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Chrysler Looking for More Cuts


 

Despite deep cuts in production numbers and plans to trim between 8500 and 10,000 blue-collar jobs through the first half of 2008, Chrysler LLC is still looking for more cost savings.

The automaker is prepared to push its suppliers for new concessions as it moves forward with efforts to reduce costs.

Robert Nardelli, Chrysler chief executive officer, recently told the company's purchasing office the company needed to reduce its bill for materials by almost $400 million, sources said.

 

Meanwhile, Bob Schott, the company's former vice president of procurement, has moved to a new position inside the company, leaving the post of head of purchasing vacant for now. Chrysler has been relying on consultants provided by Cerberus Capital Management, Chrysler's parent company, for advice on purchasing matters, sources said. The word inside the company is that Nardelli has also gone outside the company to look for a replacement for Schott.

Chrysler spokesman Mike Aberlich confirmed Schott had moved to another assignment but said he could not comment on the reports the purchasing job would now go to an outsider.

Cerberus has already brought in other top executives, such as vice chairman Jim Press, to help manage the company's turnaround.

The overall cuts sought by Nardelli are relatively modest, considering that Chrysler spends better than $40 billion annually on purchased material, but it is still unwelcome news for suppliers, who are struggling with chronic financial problems. Chrysler, like other automakers, has spent millions of dollars in the past two years to help prop up ailing supplier companies such as Collins & Aikman.

Chrysler traditionally made fewer components in house than either General Motors or Ford and over the years it has developed a productive working relationship with many suppliers both large and small. It also leans heavily on many of them for critical research and development.

Over the years, Chrysler and its customers also have benefited from innovations promoted by suppliers. However, Chrysler’s purchasing department has pressed for cost-downs at a time when suppliers maintain they cannot afford to make additional financial concessions.

The company's cost-cutting also appears to be at war with Chrysler's efforts to bolster the overall image and quality of its vehicles. Vehicle reviews have consistently noted that the interiors of cars such as the new Chrysler Sebring and Dodge Avenger have been hurt by the company's push for the least expensive material solution.

While it's secretive about many of its financial objectives, Cerberus, according to its own executives and former employees, emphasizes maintaining a strong cash flow at all of its properties, regardless of market difficulties.

Since investing in Chrysler last summer, Ceberus has faced significant challenges at some of its other investments, particularly at GMAC, the automotive and real estate financing giant. Cerberus acquired a majority stake in GMAC from General Motors in 2006 just as the real-estate and new home business began to soften.

During the third quarter, the losses of GMAC real estate unit continued to mount, forcing GMAC to post a $1.6 billion loss. Fritz Henderson, GM's chief financial officer who is bound by Cerberus’ secretive culture, also said it's possible the real-estate losses will continue. In addition, the soft housing market has shown signs of slowing the overall economy.


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