As Eaton Arrives, Chrysler May Be On the Mend

ONLY a few months ago, many industry analysts were ready to write the Chrysler Corporation off. It still faces serious financial difficulties, but now, many observers are thinking again.

The company is rolling out a broad array of new products such as the Jeep Grand Cherokee and a line of mid-sized sedans collectively dubbed L/H. Chrysler, perhaps more than any other United States automaker, could be poised to prosper from an economic recovery.

But Chrysler will have to do that under the guidance of a very different type of chief executive than the one the public - and company employees - have come to know. Chrysler's board of directors last week selected Robert Eaton, head of General Motors Corporation's successful European operations, to succeed Lee Iacocca as chairman.

Mr. Iacocca, with his dark, hand-tailored Italian suits, has served as Chrysler's most visible commercial spokesman during his 13 years as the company's chairman. Blunt, supremely confident and yet surprisingly telegenic, Iacocca has been a best-selling author and a leading advocate of trade protectionism.

By contrast, the laid-back Mr. Eaton, an engineer by training, is more prone to neutral gray suits that look like they've come off the rack. He's the first to admit "I doubt I would have the appeal" to follow Iacocca's lead by becoming the star of television ads. Eaton will take over after sharing the chairman's office with Iacocca for the rest of this year.

The transition comes at a critical time for Chrysler. The nation's No. 3 automaker lost $795 million last year on sales of $29.4 billion. GM and the Ford Motor Company lost even more, but are also much bigger companies.

Despite its losses during the recession, Chrysler has responded well to what has been called "the luxury of adversity." While most carmakers like to talk about their cost-cutting efforts, "at Chrysler, they're very real," says Maryann Keller, an auto analyst with Furman Selz.

Chrysler's factories are operating nearly as efficiently as its Japanese rivals. And its corporate offices have adopted a very lean, Japanese-style "team management" structure.

In a traditionally run company like GM, designers, engineers, marketers, and planners live in essentially their own little worlds. They'll do their work, then "toss it over the wall" to someone else. This system slows down the development process, raises costs, and can lead to quality problems.

To understand how team management works, take a look at Chrysler's L/H sedan program. Virtually everyone connected with the project can be found in the same building. An engineer is likely to be looking over a designer's shoulder to make sure there aren't any surprises. By the old rules, L/H would have required an engineering staff of about 1,500. Chrysler has 748.

General Motors, where Eaton has worked his way up the ranks for 29 years, stands in sharp contrast. GM has North America's least efficient assembly plants and a top-heavy bureaucracy. The world's largest industrial corporation is only now launching a major reorganization.

The big question, says one industry analyst, "is whether Eaton will be able to adapt to Chrysler, or whether Chrysler will have to adapt to him."

Eaton says he'll be the one to bend, but he insists, "My most recent experience in Europe runs very similar to Chrysler, without a lot of committees, without a lot of bureaucracy."

That was one reason why GM's European operations posted a $1.5 billion profit last year, while the company lost an estimated $8 billion selling cars and trucks in North America.

In fact, auto analyst Joe Phillippi of Shearson Lehman Brothers, suggests Eaton may have jumped ship precisely because he didn't want to face the eventual return to the corporate morass of GM's US headquarters.

Eaton's appointment raises other questions, however. Except for his relatively brief four-year tenure in Europe, he has not had any operating experience. He will likely be heavily dependent on the team assembled directly beneath him.

So it's not surprising that there were sighs of relief when Chrysler president Robert Lutz announced plans to stay on as the No. 2 man when Eaton takes over. That was anything but a certainty, for Mr. Lutz was considered the front-runner for Iacocca's job and many thought he would bail out if he were passed over by the board.

Some observers wonder whether Lutz will stay for long. "When there's a coup, the guy who thought he was going to get the job pulls out the hymnal, sings the song - and puts together his resume," said Walter McNichols, an executive head-hunter with Gary Kaplan & Associates.

Whether Lutz stays or goes may depend on how much power will be exercised by Iacocca, who only grudgingly agreed to retire. Officially Iacocca remains chairman of the Chrysler executive committee. He insists he'll spend most of his time golfing, but as one friend points out, "Iacocca doesn't golf."