Guts: The Seven Laws of Business That Made Chrysler the World's Hottest Car Company

In May 7, 1998 Chrysler Corporation and Germany's Daimler-Benz (owner of Mercedes) shocked the business world by announcing their intention to merge. What led to this largest industrial merger of all time? How did Chrysler—which not too long ago needed government-backed loans in order to survive—transform itself into not just a partner coveted by Daimler (the gold standard of European car makers) but the most profitable car company in the world? And what does their mega-merger portend for consumers, governments, shareholders and workers around the world? In Guts, Robert A. Lutz, the product-development genius and iconoclastic leader behind Chrysler's second renaissance, answers these questions and many, many more.

With wit and a surprising frankness, Lutz tells how Chrysler in the early '90s recovered from a second near-death experience to go on and post record profits, emerging as Forbes magazine's "Company of the Year." He credits this remarkable turnaround to Chrysler's having embraced (at his urging) a deliberately "schizophrenic" corporate culture: tough, buttoned-down financial controls coupled with a rock-the-boat, provocative, highly creative product development process. The marriage of these two gave birth to a large family of hit products, starting with the radical, hugely popular Dodge Viper sports car, whose creation Lutz here describes. Along the way, he propounds what he humorously calls "Lutz's Immutable Laws of Business"—seven controversial maxims meant to stand conventional business wisdom on its ear.

Guts explains how and why every organization must cultivate a "split personality" combining common sense with freewheeling creativity. It defines the leader's role in maintaining a healthy balance between the two. And it argues that a dynamic tension between them is the prime attribute that enables top-performing companies to introduce new products and achieve record profits.

This embracing of opposites is, to say the least, unusual in the corporate world. For Lutz, however, it is business and life—as usual. What else would you expect from a vegetarian who loves a good cigar, a high-achiever who didn't graduate from high school until he was 22, a former Marine fighter pilot whose "Law of Life" is a line from a Rolling Stones song? Add to these paradoxes the fact that Lutz, unlike many of his peers, got into the automobile business because he actually likes cars, and he emerges as the quintessential maverick. Cinderella success story, unorthodox business primer, portrait of an iconoclastic icon, Guts is many books in one, each supplying its own brand of informative, amusing, and entertaining reading.

LUTZ'S LAWS:

The Customer Is Not Always Right

The Primary Purpose of Business Is Not "To Make Money" When Everyone Else Is Doing It,

DON'T! Too Much Quality Can Ruin You

Financial Controls Are Bad Disruptive People Are An Asset Teamwork Isn't Always Good

"Bob Lutz is one of America's most imaginative and most insightful business leaders. He thinks way outside the box, and when he talks, everyone needs to listen."—Michael Hammer Coauthor, Reengineering the Corporation

"Lutz has made Chrysler into the feistiest, and most profitable, automaker on the planet."—Steve Miller CEO, Waste Management Inc.

"Listening to Lutz is like hearing a Viper engine come to life. It's raw and pure. He loves speed, whether it's related to cars, fighter jets, or change in an organization."—Kent Kresa Chief Executive Officer Northrop Grumman Corporation

"Bob Lutz knows more about cars than anyone. And he knows more than anyone about fixing car companies . . . but what makes Bob unique is his extraordinary sense of self-confidence—call it guts—which has permitted him always to have fun doing the right thing. So, go get some Guts, and share the fun!"—James P. Womack Author, The Machine That Changed the World, and President, Lean Enterprise Institute

"Original and daring in his actions, Bob Lutz has lived with big business problems and big mistakes to become a rare pioneering winner."—Donald E. Petersen Retired Chairman and CEO, Ford Motor Company

Forbes.Com Reviw of New Edition: Lutz Spills His Guts--On Chrysler by Jerry Flint

The failure of the Daimler-Benz and Chrysler merger is up for discussion again. This time Robert A. Lutz, one of the leaders of Chrysler before it was taken over by Daimler-Benz of Germany, has spoken out about the downhill slide of his old company. In the words of the former Chrysler chief executive Robert Eaton, Lutz was "largely responsible for a monumental transformation in the way Chrysler develops, builds and markets its products." Lutz, who at 71 is now a vice chairman of General Motors (nyse: GM - news - people ), is doing just that again at GM. But until now, Lutz has never spoken publicly about Chrysler's slump. In a newly revised edition of his 1998 book, Guts, published by John Wiley & Sons, Lutz gives his side on what went wrong at Chrysler.

According to Lutz, the replacement of the winning team of Americans that had built Chrysler was more damaging than the Germans realized. In fact, every key executive on the team that rebuilt Chrysler soon left the company, for one reason or another. He writes: "A team is a curious and unstable chemical compound: The right blend of people can work wonders, but remove one or two and the resultant mixture takes on vastly different properties. Daimler management failed to understand the change that had occurred." Lutz also thinks that the relaxation of the tight financial controls after the combination was disastrous. "Good times, a booming market, a large cash hoard, and record profitability all conspired to produce an attitude that spread like a deadly virus. We don't have to scrimp and save anymore; we don't have to watch the last dollar (or $10 or $20, or $100)," says Lutz.

The Detroit legend doesn't have kind words for DaimlerChrysler Chief Executive Jurgen Schrempp, a heavy-handed boss whose insistence that the numbers were to be delivered--no excuses--led to the buildup of problems that should have been handled early. "What most surprised me was the speed with which things had gone downhill," says Lutz. Although Lutz was one of the few top Chrysler executives who spoke German--he had worked for GM, BMW and Ford Motor in Europe--he was not included in Robert Eaton's future plans for the company. Then again, I doubt that Lutz would have worked well with the Daimler Germans. And Lutz says that Eaton weakened his own position in the newly formed DaimlerChrysler. "By announcing he would retire in three years, [he] had unwittingly transformed himself into a lame duck."

Lutz does not discuss the issue of Jurgen Schrempp's misleading the Americans in the pre-merger negotiations. Schrempp has admitted this, and it's recorded on tape that he never intended a true "merger of equals," as promised. Instead, he planned a takeover from the start. This Wednesday in a front-page story in The New York Times, Schrempp predicted that we would see the Chrysler turnaround starting next year. Then again, he is always predicting the turnaround will come sometime soon. I've seen the new line of rear-wheel drive Chrysler and Dodge cars, due early next year, which Schrempp expects to lead that revival.

Personally, I like these cars. Some people don't. But the marketing plan is a disaster. There's a big bulky sedan for Chrysler--four versions, probably running from $26,000 to near $40,000. That's just my guess on pricing. For Dodge there's a station wagon, in various price ranges. Yet there is no Dodge sedan, so there's no replacement for the Intrepid, the firm's best-selling large sedan. I am not sure how much demand there will be for the Dodge wagon. I don't think these models--as good as they may be--are enough to keep the plant that builds them running profitably, and I expect that this will create a new crisis within DaimlerChrysler. This opens another question: What would have happened to Chrysler had it not been taken over by Daimler? I'll tell you what I think: Before the 1996 deal Chrysler was one of the most successful and profitable auto companies in the world. In 1994 it approached $4 billion dollars in net profit, had a climbing market share and a reputation for speed in finding the market's sweet spots. I say that if the deal hadn't taken place, Chrysler would be doing better than ever today. What would be different?

For starters, the Plymouth division would never have been killed, and the PT Cruiser, which was brought to market as a Chrysler model, would have been at the vanguard of a Plymouth revival. Had the old crew stayed, there would be three different PT models by now, and a bigger Jeep, with three rows of seats. I also think that Chrysler's global business would have grown--particularly through Jeep and minivan models. I can say these things because I was aware of some of the old Chrysler's plans, and the talent on hand to execute those plans. I also think that Daimler-Benz in Germany would be better off today had it not gone through with the merger--and that its stock would be double today's price. Lutz is vague on Chrysler's chances. At one point in the epilogue he writes: "There is no doubt in my mind that the company will reemerge as a serious competitor."

At the end of the book he also says, "I don't know how the DaimlerChrysler story will unfold," but "when the last chapter is written, the controlling factor in the company's success or failure won't be that it took a few missteps, but will be how well they fight back." The original Guts was well received by Forbes. If anyone hasn't read it yet, the new version will be just as much fun. Lutz's new introduction alone makes it worth buying again ($27.95). But it won't be the last word on the DaimlerChrysler merger. That is still to come.