Tuesday, June 16th, 2009

Chrysler, which has endured more perils than Pauline, announced Wednesday that it has finalized its global alliance with Fiat, its last obstacle to emerging from bankruptcy.

Everyone in Auburn Hills who still has a job must feel relieved. In the past 24 hours, Chrysler had endured a challenge from secured creditors that wound up in the Supreme Court, as well as opposition from 789 of the dealers whom it is terminating.

At the top are chairman C. Robert Kidder, an American industrialist, and CEO Sergio Marchionne of Fiat, an Italian industrialist. The nine-member board consists of four directors chosen by the U.S. government and one by the Canadian government, three Fiat directors, and one from the United Auto Workers union. Among the groups left unrepresented: unhappy buyers of Chrysler products; legacy representatives from former owners Daimler and Cerberus; Bob Lutz, Tom Gale, and other members of Chrysler’s 1990s “dream team;” and of course those 789 angry dealers.

Give Marchionne points for candor. In a news release, he admits that the alliance “does not solve every issue faced by the automotive industry today.” But in the same breath, he praises the alliance as possessing “first class technology, a devoted workforce, improved efficiency and an unyielding passion for building great cars.”

He’s been busy, so I guess he didn’t have time to read the Obama administration’s report on Chrysler published March 30. A number of points:

· Far from possessing great technology, Chrysler spends just over 3% of its revenue on R&D vs. 4%-5% for Toyota and Honda. The government believes that Chrysler “will struggle to comply with increasing fuel efficiency standards.”

· Chrysler may have a devoted workforce, but it’s certainly a small one. The report found that Chrysler dedicates only half as many engineers to each vehicle platform as GM does. That limits its ability to innovate and develop new product.

· Using fewer engineers may boost efficiency in product development but it doesn’t help manufacturing efficiency. The Obama auto team found that increased flexibility in manufacturing is critical but “Chrysler has not invested significantly in common architectures and flexible plant manufacturing capacity.”

· Apparently, quality is not one of the ingredients in “a passion for building great cars.” Chrysler’s current quality scores “significantly lag competitors,” according to the Obama team. Since 40% of its quality problems are design related, they typically don’t get fixed until a new model is developed. Evidence suggests that Fiat is also a laggard in this category.

At this point in its history, Chrysler is the foster child of the auto industry. It was abused by Daimler, which didn’t understand how to nurture its creative strengths. And then it was starved by Cerberus, which had dreams of rebuilding an industrial icon that turned into a nightmare when auto sales cratered.

To use an even harsher metaphor, Chrysler looks like war-torn Europe, trying to rebuild after World War II. Its plants have been shut down for weeks, supplies of cars and parts have been dwindling, and employees have been fleeing, either voluntarily or otherwise.

If Marchionne can produce his own Marshall plan to rebuild this company, he will have pulled off the greatest automotive turnaround since Carlos Ghosn rescued Nissan a decade ago.

It will take hard work, inspiration, and a good deal of luck. A good place to start would be a sober assessment of Chrysler’s strengths and weaknesses that can be translated into a compelling sales proposition for potential customers. Chrysler needs to leave its old illusions behind as it goes forward in tandem with Fiat.