Can Bob Lutz Recharge Exide?
For years, Robert A. Lutz has soaked up accolades as the marketing genius behind the Dodge Viper and other snazzy vehicles that helped pull Chrysler Corp. from a second brush with bankruptcy in the early 1990s. The cigar-chomping, silver-haired ex-Marine fighter pilot embraced his role as the auto industry's ultimate "car guy." So when he stepped down as vice-chairman last year, on the eve of Chrysler's merger with Daimler-Benz, he could have ridden into the sunset as one of Detroit's most colorful icons.
Still, at 67, Lutz says his resume was not complete. So, in a move that shocked many in the industry, Lutz in December accepted the top job at Exide Corp., a troubled maker of car batteries, based in Ann Arbor, Mich. With estimated 1999 revenues of $2.4 billion, Exide is about one twenty-fifth the size of Chrysler. And its products are decidedly less thrilling. But the assignment lets Lutz tackle the one challenge that eluded him during three decades in the auto business: holding down the CEO's job. He was passed over for Chrysler's top job in 1992 in favor of former General Motors Corp. exec Robert J. Eaton. While the two Bobs seemed to get along well, Lutz knew he was playing second fiddle. "I almost always got what I wanted, but it was always, `Bob, here's what I want to do,' and then I had to get him to say yes. Now, I'm the guy who says yes."
Or, at Exide, "no." Lutz has inherited a company in dire need of financial discipline. Exide blew out its balance sheet in the mid-1990s building a leading 36% share of the global auto battery business. A string of bank-financed acquisitions in Europe left Exide $1.3 billion in debt, with $100 million a year in interest payments, just as aggressive price cuts gutted profits. "We're like a family that's maxed out on its credit cards," Lutz says. Exide will announce an operating loss of $22 million for the 12 months ending Mar. 31, estimates Darren S. Kimball, an analyst at Merrill Lynch & Co. That compares with an $18.6 million profit in 1998 and similarly meager profits the previous four years.
To save this basket case, Lutz will have to use all the decisive, "rock-the-boat" management tactics he lauds in his 1998 book, Guts: The Seven Laws of Business That Made Chrysler the World's Hottest Car Company. He's off to a fast start, writing down millions of dollars in bad investments. And the calls won't get easier. Soon, he must decide which ancillary businesses he'll sell to pay down debt. He has to settle Florida's charge that Exide sold old batteries as new. And he may have to drop a money-losing contract to supply Sears, Roebuck & Co. with 4 million DieHard batteries.
Friends weren't surprised that Lutz opted to stay in the auto industry after his retirement from Chrysler. But most were stunned that he took the job at Exide. One adviser says he urged Lutz to wait for a better offer. Lutz admits that he hated the idea of being left out of the loop in Detroit. But this job will be no retirement cruise, says Franccois Castaing, a former Chrysler exec and close friend: "One could make the case that by taking the leadership of a company like Exide, which is not an easy company to fix, he has more to lose than by leaving on the high he left with at Chrysler."
PROFIT PUSH. But he also has a lot to win. Lutz's three-year contract includes 1.8 million Exide stock options priced at $10 each. With the stock now trading at 16, he's already sitting on a $10 million potential gain. And Lutz is still tied to his old outfit in a sense: Chrysler is Exide's largest customer among U.S. carmakers.
Investors certainly are glad Lutz decided to spurn retirement. Rumors of his pending arrival drove Exide's share price to 21 in mid-November, from 5 a month earlier. For some long-suffering shareholders, the chance to cash out was irresistible. State Street Research & Management Co., Exide's second-largest outside holder, dumped 1.7 million shares around the hiring. But assistant portfolio manager and analyst John Burbank says he kept 481,000 shares on faith that Lutz will succeed: "He has a reputation as being a real car guy, but he's also a very, very disciplined, cost-conscious executive." For instance, while Lutz pushed the maverick Viper, he also managed to hold development costs to $80 million.
To get Exide on track, Lutz needs to change the emphasis from sales growth to profits. That means pushing fewer $30 batteries at Kmart Corp. and Pep Boys stores and more longer-lasting $80 NASCAR Select premium batteries. It also will require stemming losses--starting with the Sears deal, which represents nearly 15% of Exide's North American sales. Exide won the contract away from Johnson Controls Inc. a few years ago, but only by sacrificing its profit margin. Worse, Exide cut corners on quality--saddling it with huge warranty costs. Sears wouldn't comment, but Lutz says he wants to renegotiate so that Exide sells Sears only higher-end batteries. "You never like to give up a large and important customer with a visible and effective brand like DieHard," he says. "But regrettably, it doesn't make a lot of sense for us."
Just the sort of tough call you'd expect from the "disruptive" leadership Lutz advocates in his book. If his decisions pay off, he stands to pocket a bundle. But for Detroit's foremost iconoclast, something bigger is at stake here--proving that he can lead the charge.