ANN ARBOR, Mich. - Chrysler Corp. President Tom Stallkamp took a call from Robert Lutz with more than casual interest last November.
Stallkamp and other executives had fretted as they watched Chrysler's primary battery supplier, Exide Corp., falter.
Then Lutz, the retired Chrysler vice chairman, called his former colleague with news of a job offer.
'I asked Stallkamp: 'Do you object to my going over to Exide?' ' Lutz recalled last week.
' 'On the contrary,' ' came the answer, according to Lutz. ' 'We're delighted to have you in there. We've had some worries.' '
Those worries, along with concerns of Wall Street analysts, may have been assuaged last week as Lutz, Exide's new CEO, moved to write off $32.2 million in charges against third-quarter earnings. They include $6.1 million to close plants in Frankfort, Ind., and Memphis, Tenn.; $6.9 million for uncollectible receivables in Russia; $3.7 million to get out of a newly developed security battery business and write off inventory and equipment; and $6.5 million for severance packages for 24 executives and former CEO and Chairman Arthur Hawkins. More important, Lutz is reversing Hawkins' aggressive growth strategy.
Years of acquisitions, primarily in Europe, and low-ball pricing had built Exide into the world's largest battery supplier, with $2.3 billion in sales in fiscal 1998. But thin margins left Exide vulnerable to unseasonable weather that cut the need for replacement batteries.
Lutz said he will not seek growth at the expense of profits. To underscore the point, he said Exide is in negotiations with an undisclosed national account that could result in relinquishing between two thirds and all of the account's business because it is not profitable.
'Volume and market share had been king in the auto business,' he said, 'Blind pursuit of a piece of all segments has gotten a lot of car companies into trouble.'
Lutz, who helped lead Chrysler's turnaround earlier this decade, faces a battery of challenges with Exide. 'We've been fighting fires since we came on,' he said.
His balance sheet carries $1.3 billion in debt, or 80 percent of total equity. Put another way, he said, the debt burden at Nissan Motor Co. Ltd., on a debt-to-sales basis, is equally bad.
In his first discussion with Wall Street since becoming CEO on Dec. 1, Lutz disclosed his plans during a telephone conference Wednesday, Jan. 20, from Exide's new headquarters office at the Michigan Manufacturing Technology Center in Ann Arbor, Mich. He later met with reporters.
Shortly after, Wall Street pushed down Exide stock on news that third- quarter losses would be between $1.70 and $1.95 a share. The stock price fell $1.56 to $18.94 a share. As of Friday morning, Jan. 22, it was $18.75 a share.
The decline hardly compares with the nearly 100 percent run-up in Exide's stock price to $22.50 last November when word of Lutz's hiring leaked.
Lutz also disclosed that he wants to sell noncore business but does not expect further plant closings. He wants to pass on selective price increases, improve Exide's mix of more profitable premium batteries and make other efforts aimed at improving margins. 'We want to sell fewer Neons' than Jeep Cherokees, he said, drawing a parallel to DaimlerChrysler Corp. products.
More immediately, asset sales and improved cash flow are expected to be used to pay down Exide's debt. Price hikes of 3.95 percent soon will be passed on where possible to Exide's replacement parts customers, he said.
Lutz, who will turn 67 next month, said he is prepared to work beyond his three-year contract, the minimum time for his stock options. He said he is likely to work until age 72.
Significant risks remain. A pending investigation by the Florida attorney general could result in large settlement costs. State attorneys there have been investigating the alleged sale of defective and used batteries, mislabeling of batteries, improper crediting of customers' accounts and distribution of misleading investor information, Lutz said.
He said he was optimistic about the planned meeting Monday, Jan. 25, between Exide lawyer Benjamin Stewart and Florida state attorneys, but he declined to put a price tag on any deal.
Merrill Lynch analyst Darren Kimball said it could reach $15 million. Moreover, Exide still could face shareholder suits and the potential that other states' attorneys general will piggyback on the Florida case, Kimball said.
Another case brought by a Texas battery distributor last year achieved class-action status in Texas.
Exide also possesses significant environmental liabilities related to plant closures, among other issues, Kimball said. Lutz told analysts that the company has sufficient reserves.
Stallkamp, no doubt, would be pleased to hear that.