Many people seem surprised by the depth of job cutbacks at Chrysler--11,000 more hourly and salaried jobs in the United States and Canada, and reduced shifts at five other plants. That comes on top of 13,000 job cuts earlier this year.
But this is the new reality that private equity is going to impose on the U.S. auto industry. Chrysler is owned by Cerebrus Capital, which recruited Robert Nardelli, late of Home Depot, to run it. Nardelli is a no-nonsense, operational guy and his orders seem clear--get the business to a size where it can make money.
That may seem common-sensical but the American auto industry has resisted it for years. Now, however, private equity is moving in, buying GMAC and the Delphi parts company that supplies General Motors. According to my research for a story for Dealmaker magazine, at least 300 parts markets and auto-related companies have been acquired by private equity firms.
They are going to smash the old mentality of keeping plants operating even if they are marginally profitable. Detroit has had a tendency to want to maintain high volumes of production, lots of models, lots of parts and lots of people. The private equity owners, however, want quick, tough decisions to shut down operations that can't reach their profit goals.
This is going to be painful, but it may be one of the most promising trends in the U.S. auto industry today. At long last, the Big Three are going to be dragged, kicking and screaming all the way, into fighting shape to compete against the transplants of foreign auto makers and against the vehicles they are importing, particularly from Japan. Toyota Motor may be headed for the No. 1 spot, but watch out! Detroit just might bounce back.