5.16.2007

The Chrysler Deal Doesn’t Look Lean

I’m generally in support of the idea of Chrysler being owned by a private equity group. It eliminates the need to look for so-called synergies, which Daimler tried to do unsuccessfully. It also removes the pressures faced by public companies to satisfy analysts and the SEC.


            But I have doubts that the takeover of Chrysler by Cerberus Capital Management will involve any application of lean principles, which Chrysler could certainly use.


            A lean strategy involves treating both employees and suppliers with respect, as partners. Will the new owners do this? Consider the following description of two of the principals of Cerberus, from an article in The New York Times:


            David W. Thursfield, 61, a senior member of the operations team in Cerberus’s automotive and industrial practice, once seemed to be headed to the top of the Ford Motor Company. An Englishman who made a name for himself running Ford in Europe, Mr. Thursfield came to Ford’s headquarters in Dearborn, Mich., in 2002 with a clear mandate: cut costs and whip operations into shape. He did so, but his hard-charging style made him few friends among Ford’s suppliers or, for that matter, among his colleagues in Ford’s executive suite.


Many of Ford’s suppliers complained bitterly that Mr. Thursfield was putting undue pressure on them to reduce prices. And reports of tension between Mr. Thursfield and Nicholas V. Scheele, then Ford’s president and chief operating officer, were so persistent that Mr. Scheele felt obligated to deny them in a letter to employees in 2003. The denial notwithstanding, relations worsened. Mr. Thursfield retired from Ford in May 2004. He joined Cerberus the same month.


Wolfgang Bernhard, 46, a newcomer to Cerberus who was actively involved in the firm’s negotiations with DaimlerChrysler, has held high-level jobs at Chrysler and Mercedes-Benz, a unit of DaimlerChrysler. At both companies he wielded a cost-cutting ax, ruffling the feathers of the labor unions and higher-ups.


He resigned from DaimlerChrysler three years ago and joined Volkswagen. Mr. Bernhard had been widely considered to be in line to run Volkswagen as Mr. Thursfield was at Ford. Instead, Mr. Bernhard was forced out this year. Now he is expected to play a major role in running a Cerberus-controlled Chrysler.


            I could be wrong about Cerberus supporting lean, and I hope I am, but these descriptions are not very encouraging.


            Cerberus may very well succeed in making Chrysler profitable. I am skeptical that they will make it lean.

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