Thursday, September 13, 2007

Why Toyota's President Won't Be Chrysler's Savior: Doron Levin

By Doron Levin

Sept. 13 (Bloomberg) -- Chrysler LLC helped itself by hiring Toyota Motor Corp.'s North American president, though the impact of a single executive, even from Toyota, will be limited.

If some regard anything from Toyota as possessing magical power, that's partly because its vehicles are a hit with consumers, and because the company's management techniques are universally admired. So when a top Toyota executive agrees to try and save a sinking ship, the terrified passengers naturally are overjoyed.

Jim Press, a 37-year Toyota veteran, fills a critical leadership void in Chrysler's badly demoralized sales and distribution network. A year ago Jeep, Dodge and Chrysler dealerships were saddled with tens of thousands of unsold vehicles that the automaker had unwisely forced them to accept.

By the time DaimlerChrysler resolved the inventory debacle it had turned toxic, helping lead the automaker's German management to decide to spin off most of its U.S. subsidiary. DaimlerChrysler sold 80.1 percent of Chrysler to Cerberus Capital Management LP, keeping the rest for itself.

Press, 60, who gives up the post of president of Toyota North America, previously ran the Japanese automaker's U.S. sales network. He takes office as one of two Chrysler presidents on Sept. 17.

Customers First

Toyota made its mark in the U.S. by operating according to the principle that customer demand should dictate how many cars are manufactured. Chrysler and Detroit automakers have done the opposite; to their detriment they often ``push'' cars onto reluctant dealers who then get squeezed when buyers are scarce.

Chrysler dealers resented the pressure from headquarters to sell more cars than they deemed reasonable. Andy Kaplan, who owns Dodge dealerships in Virginia, said ``the company threatened that if we dealers didn't take cars they would remember us down the road.''

Press ``is reputed to be someone who understands dealers, someone with a wonderful resume,'' he said. ``I'm confident we'll be able to work things out.''

Bob Nardelli, Chrysler chief executive and Press's boss, said in an address to the Automotive Press Association on Sept. 7 that the automaker must ``right-size the revenue, and make intelligent decisions about products and brands, we can't have emotional attachments.''

Move Out

Nardelli's words likely will translate into Press's marching orders. He must quickly determine which Chrysler, Dodge and Jeep models to cancel and how to streamline distribution, maybe eliminate dealers, and increase cash flow. Chrysler, like most highly leveraged turnarounds owned by private-equity companies, suddenly must give priority to financial stability over size.

Trying to inflate revenue, at the expense of cash and profit, has been one of Detroit automaking's key mistakes. It reflected a Hobson's Choice of how to address the frustrating reality that competitors sell better vehicles that command higher prices.

If Chrysler were manufacturing vehicles that customers found more appealing, the company wouldn't be in the position of beating up its dealers. So Chrysler still might turn around one day if it can duplicate the success of Toyota's Camry or Prius. Sales of those vehicles and others like them made Press's career. Toyota earlier this year elected him the first non- Japanese to serve on its corporate board.

Showing How

But Press didn't design, engineer or manufacture. He only helped translate the automotive tastes of American buyers for Toyota designers and engineers in Japan (and later in the U.S.). In the short term he can subtract; but he can't add to a Chrysler vehicle lineup that's bereft of fuel-efficient small cars and dominated by full-size pickups, sport utilities and minivans whose sales are getting whacked by high gasoline prices.

Press penetrated Toyota's senior ranks because he learned to navigate a culture markedly dissimilar to that found in the U.S. auto industry, which tends to be insular, self-satisfied and suspicious of outsiders. He might find himself lost at Chrysler.

``I know a number of former Toyota people who went into U.S. automaking companies and ended up quitting because they came home frustrated night after night,'' said Jeff Liker, author of ``The Toyota Way'' and a professor at the University of Michigan.

``Jim is so optimistic,'' Liker said. ``He will stay that way as long as he can.'' He'd stand a better chance if he could bring a design like the Camry with him.

If Chrysler, even a smaller Chrysler, generates better financial results than those that preceded its divestiture from DaimlerChrysler, Cerberus will have a company to sell. Nardelli, Press and others will score big from pay packages designed to reward increased equity value.

But the odds of generating the desired financial results aren't better than 50-50. Toyota, the place that taught its tricks to Jim Press, isn't standing still.

No comments: