The Gutting of Chrysler’s Culture: A Cautionary Tale

February 17, 2009 - Tags:

Anyone who witnessed the rebirth of Chrysler under Lee Iacocca knows that one of the best product decisions he made was to invest in the K-Car, the basis for all the new passenger cars introduced in the 1980s. It saved the company from ruin. Then, in the 1990s, he was willing to step back and allow some remarkable leaders like Bob Eaton and Tom Stallkamp and Bob Lutz and François Castaing to reshape the company. A major focus was in product development, where vehicle centers (modeled after Honda) were created to realign the old functional organization into a product-driven organization. Engineers responsible for electrical components, body engineering, chassis engineering, and manufacturing engineering were all put together under one general manager, who took a role something like the Toyota chief engineer. These groups had a single focus—produce excellent vehicles that customers will want to buy at a low cost so Chrysler could make a profit. This led to the LH series of vehicles (Chrysler Concorde, Dodge Intrepid, etc.), a modernized minivan, the Neon, an award-winning new Jeep Grand Cherokee, and even the quirky but popular PT Cruiser. Each general manager was learning from the last one and the organization, at least in product development, was getting stronger and stronger. In the meantime, Tom Stallkamp was revolutionizing purchasing and creating what a Harvard Business Review article called an “American keiretsu” (Dyer, 1996). Chrysler soon became the world’s most profitable car company in terms of profit per vehicle—not the biggest, but the most profitable per vehicle.

Toyota was actually concerned by these developments. Up to that point, no U.S. company had shown signs of getting it right and developing a culture that could compete with Toyota. But Chrysler was beginning to get it right.

Fortunately for Toyota, Chrysler was bought by Daimler. Chrysler’s renaissance proved to be just another flash-in-the-pan threat that would vanish as quickly as it appeared. By 2000, Chrysler was again on the verge of bankruptcy and scrambling to simply break even. What happened?

The merger of Daimler and Chrysler was initially portrayed as a cooperative venture of equals that would learn the best of the best from each other. Soon it became obvious this was an out-and-out takeover. Of course, in any takeover there is a cleansing of the old guard who resist change—so out the door went all of these fine leaders who were starting to truly build something. And out the door went what they were trying to build, until all that mattered was short-term cost cutting to regain profitability. And out the door went the “partnership” with suppliers that Stallkamp had carefully built … and the trust … and the sharing of technology that was taking place in developing new vehicles ….

It is not clear what Daimler’s long-term purpose was in buying Chrysler. In the short term, it seemed logical to expand from a European luxury carmaker to enter the U.S. market in full force making lower-tier vehicles. But did Daimler really think through the implications of integrating a very different company with a culture completely different from their own? Did they think through the implications for public opinion in the U.S.? Did they think through what effect their purchasing and management style would have on the existing culture of Chrysler?

By gutting the leadership of Chrysler, Daimler gutted the culture that Chrysler was proudly building—a culture that made companies like Toyota nervous. Instead of building on this proud culture and protecting it, Daimler tore it down through radical cost cutting, eviscerating Chrysler’s strengths. From Toyota’s perspective, the appropriate response might be “Thank you, Daimler, for doing what we could not and would not do to a competitor. You destroyed its culture.”