Chrysler’s Problem is Not the Unions

Whether the appointment of Bob Nardelli as CEO is good or bad for Chrysler should really be focusing on what the real problem is at Chrysler (and whether Nardelli can solve it).

            In that vein, I am disturbed by a recent blog posting – which I fear represents the views of many people – that implies the best thing Nardelli can do is beat down the unions. I’m personally not a big defender of unions, but I don’t view them as the primary source of Chrysler’s problems.

            I’m referring to comments on the Ideoblog, written by Larry Ribstein, a law professor at the University of Illinois. Ribstein, in a posting this week, refers first to an earlier post in which he said:

 

            Cerberus is bringing a lot of money to the table, in return for which it is demanding cooperation. One way to characterize this is that private equity is bidding to clean up contracting problems that are threatening to send an otherwise viable business down the tubes.

 

            And in a separate posting, he said:

 

            The problem with US automakers clearly isn't the basic business (see BMW, Toyota and Honda). So it must be the managers or the unions, depending on whom you ask. The private equity players aren't easily going to be able to dispense with either – they need the managers' expertise, and somebody has to make the cars. But if there's money to be made, and it's just a matter of dividing the pie, I suppose it might help to have a new pie-slicer – particularly since the alternative is burning the pie in bankruptcy.

 

            In his comments this week, Ribstein concludes:

 

            If you want a tough pie-slicer, Nardelli's tough attitude toward the unions (including some of the Home Depot shareholders) is a job qualification, not a drawback.

 

            Ribstein gets it wrong. I don’t dispute that expenses under union contracts – particularly for retirees – are a big issue at all the U.S. automakers. (Of course, those expenses are under contracts that management agreed to, but let’s not get into that right now.)

            However, the “basic business” Ribstein cites – or more accurately, the way in which the U.S. automakers operate – is, in fact, the problem.

            The Big Three have a long history of top-down management, showing too little respect for the knowledge and ideas of employees, and treating suppliers as adversaries rather than partners. Toyota is now ahead of all of them because of its commitment to continuous improvement, its culture of respect for employees and its dedication to working with others in its supply chain.

            Ironically, Ribstein quotes the Wall Street Journal as saying Cerberus is “a big believer in the Six Sigma system and other lean management strategies.” He notes Nardelli’s experience at GE and says Nardelli “does have the sort of experience that private equity values.”

            I previously expressed skepticism that the Cerberus acquisition of Chrysler represented any real belief in or commitment to lean principles. And if Nardelli is being hired at least partly for his tough stand against unions, it clearly doesn’t.

            Nardelli’s approach may cut expenses at Chrysler and maybe even help the company show a profit. But it won’t turn Chrysler into a market leader.