which shares a platform with Ford Escape — and the Montego, fraternal twin of the Five Hundred.
Padilla points with pride to Ford's efforts to restore what had become a rocky relationship as the Jacques Nasser era came to a close.
“I think we've moved a lot closer,” he says. “We certainly have made sure that we put into leadership positions strong people who understand the distribution system and understand dealers.
“Personally I spend a lot of time with dealers, listening.”
What are they telling him?
“A major concern is how do we move the metal. How to be competitive.”
One way is through incentives. Ford has used those to keep the product moving. Padilla says, “We use incentives where we need to, but not as much as the other guy.”
He calls dealers “the face of Ford.”
He adds, “They are vital to our enterprise. A lot of them have invested their life savings in their franchises. We need to respect them and value them as tremendous contributors…We need to make sure that what we do we move forward together on.”
But he adds, “We're not perfect. We're not going to jump to the top of the page on the NADA survey.”
Dealers Feel More Confident
Council chairmen cite Big Three products, quality, strong management
By Cliff Banks
A new book, The End of Detroit — How the Big Three Lost There Grip On the American Car Market, has created some buzz in the Motor City. But among dealers, it's caused nary a ripple.
While author Micheline Maynard doesn't go so far as to say Big Three auto makers will become extinct, she envisions a future where there are few, if any, dominant players.
Big Three dealers aren't buying it. They say their optimism is because new product is on tap, quality on the rise and strong automotive management teams — dealers say the strongest they've seen in years — are in place back in Detroit.
Dealer council chairmen scoff at the idea that the