Sergio Marchionne
Chief Executive Officer, Chrysler Group LLC
" From Crisis to Transformation"
Mackinac Policy Conference
Grand Hotel
Mackinac Island, Mich.
June 3, 2010

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Thank you very much for that introduction, Chip.

Good evening. It’s a pleasure to be here and I want to express my thanks to the Detroit Regional Chamber of Commerce for the invitation to address this group.

Just a few weeks ago, Chrysler Group LLC launched its first all-new vehicle … the Jeep Grand Cherokee that is now rolling out of our Jefferson North Assembly Plant in Detroit.

A special thanks to U.S. Senator Debbie Stabenow, Governor Jennifer Granholm and Detroit Mayor David Bing who were among those who helped celebrate the launch.

Jeep is an iconic brand and, in fact, our presence here tonight reminds me that the Mackinaw Coat at one time was popularly known as a Jeep Coat.

It got this name because it was ideal for servicemen who drove the original go-anywhere, do-anything Jeep … the predecessor of today’s civilian Jeep vehicles.

Governor Granholm -- despite this precedent -- I really did not come here tonight to propose to change the name of this wonderful place to Jeep Island. Because, in fact, there already is a Jeep Island -- although it is in Micronesia, and not in Michigan. Given the workload at Chrysler, fixing this trademark issue is not a high priority. But we will eventually sort it out.

In reality, my purpose here this evening is to talk to you of the prospects we at Chrysler see for the global auto industry, how our alliance with Fiat can contribute to reshaping it, and how we can work in partnership with the State of Michigan for mutual advantage.

But before starting, I would like to give you a quick overview of what Fiat and Chrysler make, because I believe it is the best way to understand who we are.

[Following remarks go with visuals]

We make trucks… Large ones…
And little ones…
Wheel-loaders...
Crawler excavators…
The world’s largest tractors…
And the world’s largest combines…
And we make these cars...
And also these…
But also this kind…
And the best SUVs in the world …
But also this kind of car…
And this kind…
And we sell these to the rich…
And make people rich by asking them to drive these.

I started like this as a way of saying that if you expect a lesson or some kind of magic recipe from me, I am afraid you will be disappointed.

I am neither a professor nor an economist.

My calling is much more humble: I am a man of industry.

What I can share with you tonight is the experience at Chrysler and at Fiat and how these two houses are changing, in my view permanently and for the better.

I can tell you about the drivers of this change and what kind of future we are building for the two groups.

In many ways, the fates of Chrysler Group and the State of Michigan follow parallel paths. Skeptics had foreseen dire futures for both of us. We have all heard predictions that Chrysler would be relegated to the dustbin of history, and that Michigan’s glory days are in the rear-view mirror.

I beg to differ with these views, because I believe that there is sufficient talent now in the American automotive industry to create a more vibrant, prosperous future for us all.

But the reality is that it often takes a crisis to stir us to change.

I’m reminded of the anecdote regarding Albert Einstein, who was three or four years old before he ever spoke. Naturally, his parents worried about this. The story goes that, at last, one night at the supper table young Albert broke his silence to say, “The soup is too hot.”

His parents, who were greatly relieved, asked why he hadn’t spoken earlier. And Albert replied, “Because up to now, everything was in order.”

While we all welcome the signs of recovery, we can’t afford to fool ourselves into thinking that everything is in order. 

We must take lessons from our crisis, and look ahead for new solutions instead of trying to preserve old reference points that are no longer valid.

I applaud Michigan’s efforts to diversify its economy.

At the same time, I believe a revitalized automotive industry will continue to play an important part in the state’s future.

No other industry has the economic heft of the automotive sector. It remains a powerful driver of the economy, not only because of the direct employment numbers but also because it attracts suppliers as well as distribution and service networks.

Consider that Chrysler Group has nearly 20,000 employees in Michigan, with annual wages of $1.8 billion. In fact, since late last year we’ve added over 1,600 direct and indirect workers to support the development of our future products.

There are another 50,000 Chrysler retirees and surviving spouses in Michigan, who receive annual pensions totaling over $1 billion.

Chrysler Group purchases materials and services from 2,700 Michigan-based suppliers. We have a number of major facilities here, including our headquarters and technology center in Auburn Hills – which, by the way, next to the Pentagon, is the largest building in the U.S. based on floor space under one roof.

We also have three assembly plants, two stamping plants, three engine plants, three parts distribution operations and proving grounds in Michigan. Our operations are in Detroit, Warren, Sterling Heights, Trenton, Dundee, Chelsea, Centerline and Marysville.

Since 2003, Chrysler has invested more than $3 billion in our Michigan facilities.

Add in the investments and payrolls of 107 Chrysler, Dodge, Jeep and Ram dealers, and you see that Chrysler has a major economic impact on the state as well as a substantial interest in Michigan’s well-being.

Business is the engine of economic growth and innovation. Government sets the rules of competition. But government also can be a major catalyst enhancing the ability of companies to change, with public policy that incentivizes investment or facilitates the infrastructure that enables the private sector to succeed.

A prime example is the proposed Detroit River International Crossing – the DRIC – which was approved last week by the Michigan House of Representatives and awaits action by the State Senate. I want to thank the Chamber for all its support and hard work on this issue in Lansing.

Each day, Chrysler moves more than 1,300 shipments, some 2,000 cars and trucks, and makes 1,600 entries per day at the Detroit-Windsor border. Hundreds of our employees cross the border to work in the U.S. or Canada.

Smooth crossing is essential to our just-in-time manufacturing enterprise. For example, engines made in Trenton or stampings from Warren or Sterling Heights cross the border daily for use at assembly plants in Ontario.

From an industry perspective, every day the combined U.S. and Canadian auto sector sends thousands of cross-border truck shipments and well over $100 million in goods across the Detroit-Windsor border. I want to make it clear that Chrysler strongly supports the proposed DRIC. This proposed new crossing would add necessary redundancy and unimpeded access from Ontario's highways to Michigan's interstates.

DRIC will bring $1.8 billion in investment to the Detroit - Windsor area, creating 10,000 construction jobs in Michigan and generating another 30,000 indirect jobs in Michigan and Windsor.

The need for an additional crossing to handle current and future trade flows is widely acknowledged and it is imperative that this new crossing be completed as soon as possible.

I commend state representatives for their forward-looking vision in voting to authorize the DRIC. I urge the Michigan Senate to add its blessing to this project, which means so much for our collective future.

Just as this border crossing depends on a business-government strategic partnership, Chrysler’s global alliance with Fiat is an example of a positive, creative response to new realities.

The conditions for this partnership were created by the global economic crisis that erupted toward the end of 2008.

The shockwave it set off around the world was so severe that nothing short of a war could have been more devastating.

It took so many victims – including thousands of individuals in Michigan and elsewhere around the world still unjustly bearing the brunt of a crisis they did not create – that it is difficult to view it purely in Schumpeterian economic terms, as the normal by-product of "creative destruction."

But the crisis we experienced is not responsible for the chronic problems that the auto industry has been suffering for decades.

Indeed, the culprits are to be found elsewhere.

It is the fault of an inefficient business model that has been destroying value rather than creating it.

Over the past 30 years, automakers worldwide, with the exception of the Japanese, have rigorously, methodically and significantly underperformed the market. The industry, especially in North America, has destroyed billions of dollars in value.

Our industry embarked on M&A sprees and excursions into other businesses. We consolidated brands and consolidated companies and consolidated the consolidations. These efforts made automakers into rambling ranch houses onto which one room after another was added – with no rational architecture uniting the whole.

Confronted with the severity of a crisis that had devastated economies around the world to a degree never before seen, the task of addressing the industry’s chronic problems could no longer be put off.

The vicious economic circle was generated by the real estate crisis, the ensuing financial sector crisis, the resulting liquidity crunch, reduced purchasing power of consumers, a collapse in consumption and the consequent recession.

This unpredictable chain of events opened the way to a period of unprecedented interventionism that triggered vigorous debate among economists, politicians and public at large.

Government intervention shaped the course of the crisis from the beginning.

Supporters pointed to the disastrous consequences of market liberalism and, even worse, the consequences that would result from a failure to intervene.

They believed that propping up the financial system and the economy and managing them back to stability was necessary for the confidence of the markets and the public to be restored.

Larry Summers, the current Director of the White House’s National Economic Council, as well as a strong defender of free markets, concluded:

“The view that the market economy is inherently self-stabilizing, always, has been dealt a fatal blow… This notion that the economy is self-stabilizing is usually right, but it is wrong a few times a century and this is one of those times.”

And there are those who are completely against any form of public intervention, as the famous words of Ronald Reagan expressed: “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help’.”

The non-interventionist camp believes the use of taxpayer money to prop up the markets is not only amoral – representing surrender to the flawed concept that the ends justify the means – but also a strategy which will inevitably lead to failure and, therefore, the only possible solution was to let the markets play their role, let badly managed firms fail and put an end to inefficiency and waste.

For years, I have been a strong believer and a practitioner in free markets, accepting the notion that economic inefficiency is and must be punishable by extinction.

But having lived through the last 36 months, and having seen the degree of chaotic decomposition of our economic systems, and especially of the financial sector – which in our society has the institutional role of being the conduit for the distribution of risk – I came to the conclusion that these particular circumstances, these conditions, were so exceptional, so unique, that they required equally exceptional, unique responses.

There were no alternatives.

A collapse of the auto sector, without a financial system able to pick up the pieces and provide continuity, would have had unimaginable consequences.

The only course for survival was to react rapidly to address the fundamental structural issues and establish a model that would put the sector on a more solid foundation for sustainable growth.

That is exactly what happened here in the United States.

Bankruptcy protection for automakers forced a major structural reorganization and facilitated a courageous shift that brought together government, trade unions, business, workers and financial institutions as partners with the goal of saving more than just the automotive industry.

What was dubbed as the “New Green Deal” was intended to dramatically influence an entire industry and the habits of consumers, at the same time providing safeguards for industry and promoting the shared objective of reducing auto emissions and fuel consumption.

In Europe also there were attempts by governments to respond to the crisis in the auto sector.

What has been clearly lacking from the very beginning, however, is a common strategy.

This has been a weakness of Europe historically and results from the incomplete nature of the Union itself.

The crisis did nothing more than unveil flaws in the foundation upon which the European Union has been built and emphasize the need to remedy them.

In Europe, we are living in a kind of halfway house, with a strange idea of union that is purely monetary and has never truly been either an economic or political union.

We saw this in the response to the auto crisis, when every member state followed its own course of action, some even providing direct aid to domestic automakers.

This not only put some players in a more advantageous position than others, distorting the equilibrium of the marketplace, but it also violated some of the founding principles of the single market.

We've seen this again recently in response to the Greek crisis.

It was clear to everyone that this situation could not be used to make an example, to make a stand against rewarding irresponsibility, as was done with Lehman Brothers. Failure to throw a lifeline to Athens could have set off a catastrophic chain of events.

And yet the process of agreeing a bailout package was subject to foot dragging, uncertainty and nationalism.

Even the “save the euro” plan – hatched during the wee hours of the night a few weeks ago to provide a safety net for the single currency – had to battle reluctance and division.

The final result, however, represents a major step.

For the first time, the single currency is equipped with an unprecedented €750 billion financial stabilization mechanism that has the guarantee of member states as well as the support of the European Central Bank and International Monetary Fund.

But if these efforts are to achieve more than just buying time and deferring the problems, they need to go beyond merely providing aid.

Only a more comprehensive approach based on the political will of Europe to protect not just its currency but also its future will enable a qualitative leap forward in the nature of the Union.

The signals are mixed. Many of them don’t give much reason for optimism.

But for those who believe in greater European integration, the Greek crisis is an opportunity to push their agenda further than they ever imagined possible.

The European dream is born from an ambition to create a solid and unified future for Europe.

We have before us one of those moments where the character, daring and vision of leaders can alter the direction their nations are going in and change history.

We are about to learn how much sovereignty each European nation is willing to concede to move forward toward full economic and political integration.

Great crises – as with all difficult moments – force us to make choices.

In the auto sector, our most important choice today is between changing to survive or changing to become better.

The second approach may take more commitment and more work and might not always produce immediate results. But the results will almost certainly be more long lasting.

And that is what we are aiming to achieve with the Fiat/Chrysler partnership.

Our two groups have undertaken a courageous and fundamental step towards change, when they chose to merge their respective capabilities, strengths and know-how to undertake a major transformation in terms of quantity and quality.

By 2014, Fiat and Chrysler combined will be able to produce 6 million vehicles, a critical threshold to be a competitive global player in the auto sector.

Joining the strengths of the two organizations will enable us to optimize the allocation of capital, fully leverage the potential of the distribution networks, utilize our technological know-how to the fullest and apply it to the entire product range of the two businesses.

The presence and experience of Fiat in the smaller car segments and of Chrysler in the medium and larger segments will enable the Group to offer a full product range and compete in all market segments.

The first tangible result of this historic alliance will be visible to the public as soon as December of this year, when the Cinquecento – the 500 – takes to U.S. roads.

This will herald the return of the Fiat brand to North America after an absence of more than 25 years.

This car not only exemplifies the Italian style, technology, passion and way of making cars.

With its low fuel consumption and CO2 emissions, it is an ambassador of ecological responsibility. And in 2012, we will make the Cinquecento even more environmentally responsible, when we begin production of a Chrysler-engineered version for the North American market.

It also embodies a new vision of technology’s role in the achievement of sustainable mobility.

On the way to the conference today, I was struck by the beautiful views of the lakes, forests and of this island. With its horse-drawn carriages and its ban on automobiles, Mackinac Island is a one-of-a-kind throwback to an earlier time before the automobile. This makes the island unique, recalling a time that seems and probably was simpler.

Michigan’s natural beauty is a great asset that enhances the enjoyment of life, and it is a reminder of why it is so important to protect our planet.

Today, as we face the need to be respectful of the environment, it’s important to broaden our perspective and take a global view. Instead of viewing the automobile as a stand-alone object, it is imperative to look at it as part of a much larger system.

Much has already been done to develop more fuel-efficient engines and Fiat Group, in particular, has embraced this approach with conviction.

Fiat is recognized as being the most eco-performing automaker in Europe, with both the Fiat brand and the Group confirmed as having the lowest average CO2 emissions levels.

Fiat Group pioneered the Common Rail System, now used in the latest generation of clean diesel engines. This technology produces emissions 20 percent lower than an equivalent vehicle using a gasoline engine.

Recently, Fiat introduced the MultiAir system for gasoline engines, improving performance while also achieving up to a 10 percent reduction in emissions.

While Fiat makes these technologies available to Chrysler, Fiat in turn is gaining access to Chrysler’s hybrid and electric technologies, which are expected to be the mainstay alternative solutions for the medium- and long-term.

Chrysler and Fiat are doing their part. But to really change the game, the entire system – political, economic and industrial – needs to share the vision and work together to overcome the obstacles.

To illustrate what is possible, let’s look at the potential for natural gas.

More than 10 years ago, Fiat introduced the “Natural Power” line, through which it established a leadership position in vehicles powered by CNG – Compressed Natural Gas.

Today, natural gas is a rational alternative to gasoline that can provide a near-term environmental solution on the road to vehicle electrification. CNG is an eco-friendly fuel with up to 25 percent fewer CO2 emissions compared with gasoline. And it is economical for customers with a price advantage of about 25 percent versus gasoline.

In the United States, there is a substantial domestic supply of CNG – including great potential for natural gas in a Utica shale formation that underlies much of the northern Lower Peninsula. In fact, just last month, energy development companies paid $178 million for mineral rights on state-owned land in 22 Michigan counties.

CNG technology is readily available without extensive development time or expenditure of resources. Fiat already has a portfolio of CNG engines, both naturally aspirated and turbocharged, and has had some success in growing the CNG business in Italy, where there are some 700 refueling stations nationwide.

CNG vehicles also are common in South American markets such as Brazil, where Fiat has introduced tetrafuel vehicles that can run on pure gasoline, 100 percent ethanol, a blend of gasoline-ethanol, or CNG.

Chrysler Powertrain is actively investigating applications for CNG and is exploring solutions that would drive people to the technology.

The main impediment is a lack of infrastructure that would allow customers to conveniently refuel.

This is not an insurmountable problem as a substantial natural gas pipeline infrastructure already is in place. And with a home unit available, many customers could fill up in their own garages overnight.

But without a shared vision in which government assists industry – for example, with customer incentives and development of infrastructure – then the potential for CNG vehicles in the U.S. will continue to be limited.

This project needs adequate attention and needs to become a priority in federal and state political agendas. It is the most effective solution, in terms of costs and timing, to lessen this country’s reliance on oil, especially foreign oil, while delivering a significant reduction in emissions.

In this sense, and in many others, the futures of Fiat and Chrysler are now inextricably intertwined.

In the end, the partnership between Fiat and Chrysler is an alliance forged in mutual opportunity that will enable us to address the structural obstacles that I spoke of earlier.

It is growth for a purpose, growth to create value rather than merely inflate numbers.

It is efficiency rather than waste of energy and resources.

It is innovation in what should be our core expertise: making cars that consumers want to buy.

And it is, I believe, the kind of alliance that can replace our industry’s long tradition of mergers in pursuit of top line growth alone, but which in the long term produce no growth at all.

After the new Chrysler emerged from bankruptcy a year ago this month, we spent several months frankly assessing our place in the automotive food chain and crafting a future path. We entitled the plan we presented last November in Auburn Hills, "From Chapter 11 to Chapter 1", as it represents a new beginning for Chrysler.

The Chrysler plan represents the beginning of a profound economic and cultural change.

Our financial goals are clear and simple.

We intend to break even this year, with operating profit increasing to $5 billion by 2014. By that time, we expect to sell 2.8 million vehicles and generate revenues of $65-$70 billion.

And when this rebuilding period is through, we intend to have paid back every penny we’ve borrowed from U.S. and Canadian taxpayers.

The results obtained for the first quarter of 2010 represent a marker along that path.

The most significant development is that Chrysler recorded a $143 million operating profit from selling cars: a concrete evidence for customers, dealers and suppliers that the 2010 targets are achievable.

If we take a look at results in the market, the improvement is just as evident.

In the last two months, Chrysler Group reported double-digit U.S. sales increases -- 25 percent in April and 33 percent in May, both exceeding overall industry growth. And in May, for the first time in more than a year, we surpassed the 100,000 sales threshold.

For Jeep, we are expecting a real leap forward with the commercial launch of the new Grand Cherokee later this month.

This model will be fundamental to the re-launch of the Jeep brand, which embodies the authentic, original spirit of the SUV.

We are moving with swiftness and purpose to make our entire lineup of products more appealing to customers. Seventy-five percent of our vehicle lineup – 16 vehicles in total – will be all new or renewed by the end of the year. And 100 percent of our lineup will be refreshed or renewed by the end of 2012.

The other profound transformation is taking place on the cultural front.

Without it, none of our plans would have a chance for success.

Chrysler has embraced a new concept of leadership based on five core principles.

We are a meritocracy, where the right to lead is a privilege granted only to those who have demonstrable capabilities to lead change and to lead people.

We embrace and relish competition, because we understand that it is at the heart of our survival.

As we compete, we aim to achieve best-in-class performance with respect to our competitors.

And finally, and most importantly, we deliver what we promise: we acknowledge that we are accountable.

These five principles are the foundation on which the new Chrysler is being built.

They are the same principles that allowed Fiat itself to avoid extinction in 2004.

Notwithstanding all the work done thus far, I believe the auto industry continues to face major challenges ahead.

And the greatest of them, which also happens to be the greatest of ironies, may be the fact that a recovery is approaching — and it could remove our industry’s foremost imperative for change while restoring our foremost excuse for inaction.

We need to be clear. The crisis has caused too much suffering for too many people for a recovery not to be greeted with a degree of enthusiasm.

I welcome the signs of macroeconomic recovery – stabilizing incomes, loosening credit and consumer confidence returning after a period of free-fall.

But recovery, with apologies to Karl Marx, is the opiate of dysfunctional industries.

I believe history will look back at today as the decisive moment when we either chose, finally, to remake ourselves as a muscular, viable, independent industry or were content to relax as a macroeconomic recovery concealed, for what would likely be the last time, deep and unsustainable structural flaws.

The grave danger is that we mistake a better economic climate for better business models.

The philosopher Friedrich Nietzsche once said that “what really arouses indignation against suffering is not suffering as such but the senselessness of suffering …”

And a crisis that does not result in enduring changes, in fundamental change, will have been absolutely wasted.

The crisis compelled us onto a path of restructuring and reform.

And if we persevere, I am convinced it will be a path of rebirth as well.

All of us, wherever in the world we may operate, have an obligation to lay the foundations for the future.

The world, the markets in which we compete are constantly changing.

And so we should recognize one of the greatest challenges that Americans and Europeans need to prepare to confront as soon as possible.

That is the challenge presented by China.

China is the largest producer of cars in the world. They have reached around 13 million light vehicles, almost entirely for the enormous domestic market, and their plans for the export market are significant. Even assuming China were to export only 10% of what it produces, the risk we face in our home markets is enormous.

We certainly cannot stop China from growing. And we cannot respond to this growth with a series of complaints, that in the end all add up to one: “why can’t the Chinese be like us?”

We cannot afford to be unprepared for the ascent of China, reassuring ourselves of our invincibility. The excuse that we did not understand or that we underestimated the scale will serve no purpose.

Rather we need to continue to work to make our industrial base more competitive, to confront this and other threats that face us.

For most global corporations, it has become fashionable these days to place greater and greater reliance on the performance of our Asian subsidiaries and ventures. Riding the wave of economic growth in those markets has provided a natural offset to the underperforming nature of our European and American businesses.

I am beginning to hear from a lot of automotive corners that China is a big part - if not all - of our future. And there is no doubt our Asian prospects will provide a great economic opportunity, an invaluable learning platform, calling upon all of our resources, especially in terms of culture and innovation.

But none of us can forget, Chrysler for one, the commitment we made when we signed up to the New Green Deal, when we accepted government financial support to give a new life to the automotive industry.

It is important that all of us keep in mind the key elements of that social contract and the long term nature of the joint commitment we all made, automakers and organized labour alike, to establish the foundations of a lasting renaissance of the automotive industry in America.

Let me leave you with a thought.

This evening I have given you several numbers, talked about economic results, growth rates and financial targets.

But, whether a company or a nation, we cannot limit ourselves to the pursuit of indiscriminate growth, believing improvements in numerical indicators to be an end in and by themselves.

Growth must be rooted in merit and the respect for human dignity.

As Robert Kennedy said in 1968, three months prior to his assassination:

“We will find neither national purpose nor personal satisfaction in a mere continuation of economic progress, in an endless amassing of worldly goods.

“We cannot measure national spirit by the Dow Jones Average, nor national achievement by the gross national product.

“For the gross national product … does not allow for the health of our families, the quality of their education or the joy of their play. It allows neither for the justice in our courts, nor for the justness of our dealings with each other. The gross national product measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile…”.

Those who are responsible for managing change are equally responsible for broadening their own perspective and looking beyond their own self interests.

My hope is that we will have the wisdom to strike a just balance between the search for economic well-being and the elimination of structural, global injustices.

My belief is that the real challenge of our time is to create the conditions for virtuous change.

The goal for political and business leaders alike must be to reconstruct efficient but fair economies, strictly disciplined but cohesive, and to promote a form of globalization that serves all men.

Only those who succeed in doing this can be called true leaders.

Thank you all.