WSJ - CEO Joe Eberhardt's Mission: Shift Chrysler Out of Reverse

[Klaus]

CEO Joe Eberhardt's Mission:
Shift Chrysler Out of Reverse

By Joseph B. White in Auburn Hills, Mich., and Neal E. Boudette in Frankfurt

Several years ago, Joe Eberhardt cut short his Italian honeymoon after a phone call from bosses summoned him to meetings. So when Mr. Eberhardt, chief of DaimlerChrysler AG's United Kingdom operations, was vacationing with his wife in Italy in May and heard his mobile phone ringing during a visit to a church, he turned it off.

The respite was brief. When Mr. Eberhardt reactivated his phone, he learned that the missed call was from Chrysler Corp. President Dieter Zetsche who wanted him to take on one of the toughest jobs at the German-American auto maker: fixing problems in Chrysler's sales and marketing strategy that last month derailed the No. 3 Detroit auto group's turnaround.

Mr. Eberhardt accepted the challenge and will surely deserve another Italian vacation if he engineers a turnaround. Because of soaring marketing costs, DaimlerChrysler said last month that Chrysler would just break even this year, instead of earning $2 billion as originally forecast. DaimlerChrysler warned that the Chrysler Group, based in Auburn Hills, Mich., would book a $1.2 billion loss for the second quarter. Mr. Eberhardt's predecessor as executive vice president of Chrysler sales, service and marketing, James Schroer, had abruptly resigned his post a few days before the profit warning.

Once one of the most profitable auto makers in the world, Chrysler was taken over by Daimler-Benz in 1998 and has spent the past four years getting battered by unexpectedly tough competition. In recent weeks, top managers have warned staffers that Chrysler is showing signs of the kind of decline that decimated the U.S. steel industry. Employees have been shown presentations that point out import brands are beating the Big Three in quality, productivity and pricing, and are gaining market share in areas that used to be U.S. strongholds -- minivans, big pickup trucks and sport-utility vehicles.

The company's efforts to reposition its Chrysler division as a "premium" brand are being undermined by a reputation for mediocre quality. Jeep, the storied sport-utility brand, is losing market share to softer-riding rivals, and faces a growing threat from General Motors Corp.'s Hummer brand. The Dodge Division's popular minivans are under assault from fresher rival minivans being launched by Toyota Motor Corp. and Nissan Motor Co., and a renewed attack by Ford Motor Co. is just around the corner.

A native of Stuttgart, Germany, the 39-year-old Mr. Eberhardt joins a growing cadre of relatively young managers with significant experience outside of Germany whom DaimlerChrysler Chairman Juergen Schrempp is relying on to repair broken elements of the No. 5 auto maker's global strategy. Having joined Daimler-Benz AG as a student in 1982, Mr. Eberhardt held a series of sales and marketing jobs in Mercedes-Benz's U.S. marketing arm from 1988 to 1999 -- a time when the German luxury marquee was battling the assault by Toyota's then-upstart Lexus brand.

Mr. Eberhardt says he learned a lot from that combat, which went badly at first for Mercedes. When Lexus launched the original LS 400 in 1990, many German luxury-make executives dismissed it as a copy of the Mercedes E Class. But American consumers saw the LS 400 as a car every bit as good or better than an E Class, but priced thousands of dollars less.

"In the past, [Mercedes] vehicles would be priced for the European market, and that price was translated into U.S. dollars," Mr. Eberhardt says. "Surprise, surprise, you're 20% more expensive than the LS 400, and you don't sell too many cars." In response, Mercedes revamped its pricing strategy, bringing out new versions of the E Class and S Class sedans that were priced below their predecessors. And the company developed new model lines and features targeted at American tastes, such as the new $30,000 C-Class and M-Class sport-utility vehicle. The company even started putting cup holders in its cars, a feature long-disdained by German engineers. Mercedes tripled its sales in the U.S. during the 1988-99 period.

Mr. Eberhardt suggests Chrysler could emulate lessons from Toyota's success launching Lexus at a lower than expected price.

One of Chrysler's most immediate challenges is to invigorate the slow launch of the Chrysler Pacifica, the family wagon that company executives had hoped would begin to establish a premium image for the Chrysler brand. Dealers have complained that initial advertising for the vehicle, which featured Canadian diva Celine Dion, missed the mark, while prices in the high $30,000 range for many Pacificas sent customers looking for better deals elsewhere.

"Maybe it would have been more effective to ... establish the vehicle as a mid-$20,000 vehicle as opposed to an above-$30,000 vehicle," Mr. Eberhardt says. While Chrysler can become a premium brand, he says, "it doesn't happen over night."

Mr. Eberhardt's most recent job gave him experience with another issue that will face him at Chrysler, rationalizing a jumbled dealer network. He arrived in the U.K. in late 1999 to take over all of DaimlerChrysler's operations there, including a small Chrysler and Jeep sales operation, Mercedes-Benz, the Smart city-car brand and commercial vehicles. At the time, the Mercedes sales network comprised more than 100 dealers that often competed with each other.

In late 2000, Mr. Eberhardt began restructuring the network. From about 100 different dealers or dealer groups, DaimlerChrysler worked down to 28. The company itself took over dealerships in the key London, Manchester and Birmingham regions. Surviving dealers were given larger and separate sales territories. Mercedes's U.K. sales rose to 80,859 vehicles in 2002 from 63,254 in 2000, and market share increased to 3.1% from 2.9%.

By trimming dealerships, Mr. Eberhardt says, the remaining retailers have higher sales volumes, make more money and are thus willing to invest more in improving customer service and showrooms. "Our whole industry is not rocket science," he says. "But it's so hard to deliver."

[Klaus]

CEO Joe Eberhardt's Mission:
Shift Chrysler Out of Reverse

By Joseph B. White in Auburn Hills, Mich., and Neal E. Boudette in Frankfurt

Several years ago, Joe Eberhardt cut short his Italian honeymoon after a phone call from bosses summoned him to meetings. So when Mr. Eberhardt, chief of DaimlerChrysler AG's United Kingdom operations, was vacationing with his wife in Italy in May and heard his mobile phone ringing during a visit to a church, he turned it off.

The respite was brief. When Mr. Eberhardt reactivated his phone, he learned that the missed call was from Chrysler Corp. President Dieter Zetsche who wanted him to take on one of the toughest jobs at the German-American auto maker: fixing problems in Chrysler's sales and marketing strategy that last month derailed the No. 3 Detroit auto group's turnaround.

Mr. Eberhardt accepted the challenge and will surely deserve another Italian vacation if he engineers a turnaround. Because of soaring marketing costs, DaimlerChrysler said last month that Chrysler would just break even this year, instead of earning $2 billion as originally forecast. DaimlerChrysler warned that the Chrysler Group, based in Auburn Hills, Mich., would book a $1.2 billion loss for the second quarter. Mr. Eberhardt's predecessor as executive vice president of Chrysler sales, service and marketing, James Schroer, had abruptly resigned his post a few days before the profit warning.

Once one of the most profitable auto makers in the world, Chrysler was taken over by Daimler-Benz in 1998 and has spent the past four years getting battered by unexpectedly tough competition. In recent weeks, top managers have warned staffers that Chrysler is showing signs of the kind of decline that decimated the U.S. steel industry. Employees have been shown presentations that point out import brands are beating the Big Three in quality, productivity and pricing, and are gaining market share in areas that used to be U.S. strongholds -- minivans, big pickup trucks and sport-utility vehicles.

The company's efforts to reposition its Chrysler division as a "premium" brand are being undermined by a reputation for mediocre quality. Jeep, the storied sport-utility brand, is losing market share to softer-riding rivals, and faces a growing threat from General Motors Corp.'s Hummer brand. The Dodge Division's popular minivans are under assault from fresher rival minivans being launched by Toyota Motor Corp. and Nissan Motor Co., and a renewed attack by Ford Motor Co. is just around the corner.

A native of Stuttgart, Germany, the 39-year-old Mr. Eberhardt joins a growing cadre of relatively young managers with significant experience outside of Germany whom DaimlerChrysler Chairman Juergen Schrempp is relying on to repair broken elements of the No. 5 auto maker's global strategy. Having joined Daimler-Benz AG as a student in 1982, Mr. Eberhardt held a series of sales and marketing jobs in Mercedes-Benz's U.S. marketing arm from 1988 to 1999 -- a time when the German luxury marquee was battling the assault by Toyota's then-upstart Lexus brand.

Mr. Eberhardt says he learned a lot from that combat, which went badly at first for Mercedes. When Lexus launched the original LS 400 in 1990, many German luxury-make executives dismissed it as a copy of the Mercedes E Class. But American consumers saw the LS 400 as a car every bit as good or better than an E Class, but priced thousands of dollars less.

"In the past, [Mercedes] vehicles would be priced for the European market, and that price was translated into U.S. dollars," Mr. Eberhardt says. "Surprise, surprise, you're 20% more expensive than the LS 400, and you don't sell too many cars." In response, Mercedes revamped its pricing strategy, bringing out new versions of the E Class and S Class sedans that were priced below their predecessors. And the company developed new model lines and features targeted at American tastes, such as the new $30,000 C-Class and M-Class sport-utility vehicle. The company even started putting cup holders in its cars, a feature long-disdained by German engineers. Mercedes tripled its sales in the U.S. during the 1988-99 period.

Mr. Eberhardt suggests Chrysler could emulate lessons from Toyota's success launching Lexus at a lower than expected price.

One of Chrysler's most immediate challenges is to invigorate the slow launch of the Chrysler Pacifica, the family wagon that company executives had hoped would begin to establish a premium image for the Chrysler brand. Dealers have complained that initial advertising for the vehicle, which featured Canadian diva Celine Dion, missed the mark, while prices in the high $30,000 range for many Pacificas sent customers looking for better deals elsewhere.

"Maybe it would have been more effective to ... establish the vehicle as a mid-$20,000 vehicle as opposed to an above-$30,000 vehicle," Mr. Eberhardt says. While Chrysler can become a premium brand, he says, "it doesn't happen over night."

Mr. Eberhardt's most recent job gave him experience with another issue that will face him at Chrysler, rationalizing a jumbled dealer network. He arrived in the U.K. in late 1999 to take over all of DaimlerChrysler's operations there, including a small Chrysler and Jeep sales operation, Mercedes-Benz, the Smart city-car brand and commercial vehicles. At the time, the Mercedes sales network comprised more than 100 dealers that often competed with each other.

In late 2000, Mr. Eberhardt began restructuring the network. From about 100 different dealers or dealer groups, DaimlerChrysler worked down to 28. The company itself took over dealerships in the key London, Manchester and Birmingham regions. Surviving dealers were given larger and separate sales territories. Mercedes's U.K. sales rose to 80,859 vehicles in 2002 from 63,254 in 2000, and market share increased to 3.1% from 2.9%.

By trimming dealerships, Mr. Eberhardt says, the remaining retailers have higher sales volumes, make more money and are thus willing to invest more in improving customer service and showrooms. "Our whole industry is not rocket science," he says. "But it's so hard to deliver."

[MAC]

<BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR> The company even started putting cup holders in its cars, a feature long-disdained by German engineers. Mercedes tripled its sales in the U.S. during the 1988-99 period. <HR></BLOCKQUOTE>

Believe it or not, that was one of the hidden reasons why I left Mercedes after 20 years of MB ownership, they were so arrogant they refused to add a cup holder in their cars. When they finally added the cup holder around 91-92, they were so poorly designed which rendered them totally useless.

BTW, Hummer cup holders are okay, not that easy to use. They are located on the opposit side of the shifter, sometimes very hard to pull the cup out, and they do not hold JUMBO size Icee cup which I love. Driving on highway 5 at 1AM while my wife was sleeping, I spent a minute trying to get that Coke cup out of the cup holder, ended up splashed Coke droplets all over the cockpit. A minor point not worth mentioning before but one I certainly use very often and cannot give high marks to.