Fiat / Chrysler -- Leadership - Teambuilding

Fiat / Chrysler -- Leadership - Teambuilding

The Chrysler merger with Fiat was met with skepticism and doubts when it was first proposed. Chrysler had just recently emerged from near bankruptcy -- saved by a U.S. government bailout -- and Fiat is a strong internationally respected corporation building cars, earth-moving machines, and more. The merging of Chrysler and Fiat was seen as having a greater opportunity for success than did the merger between Chrysler and Daimler-Benz, but still there were doubters in the industry. However, as of May, 2012, the blending together of the two companies (Fiat and Chrysler) has produced a profitable situation. This paper examines the cultures -- and leadership -- shown within the two companies, a strong combination that has allowed success to be achieved. The paper also critiques the leadership styles in the dynamics of this merger, and delves into the concept of teambuilding when two companies merge into one.

The Literature - Examination of Cultures, Conflict, and Leadership in the Merger

An article in The New York Times (Sorkin, 2009) notes that mergers between automobile companies "…have a poor track record and seldom yield lasting results." In fact, Sorkin asserted in 2009, there is a "long list of deals" that have "soured because of the cultural differences" between the merged companies. Moreover, typically auto firms that merge have not been able to "meld product lines and deliver on promises to cut costs" (Sorkin, p. 1).

The reason that the Chrysler-Daimler-Benz marriage ended so poorly was because the leaders of the deal from the German side, first Jurgen E. Schrempp and then Dieter Zetsche, "…refused to tear down the walls" separating the two companies (Sorkin, p. 1). In fact Daimler-Benz tried to operate using Chrysler as a "stand-alone division," Sorkin continued. One Fiat executive (who preferred to be anonymous) told Sorkin that merging Daimler and Chrysler was like "…Neiman Marcus merging with Home Depot" -- and it was destined to fail, the executive from Fiat stated. The cultural basis for the failed merger, according to Italian union leader Giorgio Airaudo, was that the management style in Germany is "…more rigid, hierarchical" than the way Italians manage companies (Sorkin, p. 2). Indeed DaimlerChrysler was "crippled with endless committees" during which arguments erupted over "why [the] think wouldn't work," according to Ferdinand Dudenhoffer, an auto research executive in Germany (Sorkin, p. 2).

In fact when it was clear that the Daimler experiment had failed, Daimler dumped Chrysler into the lap of what journalist Jeremy Cato refers to as "…the vulture capitalists from Cerberus Capital," a group that was "expert at careless and wicked cost-cutting, trying in their minds to put lipstick on what they thought was a pig, so it would fetch a profitable price" (Cato, 2012, p. 2). After the German owners had failed to share "their toys and their games" with what they viewed as "their wards in Auburn hills," Daimler "sold out to Cerberus" and everyone "with eyes" could see that Chrysler had been "starved for investment and know-how" (Cato, p. 2).

Shortly after the Chrysler -- Fiat merger process was launched (in June, 2009), an article in The Detroit News focused on the cultural issues preceding the merger. "The culture clash was too great" between Daimler and Chrysler workers, Alisa Priddle writes after interviewing Chrysler workers in November 2009. One employee told Priddle, "There was a lot of fear and loathing under DaimierChrysler, but this feels like a good partnership" (Priddle, 2009, p. 1). "…We're all in this together," another worker told Priddle; "things are moving fast and it's contagious" (p. 2).

The Daimler executives were "deathly afraid of diluting the Mercedes brand," said Joe Phillippi, an analyst with Auto Tends Consulting (Priddle, p. 2). Daimler apparently never understood that Chrysler had something going for it, too, Phillippi explained, adding that in fact Daimler set rules to "preserve Mercedes' sanctity" (Priddle, p. 2). University of Michigan professor Gerald Meyers, who chaired American Motors at one time and is a retired Chrysler executive, said that the Daimler people "felt superior and that came through at decision-making time" (Priddle, p. 2). Meyers remembers Chrysler employees and executives "…being put in a straitjacket" and resenting it, Priddle continued.

The Chrysler-Fiat arrangement is the reverse of what Chrysler-Daimler marriage turned out to be, according to an employee; "It's a partnership of inclusion…the Fiat people are saying, here are our platforms and technologies -- what do you want?" (Priddle, p. 2). Another notable aspect of the new merger that is dramatically different from the previous merger is there are far fewer Fiat executives at Chrysler than there were with the Daimler group. And with so very few Fiat executives in Auburn Hills (Michigan) "…a culture class is almost a non-issue," commented Gualberto Ranieri, communications executive with the new merged company (Priddle, p. 2). Moreover, while engineers and designers do travel back and forth between Italy and Detroit, there are strict travel restrictions "…to keep costs down," Ranieri explained (Priddle, p. 2). That is a far cry from the Daimler days, when, according to former Chrysler communications director Mike Aberlich, the company "…jet shuttled employees round trip between Pontiac and Stuttgart three times a week" (Priddle, p. 2).

The Literature -- Leadership From Fiat

Matthew Curtin writes in The Wall Street Journal (June, 2011) that Fiat was going through an "unprofitable European business" cycle at the time Chrysler and Fiat merged. And so, now that Fiat owns 58.5% of Chrysler Group, and now that the newly merged company is showing big profits, the vision shown by CEO Sergio Marchionne when he negotiated the deal with the Detroit automaker, is showing signs of being realized. As of June, 2011, a year after the launch of the merger, "Marchionne is increasingly running the companies as a single business" (Curtin, 2011, p. 2). At the time of this article, Marchionne had "…24 executives reporting to him from each manufacturer," Curtin explains, but within months Marchionne whittled down the number of executives reporting to him to just 24 in total.

Curtin added a note of caution to this story: "…Transcontinental auto mergers are notoriously tough, as Daimler found out when it took on Chrysler. Investors buying the story have to believe in a Hollywood ending for Mr. Marchionne's Italian-American adventure."

Hollywood ending? It's too early for those predictions, but thus far in this merger things are smooth and profitable for the new company. The Associated Press reported in January, 2012, that Fiat has "…added 5% to its majority ownership of Chrysler" due to the success of the Dodge Dart (AP, 2012, p. 1). As noted earlier, Fiat now owns 58.5% of Chrysler, and the additional 5% ownership is due to the leadership shown by Marchionne, and the creative restructuring the U.S. Government insisted upon when bailing out Chrysler.

Along with the billions of bailout dollars, the U.S. Government insisted on specific environmental and consumer-friendly performance goals. Uncle Sam demanded that the merged companies build cars that get good mileage, and when the Dodge Dart compact -- tested by the U.S. Environmental Protection Agency in December, 2011 -- proved out at 40 miles per gallon, Fiat got the extra 5% ownership. In fact one of the Dodge Dart's three optional engines will be a Fiat-designed 1.4 liter turbocharged engine -- the same one that goes into the Fiat 500 -- showing again that the two companies are actually combining resources for the good of the newly merged companies (AP, 2012).

Board Chairman and Director of Chrysler-Fiat, Marchionne was born in 1952 and has dual Canadian and Italian citizenship, according to Forbes. He is a "barrister, solicitor and chartered accountant," and he was appointed Chief Executive Officer of Fiat in June, 2004, after many years of leadership in a number of Canadian and European industries. In June, 2009, Marchionne was appointed Chief Executive Officer of Chrysler Group LLC (the two companies' name now that they have merged).

In a question and answer interview with Marchionne in June, 2011, two years after Chrysler and Fiat teamed up, Forbes journalist Joann Muller asked the CEO of Fiat and Chrysler if he is perhaps "pushing people…too hard" (Muller, 2011, p. 2). Marchionne agreed that he does push people hard, but he said he has a "keen sense of burnt engines or engines that are just about to crash," and he sends them on vacation. "Just get your head set back'," he tells them. And yes he admits he is a workaholic, and he carries six Blackberries. If someone calls him, leaves a message, and he doesn't return the call, it was either because "…I'm bored stiff and I felt the question was irrelevant…" (Muller, p. 3).

What was it that Marchionne did to convince the U.S. Treasury Department to loan bailout money to Chrysler? First of all, the CEO said he had credibility coming into the negotiation. His leadership and vision was internationally known, hence, he figures the government was thinking something like this: "Somehow he managed to fix Fiat and maybe he can fix this thing, too" (Muller, p. 3). Second of all, yes he wanted to introduce the Fiat brand to the U.S. And saw this deal as a way to do that.

But moreover, he came offering Chrysler "what they were missing," and to be "perfectly honest it was an incredibly fair trade on everybody's part. I risked everything -- I got 35% of something that was worth nothing." To hear the words from the innovative, hard-driving CEO, is to understand his leadership style and his passion for Chrysler's success. He continued:

"With the promise to deliver value to everybody involved here, to pay back the government, and eventually turn that nothing into something, in exchange for which I got, a chance to give you technology and then to run

it. And that's it, right? I mean it was a real simple barter in the straight sense of the word, and it was an incredibly risky barter for everybody at the table…The Treasury put money into this. And it needed to get paid back. To us, to Fiat, what could have happened is that reputationally I

could have been wiped out if this thing did not work out. Fiat could have ended up with egg all its face…" (Muller, p. 5).

Meanwhile, Muller asked the Chrysler and Fiat CEO if "joint engineering" was ongoing (which did not happen with the Daimler relationship hooked up with Chrysler) between the two companies' engineers. "Ton," Marchionne quickly answered. "There's nothing that happens at one place that the other place doesn't" (p. 9). And as to the quality of autoworkers in Detroit working for Chrysler, Marchionne said he wouldn't have worked so hard for all these months "…unless it was worth it. Not just for me, I think all the people -- a lot of the people in here have given this place everything they've got so we owe it to them" (Muller, p. 10).

The Literature -- Marchionne and His Leadership in Filling Pivotal Positions

One of the reasons Chrysler fell into the abyss of bankruptcy in the first place is that the company had not nurtured one of the most critical components of auto manufacturing -- its suppliers. Dale Buss writes in Forbes that Chrysler has enjoyed a "…stunning rise in this metric [suppliers]" with the ascension of Dan Knott to senior vice president for purchasing and supplier quality (Buss, 2012, p. 1). Prior to Marchionne hiring Knott, and before the U.S. Treasury Department "awarded [Chrysler's] carcass to Fiat," Chrysler's relationships with its suppliers "…were among the worst, if not the worst, in the industry," Buss writes (p. 2).

By bringing supplier executives to Chrysler's headquarters in Auburn Hills, and having far better face-to-face communication strategies established (rather than as previously done, through online "webinar" sessions once a year), Knott instituted several important changes: a) after identifying "about 300 different supplier concerns" within a year Knott had "executed 200 separate changes" to boost dealings with suppliers; b) he streamlined suppliers' access to online database (which had been a major source of frustration for suppliers); c) he made it easier for suppliers to "get recovery of their investments in Chrysler programs that ended up getting cancelled" (from having suppliers wait 3 years for reimbursement, to 90 days); d) he halted the strategy of "abruptly changing suppliers for small financial savings on parts contracts"; and e) he set in motion a "video accountability training" system for his staff (Buss, p. 3).

Unfortunately, Knott has retired, due to his current battle with cancer that began in 2011. strategies established. Marchionne was quoted in the Buss article, saying that Knott's leadership has been "vital in the effort to revitalize Chrysler by fostering a new culture based on a commitment to meritocracy, excellence, and accountability" (Buss, p. 4).

The Literature -- Peer-Reviewed Research on Teambuilding

When it comes to a merger between two companies, the process of redesigning teams with managers from companies with "different incentives, work habits, and recruiting methods" can be daunting, according to an article in the peer-reviewed journal Management Science. In the case of the Daimler -- Chrysler merger not only was the culture different, but there was no attempt to redesign teams or launch any kind of teambuilding system at all. In this article, an emphasis is given on the need to get a solid management grip on the inevitable "…shuffling of teams" so that there is a reasonable "…harmonization of company statutes" when the two teams begin to work together (Montmarquette, et al., 2004, p. 1379).