Sergio Marchionne hints he'll likely remain CEO of Chrysler after the upcoming management realignment.
Gone are the “days of sin,” when cash was seen as the answer to everything at Chrysler, said CEO Sergio Marchionne, as he answered questions about the maker’s second-quarter loss and dodged others looking at the planned global consolidation of Chrysler and its Italian partner Fiat.
In a wide-ranging discussion, Marchionne made it clear his goal is to “extract value” from the combined Chrysler-Fiat organization by making them work more closely together. But he cautioned that he does “not want to screw up” Chrysler’s nascent revival – something that could readily happen if it lost focus on what it does best.
Marchionne downplayed concerns about Chrysler’s $181 million second-quarter loss – noting the maker went into the red because of a $551 million charge related to the recent payoff of its federal bailout loans. (Click Here for more on Chrysler’s earnings.)
“I think we have made great progress,” said the Canadian-educated executive. “We feel we are on target.”
In the coming days, Marchionne confirmed he will announce a global realignment that will consolidate key positions in the Chrysler/Fiat alliance, eliminating the current redundancy and creating a more streamlined enterprise that is “ultimately the best way to extract value” for shareholders. While he declined to provide specifics, the CEO suggested that the move “should show benefits quickly.”
There have been some questions raised about what Marchionne’s position will be moving forward. He declined to respond directly to a question about his own position as CEO of the two makers but then added as an aside, “I really like Chrysler.”
The upcoming consolidation will likely blend executives from both sides of the Atlantic based on skills rather than geographic origins, but Marchionne emphasized his goal is that he “doesn’t want to screw up” things at Chrysler by bringing in managers who don’t understand what the company does best.
Looking forward, the CEO noted that Chrysler and Fiat will have to carefully target which brands work best in which markets. Of all their various marques, only Jeep and Alfa Romeo “are truly global brands.” The two companies provided a hint of what’s likely to come during the Geneva Motor Show, earlier this year. A number of Chrysler products were introduced under Fiat and Lancia brands for sale in Europe.
Meanwhile, a critical step for Chrysler will come in 2013 with the launch of new compact cars that, while developed primarily in Europe, will be sold in the U.S. under the Dodge badge.
Marchionne emphasized that as much as Chrysler has done since emerging from bankruptcy – during the latest quarter alone reporting a market share jump from 9.4% to 10.6% — it has had to work with pretty much what was already in place before it went Chapter 11. The newer, smaller offerings it needs for the future are still a year or more away.
One of the reasons Chrysler is doing better is that it has become more focused and disciplined, the executive argued. In the years leading up to the bankruptcy, for example, Chrysler was routinely flooding the market with product then luring in buyers with lavish – but profit-eating – incentives.
There will be “-“no return to the heydays of price reduction,” Marchionne proclaimed. “We will be incredibly disciplined to choke off the production machine” if demand slips.
Nonetheless, the CEO remained firm in his belief that Chrysler can top 2 million sales despite the continuing weak U.S. market. The maker’s 12.7 million forecast for 2011 is one of the lowest in the industry, though many competitors have been trimming back their own projections based on the weak spring selling season.
Discipline is a word Marchionne used repeatedly during his news conference. And he made it clear that extends to the rewards senior managers will reap as Chrysler recovers.
By paying off the $7.5 billion U.S. and Canadian bailout loans Chrysler is no longer subject to federal limits on executive pay.
Nevertheless, he said, you would be wrong “if you think we’re going to distribute cash indiscriminately (in management pay hikes and bonuses) and return to the old days of sin.”
That message will undoubtedly be repeated at the bargaining table in the coming weeks as Chrysler struggles to hammer out a new contract with the United Auto Workers union. The maker says it does not have room to raise pay and benefits above the current union package of $52 an hour.