Capacity Cutdown at Chrysler

Robert Nardelli, the former CEO of Chrysler oncutting 35,000 jobs in order to save his company during the financial crisis:

I signed on as Chrysler CEO in July 2007. Theindustry was robust, but the brand had lost its identity. The first six monthswere great. We rebuilt the brand, disentangled it from Daimler, pruned theproduct line. Then came the financial crisis. The first thing we lost wasleasing; 20 percent of our business disappeared overnight. Then the fleetbusiness went away, and financing for new car purchases dried up.

It soon became clear that we were in a battle tosurvive. We cut $5 billion in costs and brought the capacity down by 1.4million units. It wasn’t enough.

The toughest decision I had to make was reducing theworkforce by 35,000 people. We desperately needed to preserve cash to keep thesupply chain intact. We could have sold assets or furloughed union employees,but because of contractual obligations neither of those options would have madeus cash-positive.

I had no choice but to cut staff. It was traumaticreleasing them into an economy where it wouldn’t be easy to find another job. Ihad to lay off 5,000 salaried people the Wednesday before Thanksgiving. Iremember going into a large staff meeting and seeing that the crowd in theauditorium was half what it had been when I started as CEO. It was such ahaunting visual.

The union was on board. We all recognized that wewere one step away from cataclysm. The UAW didn’t roll over, but it recognizedthat we were in it together. If we hadn’t made layoffs, we would not havegotten the first $4billion from the government. Every supplier would have feltthe domino effect.

The 10 percent unemployment rate is misleading. Thereal figure is closer to 18 percent. Unless this country creates 150,000 newjobs every month for the next four years, we won’t get back to where we were in2007. We need specific programs built to create new jobs-real jobs, not censusjobs, not seasonal jobs.

As gut-wrenching as my decision was, it was criticalto saving the company. A lot of families made big sacrifices for Chrysler, andI will never forget that.

Question 1: In strategic capacityplanning, what other capital intensive resources should Robert Nardelli cut aswell as reducing labor force?

Question 2: If you were Robert Nardelli,what would you do to maintain a stable relationship with suppliers and avoidthe domino effect?

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