Capacity Cutdown at Chrysler Robert Nardelli the former CEO

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

Solution

In a crisis time when economic opportunities are less and as a CEO one has limited scope to keep happy everyone. We know employees are backbone of an organization so as the suppliers.In this situation it was difficult to keep all employees employed in the company and pay the due to suppliers.Once suppliers will loose confidence on the company it will create catastrophic effect on the company.I would have call all suppliers for a meeting and tell them the current financial distress the company is going on.This is the first time Chrysler has seen this fate so I would request them to keep supplying but payment will be get delayed from normal cycle. I would convince them how it is painfull for Chrysler to cut jobs and make such arrangements.