One of the first things Tom LaSorda did as chief executive officer of the Chrysler Group was to start giving away some of his money.
LaSorda, appointed to the top job in September, 2005, noticed that all of the company's salaried employees were paying 27% of their health care premiums. That struck LaSorda as unfair. "If you're going to ask your salaried workforce to pay more for health care, I just can't see that I, as the CEO, should be paying the same as an administrative employee who makes $50,000," LaSorda says. So, beginning in the new year, he and other senior executives will pay 100% of their premiums, while payments are frozen for those at a first-line supervisor level and lower.
"I think I can afford more, and so can many other executives in the company," he says. "So I just have a policy that says: The more you make, the more you'll pay. They said it sounds like a Democrat, or a New Democrat, but that isn't the issue."
That such an idea could come from this CEO is no surprise to Canadian Auto Workers president Buzz Hargrove, who has known the LaSorda family since the 1960s, when he attended union meetings at the LaSorda home in Windsor. "That's just one example of what he learned at home from his father and his mother," says Hargrove. "Tom has a social conscience. He has a sense of fairness about him."
That's admirable--but will it help in the ruthless battle to occupy the driveways of North America? If a sense of solidarity with the guys on the line distinguishes the 52-year-old LaSorda, it's probably more important that he also identifies with another traditional opponent of Big Three executives. LaSorda, unlike his counterparts at Ford and GM, has seen from the inside the Japanese ingenuity that has helped bring Detroit to its knees.
And this is not a garden-variety auto crisis. This is the big one. Ford Motor Co. and General Motors Corp. have slashed tens of thousands of jobs, bled billions of dollars in red ink or sold off the crown jewels--all three in the case of GM. For a while it seemed as if Chrysler would escape the crisis. Then came a dramatic third-quarter operating loss of $1.5 billion--roughly equal to what Chrysler had made in the previous year (all currency in U.S. dollars).
LaSorda is often called "the dean of lean" for his cost-cutting prowess. As second-in-command to DaimlerChrysler chairman Dieter Zetsche, he's the highest-ranking Canadian, and the highest-ranking son of labour, in Big Three history. Some in the industry think LaSorda's fresh thinking could show Detroit the way out of its malaise. But if he can't fix Chrysler pronto, he may be out of a job--or Chrysler may even be out an owner.
The company LaSorda runs once tried to throwhis grandfather in jail.
In the 1940s, the nascent United Auto Workers and the big automakers were at daggers drawn. Demands for health care benefits, pensions and time off the job often led to violent clashes on the picket line.
LaSorda's maternal grandfather, Harry Rooney, who headed the Chrysler Canada unit of the union local in Windsor, used to tell his daughter Bea to keep an eye out for company stooges--they might peek in the family's basement window to see who was signing union cards. While Rooney was leading a long strike against Chrysler in 1946, he was charged with conspiring to prevent non-union workers from entering the plant. The case went to trial twice before Chrysler dropped it.
Tom LaSorda, who was born in 1954, never had to stand guard, but as a young man he handled the coat check at the union hall in Windsor. He grew up four blocks from Chrysler's Windsor assembly plant, where his father, Frank, became president of the union local in 1977. LaSorda's mother, Bea, has also been a union activist for her whole life.
Not surprisingly, LaSorda picked up some egalitarian values as he grew up. During his commerce studies at the University of Windsor in the mid-'70s, he asked his mother to sign papers for a student loan, hoping to emulate a friend who had used his loan money to play the stock market. Bea pointed out that Tom had a summer job and was living at home. If he got a loan, he would be depriving someone of money who needed it more. So, no loan.
LaSorda's budding entrepreneurial streak was checked by his father in another incident. Tom and a friend arrived home from a trip across the river to Tiger Stadium hauling boxes of T-shirts bearing the face of Mark (The Bird) Fidrych, who was then enjoying a moment of stardom pitching for the Detroit Tigers. When Frank learned that the shirts weren't officially sanctioned, he ordered his son to remove them from the house.
And that was the end of it, even though, with nine children living in a 900-square-foot home, money was tight--especially during the regular layoffs at the plant. LaSorda says he never went hungry, although his father allows that the backyard garden helped. "Sometimes my wife and I ended up with a tomato sandwich."
Unlike many sons of auto workers in Windsor, LaSorda did not follow his father into "Chrysler's." Instead, he took summer jobs at wheel maker Kelsey-Hayes while he was studying commerce at the University of Windsor.
On his first day on the job, he received an introduction to the importance of workplace safety that he says has stuck with him to this day. The foreman forgot to hand out hearing protection to LaSorda and his twin brother, Tony. Ouch. "When I got home there was this buzzing sound like I'd been at a rock concert for the whole night," LaSorda recalls.
Tom and Tony saved up enough money to buy a Triumph Spitfire together, but Tony wrecked it before Tom ever got a chance to drive it. Tom had to go back to riding a bicycle to court his high-school sweetheart, Doreen. (Today, they're married, with two daughters in their 20s.)
A professor at the University of Windsor piqued LaSorda's interest in labour relations. But even as he weighed the pros and cons of two labour-relations jobs after graduating--he chose GM over Esso Oil--LaSorda was developing a hankering to actually run things.
"I really thought operations was where it was at," he says. "You could couple your learning skills in union relations and take it to the floor, where all the action takes place." At GM's operations in Oshawa, Ontario, LaSorda handled grievances, absentee cases and the hundreds of other human- resources issues that crop up at a giant manufacturing complex.
After earning an MBA, LaSorda headed back to GM, and soon was put in charge of CAMI Automotive Inc., an unprecedented joint venture between GM and Suzuki Motor Corp. Ltd. to build an assembly plant in Ingersoll, Ontario. LaSorda had his hand in everything: construction, hiring the manufacturing team and setting up the assembly lines to turn out subcompacts (Geo Metro and Suzuki Sprint) and SUVs (Geo Tracker and Suzuki Sidekick). It was a proving ground. "CAMI provided Tom with that transition point in one's career where you are faced with a really significant challenge," says George Peapples, who was president of GM Canada at the time.
It was at CAMI that LaSorda was exposed to the relentless Japanese focus on lean production and quality. The young manager took these values as his creed. "I learned more in the four years there with the Japanese than I had in my previous almost 10 years," he says.
At the heart of lean manufacturing is a search-and-destroy mission: identify waste and eliminate it. Waste can take many forms--movement by workers on the line that adds no value to the vehicle, space taken up in an assembly plant by inventories of parts, or long distances travelled by forklifts delivering components for assembly.
Or it can take the form of a plant that's been bloated by decades of Communist bureaucracy. That's where LaSorda was assigned in 1991 after his success at CAMI: to a GM plant at Eisenach in the former East Germany. The factory had previously manufactured a model called the Wartburg. The new mission was to produce Corsas and Astras for the European market under GM's Opel label.
Charged with turning Eisenach into an efficiency showcase, LaSorda needed to break some local bad habits. As he toured the plant early in his stint, he asked some workers how often they cleaned the floor under their parts racks. Twice a week, came the answer. LaSorda wrote his name and the date on a piece of paper and, when no one was looking, threw it under a rack. He returned a week later, gathered the team together and was assured again that they cleaned thoroughly twice a week.
"And then I got really upset," LaSorda recalls. "I went under the rack, picked up the piece of paper and said, 'I'm not gonna take this again.' "
After making Eisenach lean--he reduced the workforce from 13,000 to 1,800--LaSorda returned to North America, where he became manufacturing manager for Cadillac in 1993 and later executive in charge of lean manufacturing at GM.
He had a hand in designing a Cadillac factory in Lansing, Michigan, that is still a model of efficiency for GM in North America. One feature is the loading docks: 37 of them. This abundance reduces the distance parts travel to get to the assembly line and allows for more just-in-time delivery, which reduces inventory costs.
Bob Bowers, manager of Chrysler's Sterling Heights assembly plant in suburban Detroit, worked for LaSorda at GM in the mid-1990s and came out of retirement a few years ago to work for him again at Chrysler. He remembers how LaSorda spread the gospel of lean.
"He'd come in the plant in the evening, when you would expect him to go home, and he would teach you about what you needed to look for and what you needed to do to have a lean production system," Bowers says. "If he taught it to you, he expected you to make it happen."
LaSorda arrived at Chrysler as senior vice-president of powertrain manufacturing in May, 2000.
The merger with Daimler-Benz had taken place two years earlier, creating DaimlerChrysler AG. The Germans controlled the new company, but a team of Americans was still running Chrysler--and messing up to such an extent that a management team headed by Dieter Zetsche was parachuted in from Germany that fall to restore order.
The Zetsche team and LaSorda cut thousands of jobs and closed several plants, eventually lifting Chrysler to profitability and the unaccustomed status of the healthiest member of the Big Three.
Over the course of the repair job, LaSorda rose to executive vice-president of manufacturing (January, 2002) and chief operating officer (February, 2004). In the middle of 2005, it was announced that Zetsche would be heading back to Germany to succeed Jürgen Schrempp as chairman of DaimlerChrysler AG. To fill his own shoes, he picked Tom LaSorda.
Perhaps because he doesn't have Zetsche's flair for showmanship--or his flamboyant handlebar mustache--LaSorda hasn't enjoyed the same profile as his predecessor. But Chrysler's recent troubles are changing that.
As CEO, LaSorda heads a company that, as of its third-quarter setback, was in the same boat as it was in prior to Zetsche's arrival--facing a massive operating loss caused by a misreading of the U.S. market. Chrysler failed to address the dramatic slide in sales of pickup trucks and SUVs. The result: Dealers were stuck with bloated inventories and temporary plant shutdowns in the fourth quarter.
LaSorda is under the gun. Teams of executives from Chrysler and its sister company, Mercedes Car Group, are turning over every rock in the operation, looking to slash costs by an average of $1,000 per vehicle by the end of next year. Company headquarters in Stuttgart wants a restructuring plan on a tight timeline: by the first quarter of 2007. There are even rumblings among institutional investors and analysts that Daimler should sell off its American arm rather than go through another cycle of headaches.
LaSorda insists that new vehicles, such as the mid-sized Chrysler Sebring and the Jeep Compass and Patriot SUVs --elements of the biggest new-vehicle blitz yet at Chrysler--will help turn the situation around next year.
But to keep Zetsche happy, "[LaSorda's]got to make money and he's not doing it," says Gerald Meyers, a former chairman of American Motors Corp. who is now a business professor at the University of Michigan. Meyers figures LaSorda has six months--a year at most--to make things right. "If at this point next year he's turned it around and they're back on the profit track, he's okay for the time being. But if it's not, I'm sure there will be another face there."
The gathering storm doesn't appear to bother LaSorda. During a recent meeting with key suppliers at the company's proving grounds in Chelsea, Michigan, LaSorda, tieless, BlackBerry in hand, mingled easily with senior executives of the parts makers, even hugging some of them amid the roar of Viper sports cars thundering by on the test track.
It probably helps that LaSorda is so well grounded. Asked about the gloom in the auto industry, he makes a point of criticizing bankruptcy restructurings that see employees lose their jobs and senior executives get rich, singling out the case of Kmart Corp.
"Even though I'm pro-business, that kind of stuff bugs me," LaSorda says.
A typical Detroit crisis usually starts with Chrysler on the brink of disaster. That happened in the early 1980s, when the company was bailed out by governments and union concessions. It happened again a decade later, when Chrysler was hauled back from the edge by a line of cars code-named LH--and nicknamed "last hope."
But this time around, GM and Ford have racked up combined losses of more than $10 billion and announced plans to shed tens of thousands of jobs. Chrysler appeared to be in the unaccustomed role of happy exception. Then came the third-quarter surprise. Now all three companies are reducing production in North America--and Ford and GM are making permanent cuts in capacity by closing assembly plants.
"This is an inflection point for the industry," declares veteran industry observer John Casesa, managing partner of Casesa Shapiro Group in New York. "What we're seeing here is an industry that has run the current business model to its conclusion."
Detroit is suffering from more than the high gas prices that whacked sales last spring and summer. The Big Three have been surrendering market share to their Asian and European rivals for more than a decade. Assembly plant closings, until recently, have not kept pace. To move the metal and keep the factories running, Detroit offered massive discounts. Accordingly, and thanks to strong growth in the U.S. economy, sales were robust--the industry as a whole moved an average of 16.9 million vehicles annually for the past six years.
But the superficial prosperity only postponed the day of reckoning. Discounts did nothing to address huge pension liabilities and soaring health care costs. The Big Three spent approximately $11 billion on health care last year. That's about one-third of what the province of Ontario will spend this fiscal year running its entire health-care system.
LaSorda has a special problem here because the United Auto Workers has agreed to a reduction in the health care benefits workers receive from Ford and GM, but has not given Chrysler the same deal. LaSorda insists that Chrysler must have it. Zetsche tore a strip off the union during a presentation to analysts in September, asking if Chrysler needs to lose $10 billion too before the UAW will agree to a deal.
The "legacy" costs represent a penalty for the Detroit carmakers of between $2,000 and $2,500 per vehicle compared with Honda, Nissan and Toyota, notes David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan. Following the union deals with GM and Ford, Chrysler is spending about $600 per car more on health care than its Detroit rivals, Cole figures.
The crisis at the Big Three is rippling through the automaking heartland of Michigan, Ohio and Indiana. Delphi Corp., the largest U.S. parts maker, is operating in bankruptcy protection, as are many other parts makers, large and small. More than 220,000 jobs in auto making and at parts companies vanished between 1999 and the beginning of this year, according to Cole's organization. And that's before the cuts at the Big Three and Delphi, which will wipe out as many as 72,000 jobs.Across the border in LaSorda's hometown, Ford is closing two plants and slicing 1,700 jobs.
Where once a mere sideways glance from Detroit was enough to bring politicians in Washington to attention, the automakers were snubbed for months by President George Bush, who finally met with LaSorda and his counterparts in November. The carmakers asked Bush for relief on health care costs and for intervention on the weak yen, which helps Japanese exports. The crisis is double-edged, Cole says. "The bad news is that crises are very difficult and uncomfortable. The good news is that you create a sense of urgency to do some things that are absolutely necessary."
As it deals with the crisis, Chrysler has a leg up on Ford and GM because LaSorda-led innovations have pushed the smaller company into the lead in manufacturing flexibility and cost control.
LaSorda has downloaded some labour and legacy costs to suppliers and found partners to share the cost of developing and manufacturing vehicles for new markets. And he's trying to cement Chrysler's standing as the most flexible of the Detroit companies--and thus most able to respond adroitly to market shifts.
While still working directly under Zetsche in 2002, LaSorda began applying what he'd learned from the Japanese. He knew that if Chrysler was going to prosper in the long term, its labour cost structure would have to change. To get started, he needed buy-in from the United Auto Workers. So he challenged workers at a Jeep complex in Toledo, Ohio, to meet quality and productivity goals, and promised them new investment if they succeeded.
The workers won the new investment. But in the new plant that cranks out Wranglers, Chrysler needs only 400 employees, who handle final assembly. The chassis for each vehicle arrives finished from a division of Hyundai. German robot maker Kuka welds the bodies together in its own shop within the plant, and Magna paints them in a shop of its own. The Chrysler workers earn $26 an hour. The employees at the Hyundai division are paid $12.80--and the suppliers, not Chrysler, are on the hook for health care and pensions. This is the furthest any automaker has gone in North America in handing over major chunks of car assembly to suppliers. The company has pegged total savings at $900 million.
The UAW contract at the Toledo plant is also a stark departure from past practice. There's an eight-year no-strike clause, and production workers fit into just three job classes. Compare that with 16 pay categories in previous agreements and a staggering 167 classifications when Chrysler took over the plant as part of its purchase of American Motors in 1987.
The UAW membership in Toledo agreed to the radical changes mainly because they trust LaSorda, says Bruce Baumhower, president of UAW Local 12 in Toledo. "This was his vision," says Baumhower. "Our guys took him at his word and he kept his word. He came back and built this second new plant here in just four years."
Another innovation bearing LaSorda's stamp is Chrysler's Global Engine Manufacturing Alliance, which embodies both the lean concept and LaSorda's fondness for hooking up with other companies to share risks. Hyundai and Mitsubishi are partners in the Dundee, Michigan, plant, which is rated as a benchmark engine plant for efficiency and innovation in North America. Labour is organized for maximum flexibility: There's just a single job classification and workers belong to small teams, each of which includes a mechanical and electrical engineer. Each of three shifts of workers puts in four 10-hour days, so the plant runs 120 hours a week, instead of the 80-hour norm in a traditional engine facility. The team approach--which requires workers to rotate through different jobs--has historically been resisted by the UAW because it undermines the tradition of workers securing preferred jobs through seniority.
LaSorda is also enthused about a partnership with China Motor Corp. to assemble minivans in Taiwan. The two companies will tackle the Chinese market together, expanding Chrysler's efforts in the next big market. (But Chrysler is well behind its rivals in China, and in overall global reach.)
Chrysler is also negotiating with other automakers to set up a joint venture to assemble a subcompact. LaSorda believes the market for behemoth SUVs and pickups will never return to the peaks of the 1990s. Yet, while Honda, Nissan, Toyota and GM all have subcompacts, Chrysler does not. A decision on a partner and a plant location was due by the end of the year.
Another key LaSorda initiative is to convert most of Chrysler's North American assembly plants to flexible manufacturing. The classic assembly plant puts together 250,000 virtually identical versions of the same model and must be shut down for three or four months to retool for a new model. A flexible plant can turn out three, four, five or more models, working off one or more platforms or basic vehicle underbodies.
Flexibility means Chrysler can produce more of one vehicle and less of another when consumer preferences change--as they're doing this year with the slump in the SUV market. It's done quickly by changing the software that commands robots in body shops, not the time-consuming process of tearing out the entire shop.
Chrysler learned an expensive lesson about the importance of flexibility in 2000. Its PT Cruiser was the hottest car on the road--but the Toluca, Mexico, plant where it was made was running at maximum capacity. Meanwhile, a Neon plant near Chicago was operating at less than full tilt. The solution seemed obvious. But the paint shop at the Neon plant was a few inches too short to accommodate the taller PT Cruiser. Unable to capitalize on demand, Chrysler lost an opportunity to make $240 million in pretax profit, according to Prudential Equity Group's most recent annual report on automaker flexibility.
"If you're the smallest, you've got to be agile, you've got to be fast and you've got to be more efficient," LaSorda says. "If I've only got 30 models and GM's got 90, Ford's got 60, I have to do better on my 30 than they do."
By next year, Prudential says, Chrysler should be challenging the Japan-based companies for leadership in flexibility, jumping well ahead of its Detroit rivals. And Chrysler's gains in productivity last year earned it kudos in the Harbour Report, an annual study of how North American automakers are performing. The report lauded a 6% reduction in the number of hours needed to build the average vehicle, which vaulted Chrysler closer to domestic leader GM.
LaSorda has made some good fixes. But the model behind North American automaking is so badly broken that finding the common ground between lean and compassionate will be increasingly difficult. In searching for ways to make Chrysler even more efficient, LaSorda has seen that the Chinese can put together a car that costs $6,000. So he has a team examining every aspect of how a car is built. Could Chrysler, for instance, eliminate the need for a paint shop by using plastic parts?
Some useful tips may be picked up, but everyone knows which way this is pointing. The subcompact that Chrysler is planning will not be built in Canada or the United States because the costs are too high, LaSorda says.
But something, maybe his heritage, stops LaSorda from advocating the ultimate solution in labour costs.
"Taking everybody from what they're making to wages in Mexico or China will never work out," he says. "The system would crumble. No one would buy the cars."
Chrysler group executive suite overrun with Canadians
Frank Ewasyshyn, like LaSorda, is a native of Windsor. The 30-year Chrysler veteran sits with LaSorda on the company's executive committee and succeeded him as executive vice-president of manufacturing in 2004, when LaSorda became chief operating officer.
Steven Landry, a golfing partner of LaSorda's, is vice-president of sales and field operations. Born in Halifax, he served a short stint as president of DaimlerChrysler Canada Inc. before returning to the Chrysler HQ in Auburn Hills, Michigan, last summer to take on the key sales job.
Ralph Gilles is vice-president, Jeep/truck component design. He directed the design of the company's large car family: the Chrysler 300, Dodge Charger and Dodge Magnum. He grew up in Montreal and first came to Chrysler's attention when his aunt wrote Lee Iacocca urging the then-Chrysler chairman to hire Gilles. His current task is to redesign Chrysler's pickup trucks in the face of declining sales and new competition from Toyota.
John Franciosi is a native of Windsor and, like LaSorda and Ewasyshyn, a graduate of the University of Windsor. As senior vice-president of employee relations, he oversees negotiations with the United Auto Workers and Canadian Auto Workers. He's in for an interesting summer and fall in 2007, with the four-year contract between Chrysler and the UAW coming due amid the deepest crisis the union has faced.
Chrysler 300: The big Canadian-made sedan that helped turn the company around earlier in the decade is getting long in the tooth
Dodge Caliber: It's a critical flag-bearer for Chrysler in the small-car market. But when gas prices peaked earlier this year, Caliber's potential was hurt by a slow launch
The gathering storm at Chrysler doesn't appear to bother LaSorda
Jeep Wrangler: It's produced at a leading-edge plant in Toledo, where suppliers own the body and paint shops--and Chrysler has only a small number of its own employees
Dodge Magnum:Radical design helped this reconceived station wagon when it debuted, but high gas prices have hurt sales
PT Cruiser:A lack of flexibility at Chrysler's assembly plants spelled lost sales on the retro hit
Dodge Durango:High gas prices have whacked sales of this onetime profit spinner. The Delaware plant that makes it is in danger of being shut