How Zetsche, Ghosn, Marchionne successors can thrive despite industry upheaval

Just a few years ago, titans at the height of their power were at the helm of the biggest players in the European auto industry. Martin Winterkorn at Volkswagen Group, Sergio Marchionne of Fiat Chrysler Automobiles, Rupert Stadler of Audi, Dieter Zetsche of Daimler and Carlos Ghosn of Renault all became CEOs in the mid-2000s. All of them navigated their companies through a brutal recession to robust profits and sales.

They were anything but cookie-cutter executives. Zetsche was “Dr. Z,” known for his handlebar mustache, jeans and sports coats. Ghosn, who in 2005 added control of Renault while remaining CEO of Nissan, was the prototypical “Davos Man,” perpetually circling the world in a corporate jet preaching the virtues of globalization. Marchionne’s trademark dark sweaters and grumpy-uncle demeanor charmed journalists and production line workers alike but belied a fierce competitiveness. Winterkorn, a rigorous engineer, commanded fear and respect in equal measures as he led VW Group to become the largest carmaker in the world.

Now, as the Geneva auto show opens, there has been a changing of the guard. Ghosn was ousted from Nissan and later resigned from Renault after his arrest last November on suspicion of financial irregularities. Winterkorn stepped down in 2015 amid the company’s diesel-cheating scandal and was replaced by Matthias Müller. Stadler was arrested and jailed last summer for his role in the emissions scandal. Marchionne died unexpectedly last summer at age 66. Zetsche, 65, is handing over control to a protege in May.

In their place: Herbert Diess, 60, at VW Group, who along with succeeding Müller has also added oversight of the automaker’s crucial Chinese operations to his portfolio; Mike Manley, 54, at FCA (with Louis Camilleri, 63, tapped to lead Ferrari); Ola Källenius, 49, at Daimler, where he will lead a restructuring; Bram Schot, 57, at Audi, where he will also lead Lamborghini and Ducati; and, at Renault, a dual leadership team consisting of CEO Thierry Bolloré, 55, a former Faurecia and Michelin veteran, and Chairman Jean-Dominique Senard, 65 who is retiring as CEO of Michelin.

 “Those guys were larger-than-life figures who transcended their industry,” said Tim Urquhart, an analyst at IHS Markit, “but maybe it’s time for a new generation, especially at the current moment.”

Strategic thinking

The automotive industry is in the midst of what many see as the most rapid period of transformation in its history. Analysts say fresh thinking is needed to help automakers grapple with megatrends such as an emissions-reducing drive toward electrification, a shift from individual car ownership to mobility services, and the advent of autonomous driving. “The new guys can come in and think strategically about how they are going to handle these technologies,” Urquhart said.

The new CEOs should be open to collaborations, especially on the technology side -- but will need a firm hand on the wheel, analysts said. Carmakers with strong leaders who acted decisively and centralized decision-making have historically fared well, they said.

“A new era should bring in a new type of CEO,” said Jürgen Pieper, an analyst at Metzler in Germany. “You probably need more communication skills and a higher sensitivity to environmental things.” He cited Källenius and BMW CEO Harald Krüger, 53, who succeeded Norbert Reithofer in 2015, as examples.

The days of the “old boys with gasoline in the arteries” could be over, Pieper said. But, he added, that doesn’t mean there aren’t any more “tough guys” in the industry, noting that companies such as VW have historically had chief executives with that temperament. He said of Ghosn, who drew criticism from alliance partner Nissan for aggressively centralizing power, “Not many others could have built and managed a complicated French/Japanese partnership like Renault-Nissan-Mitsubishi.”

Communication is key

While each CEO will have his own style, one common thread is that they will need to be great communicators, Pieper said. “You have to explain to the world what the auto industry is representing, what it stands for, and what its future will be,” he said.

The rapid ascent of Tesla, fueled in part by Elon Musk’s aggressive use of social media to communicate, will lead to a shift in how auto executives relate to their customers and employees, experts said. “A few years back, auto companies would be hiring thousands of mechanical engineers; today they are hiring thousands of software engineers and millennials,” said Stefano Salvatore, a co-director of the automotive practice at the executive search firm Heidrick & Struggles. “You need to be far closer to them and far more inspirational.”

Today’s leaders “are trying to be more personable and approachable, or at least have a friendlier profile to the outside world,” Salvatore said. “They want to be seen as vulnerable human beings, rather than invulnerable, as it was a few years back.

Florian Delegue, a partner at Heidrick & Struggles in Paris, pointed to Carlos Tavares, the PSA Group CEO, as an executive who had humanized himself in his communications. “He has a passion for the automobile and is a semi-pro racecar driver,” Delegue said. “The message he communicates to the shareholders, to the staff, to the customers, is that he’s someone who can keep control of himself, who can manage stress, who can learn from his mistakes, who is always trying to push the limits.”

Rich Kolpasky, a managing director in Detroit at the executive search firm Stanton Chase, said young people entering the workforce had a greater expectation that they will have a voice in the company. “They’re not staying in their lane anymore. It’s not just a paycheck to them,” he said. “They want to see a clear connection between what they are doing and how it impacts where the company is going.”

To navigate the shift from car ownership to mobility services, the new executives will have to be storytellers rather than promoters, said Dieter Becker, global chairman of KPMG’s automotive practice, based in Munich. That will be essential to attract capital, the way that “non-asset” companies such as Uber or Facebook have done, he said. “In the old days, you would create a product and say how you are making a profit around that product,” Becker said. “But in the mobility services industry, you are not making a profit at the moment.

“A non-asset company gets huge benefits without making profits by creating huge expectations,” he said. “The new leaders will have to create a vision of what their products and ecosystem are all about. Then, if you have that vision -- and this is the Elon Musk story -- then you are getting that market capitalization.”

Off to a good start

So far, Urquhart said, the newcomers have been impressive. “I like what Manley said about Maserati” -- that bundling the brand with Alfa Romeo was a mistake. “Sergio was great, but he didn’t get everything right.” Diess “seems to be a very, very strong leader with a 360-degree view. That’s what the industry needs right now,” Urquhart said. VW’s new strategic plan “bears Diess’ imprint, it’s far-reaching, it’s bold -- he’s got an eye for the long-term evolution of the industry.”

Daimler may well be in the best situation of the four, Urquhart said, because the transition from Zetsche to Källenius was planned in advance. “Källenius was groomed for that role, and he will have Zetsche looking over his shoulder. Zetsche might be 65, but he’s always had his finger on the technological pulse,” he added. A shock change of leadership -- such as those that happened at Renault, Fiat Chrysler and Audi -- doesn’t necessarily mean a bad outcome, analysts said, and this is especially true when it comes at a time of crisis within the company. A radical change might be needed to alter the culture or pivot the strategy. Diess, for example, has already replaced a number of top VW Group executives.

Where once a strong grasp of operations such as supply chain, production and product development was the main criterion for a strong automotive leader, analysts said strategic thinkers such as Diess are more important than ever. “It’s the speed and acceleration of changes that mark the difference compared with just 15 years ago,” Heidrick & Struggles’ Salvatore said. “You need to have more of a liquid leadership, which is the ability to read in advance the waters that you are going to be navigating.”

Kolpasky described the role of an automotive CEO now as that of a juggler. “What the leaders are going to need now that they didn’t need 10 or 15 years ago is the ability to balance the development of future technologies while maintaining the ability to profit from existing ones,” he said. “You have to have one foot in the future but on a daily basis you need to meet the budget and please shareholders.”

Global thinking

Beyond looking to their own companies, the new generation of CEOs will have to cultivate their own network of policymakers and political allies. Ever-tightening emissions regulations are putting profits under extreme pressure, and a shift to simpler electrical drivetrains from internal combustion engines threatens tens of thousands of automotive jobs.

Autonomous driving will require national, and even local, rules about privacy, safety and liability. Negotiations over these issues will require a great deal of sensitivity, analysts said. “They will have to build relationships,” Urquhart said. The industry has become ever-more globalized, and the newcomers are bringing hands-on worldwide experience. Bolloré worked for Faurecia and Michelin in Asia; Källenius spent significant time in the U.S., a key market for Daimler; and Manley was a top executive in China for Fiat Chrysler. “You can’t know the market if you have only managed it from a distance,” Salvatore said. “That’s what changed these days.”

Local and regional regulations are increasingly driving product decisions, Becker of KPMG said. “I’m always astonished that C-suite level executives are still talking to me about what the customer wants,” he said. “If 50 percent of my revenues are dependent on China, and China says they are going to a future of electric mobility, then what is the choice? There is no choice. Do you think it’s really the customer?” he said. “No, it’s the regulators, it’s geography, it’s raw materials availability.”

Urquhart noted that the passing generation of leaders was already nearing retirement, and that the strategic direction of many companies had largely been set. “The transition was starting to happen anyway,” he said. “It’s part of the natural cycle of things. The companies in question need to see it as an opportunity.”