Friday, November 2, 2007

Chrysler feels equity's sharp ax

Cuts in jobs and vehicles show Cerberus has no patience for unprofitable operations

Bradford Wernle
Automotive News
November 5, 2007 - 12:01 am EST

Any doubts about how private equity might manage an automaker were resolved last week when Chrysler whacked 10,000 jobs, four car models and five production shifts.

Private equity knows how to cut costs drastically. Chrysler CEO Bob Nardelli, hired last August by Chrysler owner Cerberus Capital Management, had previously demonstrated his cost-cutting ability at Home Depot, where he was CEO.

Last week's severe cuts — announced a few days after the UAW made major concessions in a new contract — show Nardelli is not afraid of slashing deeply, and dramatically, to get costs in line.

Fast pace
Since it took control of Chrysler Aug. 3, Cerberus Capital Management has
  • Hired Bob Nardelli, a former General Electric and Home Depot executive, as CEO, demoting Tom LaSorda to vice chairman and president (now co-president)
  • Hired Deborah Wahl Meyer, Lexus vice president of marketing, as vice president and chief marketing officer
  • Hired Jim Press, president of Toyota Motor North America, as vice chairman and co-president
  • Hired former GM China head Phil Murtaugh as CEO of Asia operations
  • Said it will cut 4th-quarter production by 82,000 vehicles
  • Hired GE veteran L. John Cataldo as vice president of business development and mergers and acquisitions
  • Announced it will slash 8,500 to 10,000 hourly jobs and 1,000 salaried jobs, kill 4 vehicles and cut shifts at 5 plants

Source: Chrysler LLC

Input from Cerberus
Nardelli says Cerberus chief Stephen Feinberg and his team of turnaround experts consult closely with Chrysler's management. Feinberg even calls LaSorda, and it was Feinberg that recruited Toyota's former North American sales chief, Jim Press.

One week before Nardelli unveiled his turnaround plan, he described his relationship with Feinberg in a wide-ranging interview on the 14th floor of Chrysler's headquarters in Auburn Hills, Mich.

"It's not uncommon to get a call from Steve or a call from one of the other private-equity guys," said Nardelli in an Oct. 24 interview with Automotive News. "The question sometimes comes up — are you getting the freedom you need to run the company? Yes."

That freedom was on display last week when Nardelli unveiled a major cost-cutting plan just over three months after joining the company.

Chrysler's board of directors approved the cuts on Tuesday, Oct. 30. Nardelli worked out his plan with the assistance of his co-presidents, Jim Press and Tom LaSorda, and Andreas Schell, director of Chrysler's recovery plan.

Feinberg was matchmaker
Nardelli said in the interview that it was Feinberg who arranged to have Nardelli and Press meet at Cerberus' Park Avenue office in New York.

"Jim and I hit it off right away," Nardelli said.

"There was a huge mutual respect for what he had done over a number of years, and I was surprised that he knew about my background and career. So there was an immediate relationship between Jim and I."

Cerberus advisers are providing expertise in several key areas as Nardelli rebuilds Chrysler into an independent corporation.

"We have available ... our own internal 200 people, kind of a McKinsey & Co. consulting firm right there," he said. "We can bring them in by the day, the week or the month."

Nardelli said Cerberus is helping Chrysler:

  • Improve its management of cash flow.

  • Coordinate better with suppliers.

  • Improve information technology.

  • Sell idle assets such as unused land and buildings.
"As you might imagine, when a company goes through a marriage and then a divorce, goes from being an independent company to a division, there's some things that change," Nardelli said.

"We must put more rigor back into ... cash flow and cash management, because that is what keeps the doors open."

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