Mark Bursa meets Phil Murtaugh, the man who built the foundations of GM’s China business, and who’s now looking to repeat the trick for Chrysler.
Chrysler CEO Bob Nardelli might not be a car guy – but he knows a few men who are. Since private equity firm Cerberus prised Chrysler out of the suffocating grasp of Daimler last year, new boss Nardelli has assembled a crack team of auto specialists to run the business.
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Perhaps the most significant appointment is Phil Murtaugh, the ex-GM veteran who is credited with laying the foundations for GM’s undoubted success in China. Murtaugh spent a decade in Asia, and as part of the negotiating team, he played a key role in the launch of Shanghai General Motors, GM’s largest venture in China.
He served as chairman and CEO of GM China from June 2000 until April 2005, when he surprisingly jumped ship to join Shanghai Automotive (SAIC) to head up the Chinese giant’s burgeoning international strategy and operations. This has given him a unique view of the Chinese auto industry from both sides of the fence – knowledge that is likely to prove vital for Chrysler as it advances its Chinese manufacturing partnership with Chery Automotive.
“I went to work for SAIC to help them with SsangYong,” he said. The Chinese company bought a 51% stake in the Korean SUV-maker in October 2004, the first major acquisition of a foreign automaker by a Chinese car firm. But Murtaugh’s work in stabilising the business was soon done. “I think we had got SsangYong on a good road, with its strategic plans pretty much put in place, and it was a matter of executing the plan,” he said. “My role really wasn’t a directly responsible operating role, it was more an advisory role, and the excitement was running out of the advising role!”
So when Nardelli called, Murtaugh was in. “Chrysler was an operating role and a very challenging environment which I knew a little bit about, so it sounded like an interesting opportunity,” he said. Dry understatement is a Murtaugh feature – perhaps he’s picked up a little oriental inscrutability along the way – he’s also spent time in Japan, as director of product planning for Isuzu. It certainly comes in handy for dealing with the Chinese.
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By GlobalDataHe’s certainly playing a long-term game with Chery. The agreement between the two companies is wide-ranging, and covers a 25-year timeframe. “I think that we’re on track for executing the contents of the strategic co-operation agreement,” he said. “It’s a very, very broad agreement, it covers many potential products and many potential markets over a 25-year period.”
But Murtaugh wants to emulate the GM success, where the company has in just over a decade built a business that in 2007 sold a million cars. “That’s my expectation,” he said. “I’m not saying Chrysler will build 1m units in ten years. I’m saying I’m approaching the job here in exactly the same way I approached GM – and that was the result.”
For now, details of the deal are still being ironed out. “We will kick off the first part of it this year and with more to follow. The negotiations are pretty difficult but I think we’re making good progress.” He urged observers to be patient – just because there has been no specific announcement about which models would be built at Chery, it doesn’t mean progress is being made. Murtaugh said: “Some things have not happened, or haven’t progressed as well as we’d hoped, but on the other hand, there are some areas that have progressed better than we had expected. I think we’re pretty much on track.”
One of the key tasks has been to realign Chery’s own expectations. Remember, this is the company that was railroaded by US entrepreneur into a wildly optimistic plan which would have seen cars launched in America last year. “Bricklin was completely ridiculous,” said Murtaugh. “Bricklin was going to shift cars by the middle of 2006, in the year, and Chery themselves believed they were going to be ready to shift cars by 2008. Well, they weren’t ready, they were nowhere close to ready.
“The realisation of what’s required to be successful in the US has come to Chery, and now they’re starting to understand what’s required. The reality is starting to set in. So in one sense they’re saying ‘we’re behind schedule’, but from my perspective we’re right on schedule.”
If Chery, one of the more sensible Chinese companies, had ‘ridiculous’ ambitions, how does Murtaugh feel about the targets of other, arguably less advanced Chinese firms that are targeting exports to the West? The response is deadpan: “Whatever adjective you would like to use would probably be very appropriate.”
Murtaugh believes it’s possible that Chinese companies will be able to build their own brands in overseas markets – indeed, Chery still says this is a goal – but Murtaugh believes they are better off working with partners. “My own humble opinion is it would be far more difficult for a Chinese company to do it on their own. There aren’t very many Chinese who understand the US market,” he said. The Japanese and Koreans managed it – but it took a long time, and the Chinese don’t have that luxury now.
As to whether other Chinese companies might follow Chery’s example, Murtaugh is again playing it cool. “Chery obviously believes that it’s in their interest to work with an established company. They have chosen us, and I think we’re capable of being good partners, I think the strategy is a good strategy for Cherry and Chrysler, but I wouldn’t profess to imply or state that that’s what everybody should do, or that it could work for other companies.”
So where does the Chery-Chrysler venture go from here? Defining the models to be built and sold is more complex than reports would have us believe. It’s certainly more complex than sticking the acclaimed Dodge Hornet body on to a Chery platform, as some publications would have us believe. “Most reports I’ve found in my career are inaccurate,” Murtaugh sighed.
In fact there are several “first cars”, he said. And it’s certainly not a case of simply re-engineering a Chery platform for Western consumption. “North America and Europe have emission and safety regulations that are highly advanced. No products designed in China today can meet either one. Markets that adopt either no safety and emissions regulations or two to three-generation old safety and emissions regulations – those markets can be met by Chinese manufacturers today.”
Current Chery models –most Chinese cars in fact – meet Euro 3 emissions standards and 1994 safety regulations. That’s fine if you want to ship to places like Iran or West Africa, but it won’t do in the west. And there’s a little way to go before the Chinese are compatible with the developed world, Murtaugh believes. “Euro 4 will take probably a year; 2002 Euro safety might take 12-24 months. Euro 5, we got a way to go.”
Nevertheless, he is convinced Chery will get there. “We’ll work on it together. This is a very capable company, with very, very smart people. They have only five years experience – so not much experience – but they’ve got a lot of resources and we’re going to work together. We don’t have the resource depth to go in and do all this ourselves.”
What’s still to be defined is the role the Chery venture will play for Chrysler within China. Chrysler already builds cars there through its venture with Beijing Automotive (BAIC), though this venture is technically now a Daimler project. What synergy might there be between the BAIC and Chery ventures?
“What’s transferable is market requirements,” said Murtaugh. “But in terms of operational synergies, there is nothing.” This might change if and when the Chery JV starts building Chryslers for China. But that’s still to be decided. “The first phase is export based, what we’re doing inside China is undefined and under discussion,” Murtaugh said. “But it’s a priority for us to establish a Chrysler presence, absolutely.”
One of the jobs in hand is to define Chrysler’s China strategy. “The decision will be made this year, hopefully early this year,” Murtaugh said. “We’ll be saying ‘this is the start of our strategy’.”
Murtaugh’s role also includes India and ASEAN, and he believes Chrysler could be a manufacturer in there areas too. “I view ASEAN as one market, it’s not a traditional market and it’s not a homogenous market in any sense but because of the free trade agreement it has significant advantages to look at it as one market.”
Right now, Chrysler’s presence in the rest of Asia is low-key. “At the moment, we’re doing absolutely nothing in India, and in ASEAN we only import from distributors in fewer than 50% of the countries. But I haven’t even visited ASEAN yet. But I’ve got to the point where it’s important, and we’ve got to do something.”
That might happen sooner rather than later – it’ll certainly happen quickly once the decision has been made – such is the way of the new Chrysler. “You have a two-year minimum lead time to build a plant. In India we’re much further along than ASEAN, so India perhaps this decade. But for ASEAN, to be honest, this decade would be pretty damn tough since it’s already 2008. But we will do it.”
Mark ‘Coolbear’ Bursa
