"The panic phase is over"

For almost six months now, the situation around one of the largest American automobile concerns, Chrysler, has attracted everyone's attention. At the end of April, at the direction of the US Treasury, the concern filed for voluntary bankruptcy after failing to reach an agreement with creditors on debt restructuring. A few months earlier, it became known that the automaker was making plans to merge with the Italian FIAT. Chrysler Rus CEO John STACK told Vremya Novostey columnist Irina TSYRULEVA about his vision of these processes, the activities of the Russian division of the concern, as well as the situation in the automotive industry.

-- After the concern announced voluntary bankruptcy, information appeared on the market that the lawsuit would affect only the American divisions of the company. Will the work of the Russian division of Chrysler Rus change in this situation?

- We are now conducting our business as usual. None of the concern's foreign representative offices, including the Russian one, are part of the bankruptcy claim - it affects only the American divisions. Today we sell cars, spare parts, offer services, support our dealers and fulfill all warranty obligations.

-- It was announced that, based on the agreements of the parties, FIAT will acquire almost 20% of Chrysler shares with the right to further increase the stake...

- This is not entirely true... First of all, this is a non-monetary transaction, i.e. a transaction without the participation of specific cash injections, so the wording “purchase” here is not entirely correct. FIAT receives a 20% stake in Chrysler for providing its platforms and engines. Our concern would have to spend about 8-9 billion dollars if it independently developed these technologies.

— In one of your interviews last year, you said that the marriage of both people and companies is always based on expectations. What are your expectations from this association?

- In this alliance, the two companies fit each other like a glove and a hand. As you know, Chrysler’s product line does not include cars in the “A” and “B” segments, i.e. the most basic ones. But for FIAT the situation is exactly the opposite. As the experience of last year showed, when gasoline prices rose sharply, our big disadvantage was the lack of cars with a small engine capacity, so to speak, economical cars. But in the future we intend to overcome this main problem for ourselves. With the formation of an alliance with FIAT, we immediately gain access to technologies, production platforms, and engines that cover the small car segment.

— How long would it take you to independently develop these technologies?

-- The development of new automobile platforms and engines usually takes four to five years. Access to existing platforms and economical FIAT engines will help us save this time and get the finished product in a very short time. And besides, as I already said, it will save a lot of money.

Another big advantage for both companies is access to markets where they have not previously been present. For example, FIAT has not been represented on the American market for more than 25 years. And here he immediately receives not only production facilities where he can produce his cars, but also a very wide dealer network. Chrysler also gets this advantage, because FIAT is represented in more than 190 countries around the world, while our concern is in 120. In addition, FIAT has about 70 dealers in Russia, while we have only 20.

-- Is the structure of the new company already clear?

- Now there is no exact understanding of how everything will be organized. The work on the necessary details has just begun. But my colleagues and I are quite optimistic about this whole process.

-- US President Barack Obama actually left you no choice, saying that he is no longer ready to save the national auto industry. In another, calmer situation, how soon would you have come to the realization that the alliance with FIAT was so necessary?

- This is a great question, but today no one except God can answer it (laughs) . Seriously, negotiations with FIAT began long before the US government even intervened in this process. When we submitted our full restructuring plan to the US government on February 18, 2009, it consisted of two parts: the first was that the company would remain independent, and the second was based on an alliance with FIAT. Therefore, by the end of March, when the government decided on the need for an alliance with FIAT, we were ready for it.

- But when did the first negotiations on this topic begin?

- They began around the beginning of 2008 in various areas of cooperation, which gradually developed into a more serious phase. However, this information appeared on the market only at the end of 2008.

-- FIAT is seeking to take one of the dominant positions in the global car market by combining businesses with Chrysler and some divisions of GM, primarily the German Opel. But it is known that there are other contenders for the German asset, in particular the auto parts manufacturer Magna International in partnership with the Russian GAZ and Sberbank. How does the concern assess the chances of Russian investors?

- Unfortunately, I can’t say anything, since I’m not at all involved in this procedure.

-- Are there any differences in the strategy of the Russian division of the concern from its other divisions?

--Chrysler is known for making fairly quick decisions, and in this case we are no exception. First of all, this is characterized by direct access to top managers who are absolutely open in working with employees and partners. For example, my door is always open (laughs) .

— And, say, are you required to coordinate fundamental, key decisions with the head office or are you independent in making them?

— Initially, many decisions were made on the spot, and this was the main principle of work. But now, during the short period of the bankruptcy procedure, there are naturally a number of necessary decisions that must be made in accordance with this procedure. For example, this is the issue of reducing car prices. In the future, we plan to return to normal work hours again. However, even now there are not many decisions that need to be made at the headquarters level.

-- In 2007, with your appointment, the Russian market was identified as one of the key ones for the company. Have these priorities changed due to the crisis?

— In a global sense, Russia is indeed one of the most important markets for our concern, but since the strong devaluation of the ruble and negative changes in the global economy, of course, our plans have undergone certain changes.

-What are they?

— Well, for example, we were very close to announcing the start of local production in October 2008, but due to the crisis we were forced to stop this project.

- What kind of project is this?

- We found a company, a partner who was ready to enter into long-term cooperation with us, but we did not have time to implement this idea. This partner was supposed to be the GAZ group.

-- From May 1, a new price list began to operate for all Chrysler, Jeep, Dodge cars supplied to Russia by official dealers. In a situation where many manufacturers are raising prices, Chrysler announced an average reduction of 25%. What caused this decision? What strategy will you follow next?

- Patience is gold. We chose a wait-and-see policy and for the first three months from the beginning of the year we simply watched the market, what was happening with prices and sales, watched the advertising activity of our competitors and realized that if we made some kind of statement in the center of the current chaos, then we no one will notice. On the other hand, the concern has a number of obligations not only to employees, but also to dealers who must survive the crisis and stay afloat. Therefore, we decided that May 1 would be the best time to announce our changed strategy. And although we made this statement quite recently, today we are already seeing that our sales charts are heading upward. In addition to the price reductions, we will be undertaking a number of marketing and promotional efforts that we hope will provide an additional boost to our sales, which will improve significantly for the rest of the year.

-- In a crisis situation, many automakers are reconsidering their work with dealers and are refusing the services of some companies. How are you doing in this area? Are you satisfied with the work of your salespeople?

-- In any school there are students who have very good academic performance, and those who do not have the best. This is how things are in our dealer network. Of course, it must be recognized that the success or failure of some dealers does not always depend on themselves. The crisis has greatly affected the state of the dealer network, and first of all this concerns dealers located in regions of Russia, where access to bank loans is practically blocked, which greatly complicates work. Understanding this situation, we have developed a special training system that we are going to conduct throughout the year. On the one hand, it should help our dealer companies cope with the current situation, and on the other, teach them how to work correctly in today's difficult economic conditions.

— Is it difficult to become your dealer in general? What selection criteria do you apply?

-- We are always looking for dealers in those cities where the concern is not yet represented. But each of our candidates goes through a fairly serious stage of checks. We check his financial condition, his experience in the automotive market, develop a business plan together with the candidate and then analyze its feasibility. If the candidate already has a specific premises, we also check and inspect it according to our criteria. And as an example to your question about how quickly we make a decision, we can say that when we were part of the DaimlerChrysler concern, the decision to obtain dealer status took six to nine months. Now it takes about three months.

-- What changes have you felt in the Russian automobile market during almost two years of your work at Chrysler Rus?

-- When I first arrived in Russia, the market was growing by 45% per year on average. Now you can see similar numbers, but only in the red. For example, in April alone the market fell by 54%. Of course, this brings huge changes to how business is done. First of all, the lack of liquidity makes the work very difficult. And if when I arrived, many asked me when the strongest peak of market growth would be, today everyone asks when the bottom of the decline will be reached.

- When will the bottom be? How do you see the future of the Russian market?

- It seems to me that this year the market decline will be approximately 50%.

-- How will this figure affect your sales in Russia in the first half of 2009 and for the year as a whole?

-- In the first quarter of this year, we lost a lot of positions, selling only 417 cars, which is 81% less than last year's result. And at the end of the year, we predict that we will fall even more than the market.

- And yet, how do you deal with the crisis? What measures are you taking to reduce costs?

-- At our local level, we have greatly changed our approach to spending: we have reduced marketing, travel budget, etc. We try to make our work as efficient as possible, but less expensive. This should help us become more resilient after the market recovers.

-- In addition to lowering prices, what other levers do you use to stimulate demand?

- First of all, we try to convey to the broad masses all the positive changes and new programs. The second aspect is active work with dealers, development of joint campaigns to stimulate sales.

- Can we expect another price reduction from you?

- Most likely, it is unlikely that we should expect a further reduction in prices, since it will not have the best effect on the financial condition of the division.

-- When, in your opinion, will the panic in the market pass and the situation in the automotive industry begin to improve? What place do you see for yourself in the Russian market in the near future?

— Already today we can observe some hints of stabilization. The panic phase is over, and the stage of deep thought and understanding of what is happening has begun. It is only a matter of time before the market fully stabilizes and begins to rise. Now it is quite difficult to predict exactly when this will happen. The situation will greatly depend on the prices of oil and other raw materials. First of all, due to the impact on the dollar exchange rate. It, in turn, greatly influences the automobile market. According to the most daring forecasts, the situation will begin to improve in 2010.

As for Chrysler, we hope that someday the time will come and we will be able to unfreeze our project to create our own production in Russia.

Chrysler Rus CEO John Stack is 42 years old. He began his career in the automotive industry in 1996 working for Mercedes-Benz. He worked for seven years at Mercedes-Benz headquarters in Stuttgart, Germany, and then spent four years at Chrysler's US headquarters in Auburn Hills. In 2006, he moved to Egypt to work for DaimlerChrysler Egypt, but when Daimler and Chrysler split, he decided to stay with Chrysler. In November 2007, having accepted the offer to head Chrysler Rus, he moved to Moscow.

Chrysler Group in Russia is represented by three brands - Chrysler, Jeep and Dodge. Sales of these models last year in Russia grew faster than the Russian market of foreign cars. The company itself called 2008 the most successful year in the history of the Chrysler Group in Russia. Thus, 8,799 Chrysler, Jeep and Dodge vehicles were sold on the Russian market, which is 56% more than in 2007. For comparison: sales of foreign cars in Russia, according to the Association of European Businesses, grew by 26% for the entire 2008.