Chrysler's Joe Eberhardt becomes man in the hot seat
A difficult year
Joe Eberhardt arrived at Chrysler in June 2003 as head of global sales and marketing. After three profitable years, the tide began turning this year as rising gas prices pushed consumers away from trucks -- more than 70 percent of the automaker's lineup. With sales slumping and inventories piling up, Eberhardt's relationship with dealers grew strained as he pushed them to order vehicles they feared they could not sell. A timeline of key dates:- April 27 : Chrysler reports that its first-quarter operating profit slid by more than half to $144 million from $306 million a year earlier as the automaker offered the highest incentives in the U.S. of any major automaker.
- July 27 : Chrysler releases second-quarter financial results and warns that it expects to lose $600 million in the third quarter because of production cuts driven by dwindling sales.
- Sept. 15 : Chrysler widens its third-quarter loss estimate to $1.5 billion and says it expects to lose $1.3 billion for all of 2006.
- Sept. 18 : Chrysler CEO Dieter Zetsche says Chrysler will cut output by 90,000 vehicles in the third quarter -- up from previous estimates of about 75,000 -- and another 45,000 in the fourth quarter to bring dealer inventories more in line with consumer demand and make room in showrooms for new models that will roll out later.
- Oct. 25 : Chrysler reports third-quarter loss of $1.48 billion. In an interview with The Detroit News, Zetsche says the automaker will have a plan outlining restructuring moves complete by the end of the year and ready to be made public in early 2007.
- Nov. : In a Webcast with dealers, Chrysler vice presidents Steve Landry and Michael Manley implore dealers to order more vehicles to help clear out inventories. The sales executives acknowledge the tension with the dealers.
- Source: Detroit News research
Brandy Baker / The Detroit News
Analysts say the growing stockpiles of unsold vehicles signal that Chrysler has ignored signs of slumping demand for its large vehicles. "Chrysler is the industry's worst culprit (when it comes to) building beyond demand and then halting production to compensate," said Thomas Stallkamp, former Chrysler president.
With dealers steaming and new vehicles piling up, executive is at center of tensions
Josee Valcourt / The Detroit News |AUBURN HILLS -- Not since Ford Motor Co. dealers openly revolted against then-CEO Jacques Nasser in 2001 have relations between an automaker and its retailers become as bitter as the situation now at Chrysler.
At the center of the tensions between DaimlerChrysler AG's Chrysler Group and its 3,400 dealers is Joe Eberhardt, 43, a hard-charging German executive who came to Auburn Hills from Mercedes-Benz in 2003.
Eberhardt's brusque style has never been popular with some dealers. But in the past year, as Chrysler has pressed dealers to order more inventory, launched ineffective promotions and saw the departure of seasoned sales executives working under Eberhardt, relations have taken a sharp turn for the worse.
Now with Chrysler trying desperately to mount a comeback after a $1.5 billion third quarter loss, Eberhardt's job may be in jeopardy. The dealer problems are likely to be a topic today as DaimlerChrysler's management board convenes in Auburn Hills, according to people familiar with the situation.
Chrysler needs the cooperation of its dealers to clear out vehicles stacked up on lots around Detroit and across the country. Chrysler officials now privately say that some dealers aren't likely to step up and put in large orders to help the automaker as long as Eberhardt remains vice president of global sales and marketing.
"The faster that Eberhardt gets out and we get (Chrysler CEO Tom) LaSorda and (sales executive Steven) Landry to listen to dealers' concerns, the quicker we can get this thing turned around," said one Detroit Chrysler-Jeep dealer.
The Detroit News interviewed company officials and nearly a dozen dealers in four states for this story. Some spoke on the condition of anonymity.
They pointed out that while Eberhardt may be abrasive, he cannot be held solely responsible for all of Chrysler's predicaments or its long-standing tendency to keep producing vehicles even as demand slumps.
"He probably inherited a situation that was a little hard," said Alan Helfman, vice president of River Oaks Chrysler Jeep in Houston. "There's a lot of competition out there. Until we get these new products in motion, we're in that little bit of a lull."
Business climate is tough
But the business environment is unforgiving. LaSorda is under intense pressure to hammer out a Chrysler turnaround plan by early next year that could include plant closures. He is aware of the rift between Eberhardt and dealers, and has traveled around the nation recently to try to smooth over relations.
Eberhardt, who declined to be interviewed for this report, has mended fences with some dealers in recent weeks. But some company insiders say his efforts may be too little, too late.
"The dealers think they're right and Eberhardt thinks he's right," said Martin "Hoot" McInerney, a nationally prominent dealer and owner of Northland Chrysler Jeep and Oakland Dodge in Michigan.
Even if LaSorda concludes that Eberhardt needs to be replaced, it's unclear where DaimlerChrysler bosses in Germany stand. Eberhardt is viewed as an exceptionally bright and driven executive with a solid track record at Mercedes. Before coming to Auburn Hills, he headed Mercedes sales in Britain, where he also clashed at times with dealers, according to European auto analysts.
Another question is who would replace Eberhardt at such a critical juncture.
Three senior executives in his department resigned this year -- head of sales Gary Dilts and marketing executives Jeff Bell and Julie Roehm -- leaving Chrysler's top ranks depleted. Many dealers viewed Dilts' departure as a loss. An experienced, personable sales manager, he was well liked out in the field but didn't see eye-to-eye with Eberhardt.
A company spokesman said Tuesday that Chrysler CEO Dieter Zetsche "runs his organization as a team. It is not his style to point fingers. So to suggest that one person would bear the burden of the entire team would be wrong."
Damage control sought
In a Webcast to dealers last Wednesday, the automaker pleaded with dealers to order their full allotments of vehicles for the rest of year. In doing so, Chrysler executives acknowledged the elephant in the room -- the anger many dealers feel toward the company.
"I know that some of you are mad at us out there," said Landry, head of Chrysler's field sales operations, who reports to Eberhardt. "But please take another look. We're asking you come to the party by taking unassigned orders."
"We're so close to making it right," Landry added plaintively. "But we've never been able to get things done when we're at odds."
In an interview last week with NewsTalk760-WJR, Zetsche also acknowledged the rift.
"We had some tension with our dealer body. That's a fact," Zetsche told host Paul W. Smith. "We have to overcome that and get the dealers on our side."
Dealers interviewed by The News say tensions with Eberhardt are rooted in style and substance.
While some conflict is inherent in dealer-automaker relations, many dealers complain that Eberhardt appears insensitive to their concerns and dwindling profits, noting that he absent-mindedly scrolls through his Blackberry during meetings.
In an industry filled with jocular, back-slapping sales types, Eberhardt is described as standoffish and unyielding. He isn't one to placate dealers or blame unpopular decisions on higher ups.
"If you have a manufacturer-dealer relationship where everybody is extremely happy, then something is wrong," Eberhardt said after joining Chrysler.
"There cannot be sunshine every day."
Tensions mount
The differences simmered below the surface when Chrysler was racking up profits and selling 300C sedans and Hemi engines as fast as factories could turn them out. But Chrysler's problems this year would have tested even the strongest relationships.
Last spring, dealers began pushing back when Chrysler pressed them to order vehicles.
By July, Chrysler was carrying an inventory of 647,000 vehicles. Chrysler's reintroduction of employee-style discounts for all buyers in the summer and its multimillion dollar Dr. Z ad campaign fell flat.
Dealers were further upset when Chrysler ratcheted back a program that helped offset the interest charges they pay on inventory. Those interest payments increase as cars languish on dealer lots, cutting into dealers' profits.
"That doesn't win you very many friends among dealers," said a Dodge dealer in the Southeast.
And some dealers complain they're getting vehicles that are over-equipped and over-priced for their markets.
As more dealers complained about the company's pressure tactics and policies, Chrysler acknowledged in July that it had produced too many vehicles and would post a loss for the third quarter.
Zetsche, the former Chrysler CEO, was openly critical of the decision-making in Auburn Hills that led to the rapid deterioration of its results. Chrysler's third-quarter loss -- more than double the shortfall first predicted by the company -- also hurt Zetsche, who was appointed CEO partly on the basis of the turnaround he had achieved at the U.S. automaker.
It's an inherited problem
In Eberhardt's defense, some dealers and company executives point out that he did not invent the controversial sales bank where vehicles that haven't been ordered by dealers are assigned. The growing stockpiles of unsold vehicles signaled that Chrysler had ignored signs of slumping demand for its large vehicles.
"Chrysler is the industry's worst culprit (when it comes to) building beyond demand and then halting production to compensate," Thomas Stallkamp, former Chrysler president and now a partner at private equity firm Ripplewood Holdings, told an industry conference last month.
Eberhardt also had little control over the timing of Chrysler's product launches, and the fact that most of its 10 new vehicles are only now hitting the market.
"He didn't get enough credit when Chrysler was successful," said one DaimlerChrysler executive, who asked to remain anonymous, "and now he's getting too much blame."
But industry experts say Eberhardt's style exacerbated a difficult situation.
"I have talked to dealers who are saying that they flat-out won't 'play ball' with anyone from Chrysler unless and until Eberhardt is sent packing -- because they simply don't trust him," Peter DeLorenzo, a former marketing consultant to Chrysler and publisher of the popular Web site Autoextremist.com, wrote last week.
"The trail of responsibility is short and clear -- it leads right to him and no one else."
Earlier this month, at the Beijing auto show, Eberhardt disputed the characterization that Chrysler dealers were on the verge of a revolt, saying, "We're now working with our dealers to get through these issues."
But time is running short for Eberhardt to resolve the conflicts.
History suggests he will have trouble surviving if he can't win back dealers. In October 2001, Ford's national dealer council sent the company's directors a highly critical memo about Nasser. It called him "distant, aloof and arrogant" and called for a change at the top.
Later that month, Nasser, who had also drawn the ire of employees, suppliers and the Ford family, was fired.
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