A Contract at Any Price, or How a Multinational Got Wrangled

            A competitive bid for the construction of a new paint shop at Chrysler’s Jeep Wrangler plant in Toledo, Ohio. The budget was roughly $140 million. It was a major project and the competition was fierce. Dürr’s American branch, where I was working at the time, won the bid. Haden, where I had worked before that, came in second. It was after the competition was done that Chrysler changed the conditions of the deal. They simply told the winner that the concept for the project had changed.

             Before, the supplier’s duties were to design, manufacture and install equipment and to launch the automotive paint shop into service. With that, the duties would have finished themselves.

            Now the task had grown more complicated. The supplier would not only design the equipment and launch the paint shop but paint the Jeeps themselves. What’s more, they’d be financing the project themselves. Chrysler would no longer be paying for equipment, materials and labor. The company would be buying a service—paint jobs for its automobiles.

            The crux of this idea was whether Chrysler would guarantee the volume of Jeeps to be painted. That was the financial basis for the idea. Under this form of business organization, the supplier not only had to finance the manufacture and installation of equipment, but also hire the workers, buy the necessary expendable materials and pay the paint shop’s operating costs. What’s more, they had to paint the Jeeps in accordance with the technical demands and orders of the client. Chrysler would pay for the painted cars by volume.

            The big question the supplier had to ask was how many paint jobs the client would buy. If it was a lot, they’d turn a profit. If it wasn’t much, that would be a disaster. Dürr asked Chrysler: “Can you guarantee a minimum order of Wranglers to be painted?” Chrysler answered: “No, there are no guarantees. We’ll order as much volume as we need.”

            The Dürr board of directors looked at the issue. A large team from the US arrived in Germany, made up of all the leading branch executives. They put it simply: the company needed to decline the contract. The deal had gotten too risky. It required huge investments without any clear guarantee of return in the form of purchase orders from Chrysler.

            The high executives in Germany had the complete opposite reaction. The contract was huge. You couldn’t walk away from that kind of money. Don’t worry, they said, go back to the US and get to work. The American team repeated its position again and again. The contract was too risky. Usually, the Germans don’t allow such shows of independence from their American subordinates. We’re Germans, they think, and we ought to be making all of the strategic decisions. So it was in this instance. Everything is in order, they said. No need to panic, go and work.

A Jeep Wrangler. Credit: IFCAR, Wikipedia

            The issue was discussed for several hours until common sense won out. The German high command conceded the point to their American colleagues. It was a rare instance when they listened to the opinion of their American subordinates.

            What happened next with the contract? After Dürr refused, Haden got the contract. By that time, the American company had fallen on hard times. In desperation, they put upon themselves the conditions of the contract. Over two years of work, they spent more than $100 million and could not finish the work on time. Haden then declared bankruptcy.

            Chrysler then took over the incomplete project for free, poached the key experts from Haden and completed the paint shop quickly at minimal expense before handing off operations to another manufacturer. As it turned out, it was all a mousetrap for a reckless and greedy supplier and a very profitable business for the major automaker.

            When a company takes on an over-complicated and unrealistic task, what are they counting on? Are they counting on success? Or, having received the time and resources to complete the task, on never being held accountable for the results?

Mistakes that could have been avoided:

  • You have to be able to stop things on time and say, “NO.”
  • You cannot take on tasks that exceed your financial capabilities.

            Editor’s note: The story of the Jeep Wrangler paint shop in Toledo did not end with the downfall of Haden. In 2006, Chrysler requested that several dozen experienced employees retire from the company to work at the plant under its new management, Magna International. When Chrysler took over the paint shop in 2012, these employees were dismissed in order to to save on labor costs. In 2015, the workers sued Fiat Chrysler and the UAW, alleging that union officials accepted kickbacks to bring lower-paid workers from Detroit to the Toledo plant and bribes from the automaker to suppress their grievance claim. The case is currently under review pending re-hearing or appeal.

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