Updated 10/31 The tie-up between Fiat Chrysler Automotive and PSA, announced Thursday, will create a Eurocentric company with a better chance of long-term survival than either enterprise separately; spell the end of the "Detroit Three" automakers, as they’ve been known for a half-century; and represent the ultimate triumph of Carlos Tavares, a legend of the global auto industry who’s little known in the United States. Fiat Chrysler and PSA Group of France, parent of Peugeot, have announced a deal that would create a $48-billion transatlantic giant, according to the Wall Street Journal, and vault the new entity into third place among global automakers in total sales behind only Volkswagen and Toyota. Partnerships and even consolidation among automakers across the world are picking up momentum as sales slow nearly everywhere, overcapacity remains in many places, and ensuring future relevance becomes more problematic with the demands for huge new investments in electric and autonomous vehicles. A tie-up between PSA and Fiat Chrysler will allow the companies to share such burdens, and an all-share merger of equals has emerged as one strong possibility in their discussions, the Journal said. Fiat Chrysler earlier this year explored a potential deal with PSA and subsequently offered to merge with Peugeot rival Renault, but then dropped the idea after facing resistance from the French government, a big Renault shareholder, and from Nissan. Such a merged entity likely will focus geographically in Europe and be run by a brain trust based there, for the first time leaving General Motors and Ford as the only true American major auto companies. Since Fiat accepted the carcass of Chrysler in 2009 after the Great Recession and a U.S.-taxpayer bailout of the company, the American entity has been the tail that wagged the dog because Fiat Chrysler Automotive has relied on the robust profitability of Ram pickup trucks and Jeep SUVs while Fiat’s sedans sold in Europe have struggled over that time. Fiat Chrysler CEO Sergio Marchionne ran the company from, and in between, both continents until he died last year and the company internally promoted Michael Manley as his successor. Tavares is Peugeot’s CEO now and, according to the Journal, will run the combined entity while Fiat Chrysler’s John Elkann serves as chairman. Such a role represents an ultimate triumph for Tavares, who splashed onto the international scene as chief of Nissan’s presence in North and South America a decade ago and, by 2011, as chief operating officer for Renault. Tavares famously left Renault in 2013, two weeks after publicly saying that he wanted to become CEO of an automaker. At the time, Carlos Ghosn was the firmly ensconced and highly lauded CEO of the Nissan-Renault alliance, and so Tavares soon skipped to PSA. In his time there, he has cut costs, boosted the company’s market share in China, and led the company’s acquisition of GM’s money-losing Opel division in Europe then restored it to profitability. But there haven’t been Peugeot dealers in the United States in almost 30 years, and a tie-up with Fiat Chrysler would change that quickly.
This is the latest in our “Masters of Manufacturing” series, presented in partnership with The Indiana Economic Development Corporation. Each month we share insights and ideas from innovative, growth-minded manufacturing CEOs from across the nation as they navigate this tricky time in history. The chicken nugget has been an icon of American food manufacturing—and a staple of mainstream menus—for decades, but Hema Reddy has come along with a new way to make nuggets. The founder of startup Crafty Counter has put a “flexitarian” twist on the product in a pitch to the sensibilities of mindful moms but with an appeal to the picky palates of their children. Under the brand Wundernuggets, the former IBM executive-turned-healthy-food entrepreneur has managed to come up with a manufacturing approach and market proposition that have landed her products in an important test in Walmart stores after just two years on the market. Popularized by McDonald’s decades ago and since adopted and adapted by many better-for-you startups as well as by fast-food rivals, the nugget holds an enduring fascination for today’s children as it did for their millennial parents. Reddy launched Crafty Counter only a couple of years ago in Austin, Texas, with a unique approach stemming in part from the India native’s appreciation of her home country’s cuisine and ingredients. Wundernuggets are about half chicken and about half plant-based ingredients, such as protein-rich lentils. "I think I speak for the majority of the population who find it intimidating to completely give up eating meat,” Reddy told Chief Executive. “That’s the reason only three percent of the U.S. population actually is vegan. Most people who are driving the demand for plant-based foods aren’t 100-percent vegan. We’re providing a [path] for this population. Why not start with a flexitarian lifestyle that allows you to eat that occasional piece of animal protein? “If you can go vegan 100 percent, it’s great for the planet,” she said, “but I relate things to my family: They want to eat more vegetables, but they’re not ready to give up on eating animal protein, at least not yet. So let’s make it less intimidating for everyone.” Reddy began having children nine years ago. “Growing up in India, we ate meat only once a week, on Sundays; on the other days we had a veggie diet, or poultry,” she said. “When I started my own family, I realized we were eating too much meat. So for me it was having a mixture of good proteins that was inclusive. We didn’t need to give up eating poultry – just supplement it with plant-based sources.” So Reddy took to her own kitchen, first coming up with the predecessor to Wundernuggets, combining chicken with plant-based protein sources including chickpeas, vegetables and whole grains. She worked only with 100-percent-muscle chicken, not anything like the “junk parts” and fillers that account for much of the ingredients in mainstream fast-food or commercial-CPG nuggets which are rendered into a slurry that isn’t an appealing sight in video glimpses online. About 100 formulations later, Reddy test-sold Wundernuggets in late 2017 at a farmer’s market and a handful of stores in Austin as well as on her own web site. After a positive consumer response, she invested in better packaging and a production scheme and began to broaden distribution. She finally quit her position at IBM about four years ago. But commercialization and scaling, she discovered, presented challenges. For one thing, it was difficult to find a manufacturer that could produce both chicken and vegetable-based nuggets on the same line, especially early on. “Every manufacturer wants you to commit to doing 50,000 pounds per SKU on a single run, and we wanted to start with 5,000 to 10,000 at most,” Reddy said. Also, it took her about a year to settle on a coating for Wundernuggets that could be contract-produced, eventually settling on chickpea flakes despite challenges such as the production bottlenecks of dealing with fresh chickpeas instead of canned ones. As a result of starting with low-volume production runs, Reddy priced Wundernuggets admittedly high, around $8 to $10 for an 8-ounce bag of about 15 nuggets at many stores, and sometimes higher. “That was a cost-prohibitive level for many consumers, we knew,” Reddy said. “The formulation was very high quality, but nuggets aren’t exactly like gourmet food. They’re comfort food.” Scaling has gotten easier now that Crafty Counter has a deal with Walmart to sell Wundernuggets at more than 200 stores, many in Texas. Retail pricing is just under $7 a bag at these Walmarts. Along with the hope for an expansion of the footprint in Walmarts, Reddy is “talking with a few other retailers” to get into their stores over the next year.” Crafty Counter also is raising new funds from angel investors. Reddy also is eager to roll out new products. “Flexitarian is a real trend, not a fad, and it’s a better way to live your life,” she said. “But it’s incredibly hard. I thought I could do this easy-peasy because I’ve done such complex marketing campaigns [in the computer business], globally and in 28 countries at a time. But this is a different beast.”
General Motors CEO Mary Barra paid a steep price for her company to retain flexibility in plant closings in GM’s new deal with the United Auto Workers, which ended the union’s 40-day strike against the automaker over the weekend. Now it’s up to Ford CEO Jim Hackett and Fiat Chrysler CEO Michael Manley to see if they can live with a GM-style deal in their own negotiations with UAW leaders who weren’t afraid to take on the biggest of the Detroit Three in a walkout, the length and tenacity of which stunned the industry. GM’s 46,000 UAW-represented employees finally are returning to factories and parts depots around the country today after 57 percent of union members voted to accept the deal in elections at their locals last week. They held out for a new four-year accord that will give them alternating base-wage increases and lump-sum bonuses in each year, protection of their comfortable health-care benefits, better pay for new hires, a faster ramp-up to full compensation for temporary workers, and a lush “ratification bonus” of $11,000 per individual for approving the new contract. Most also will have opportunities for making up much of their wages lost to the strike because GM will be asking them to work a lot of overtime in coming weeks. The strike likely cost about $3 billion in profits for GM, as estimated by Bank of America, and baked in about $400 million a year in future labor-cost increases, according to others’ estimates. GM can make up much of its lost production with overtime in the coming weeks, however, and there’s little indication that the company lost sales momentum over the last 40 days. For Barra and GM, what emerged clearly in the company’s willingness to suffer such a long walkout was that they valued labor flexibility above everything else. While GM committed to invest $7.7 billion in its U.S. manufacturing operations over the next few years, securing 9,000 jobs, Barra didn’t agree to reverse GM’s plan to close a handful of big manufacturing plants—a plan that, when she announced it in 2018, prompted a very unpleasant phone conversation with President Donald Trump, who champions U.S. manufacturing. Her stubbornness on this point stems from Barra’s conviction that GM will need maximum freedom to deploy its labor resources in a future that could include a further decline in U.S. new-car sales and most certainly will involve more redistribution of resources as GM invests massively in an ongoing industry evolution favoring electric vehicles and rolling out autonomous-vehicle technologies. In fact, some reports are that the final deal reached by GM and the UAW isn’t significantly more expensive for the company than the proposal it fielded in mid-September that was aimed at getting a deal with the union without a strike. For Hackett and Manley, the challenge on their plates is to see whether a GM-style national pact suits the needs of their own companies. Traditionally, the UAW has used the first new deal in a bargaining cycle as a basic template for “pattern bargaining” with the other two members of the Detroit Three and insisted on a new contract with each of them that fits the basic template. UAW President Gary Jones is heading to Ford next. But pattern bargaining could prove problematic for Fiat Chrysler and Ford. For instance, Fiat Chrysler has a relatively newer workforce than GM, meaning that Manley may have more difficulty accepting big cost increases associated with increases in new-hire pay and acceleration of regular status for temporary workers. At the same time, while Barra and GM had incensed the union and its members with its plant closings, the basic disposition of UAW membership toward the other employers could prove to be different than that of the GM rank-and-file. Fiat Chrysler, for instance, is adding capacity, most notably with a multi-billion-dollar plan to refurbish an old engine plant in Detroit into a modern assembly plant to build a new Jeep that will be the brand’s largest model. “This pattern is pretty costly because one of the big things GM won is closing plants that will save billions,” Kristin Dziczek, an economist and labor expert at the Center for Automotive Research in Ann Arbor, Michigan, told the Wall Street Journal. “The other two don’t want to close plants. If you don’t want to close plants, what is the win for the company?”
A handful of powerful business leaders in Milwaukee have coalesced around the goal of advancing a digital-tech-oriented transformation of one of America’s most industrially oriented cities. They’ll be closely watched by business and government leaders in other heartland outposts who all covet pieces of the software-based economy that has been mostly developed on the East and West coasts. Led by Northwestern Mutual CEO John Schlifske, these leaders have formally launched the MKE Tech Hub Coalition with the goal of doubling the number of tech workers in the area by 2025. The other huge Milwaukee-based companies helping to establish the coalition are Rockwell Automation, Johnson Controls and Kohl’s, while participants Accenture and Advocate Aurora Health are other significant employers in the area. They’ve collectively committed more than $5 million to begin gaining traction for boosting Milwaukee’s tech-worker population to 150,000 from about 75,000 now by 2025. “That goal isn’t just sort of blue-sky and double some [random] number,” Schlifske told Chief Executive. “Demand for these tech workers is real on behalf of each company that is a part of [the MKE Tech Hub Coalition]." Key to the coalition’s strategy is to position and promote one of the buckles of the old Rust Belt as a new-era opportunity for tech workers to apply their digital expertise to legacy-industry challenges and problems, rather than just writing another app for teenagers. “We’re a diverse group, in fintech, e-commerce, automation and health care and financial services,” Schlifske noted. “So all of the work going on at our companies isn’t just classic Silicon Valley kind of stuff—it’s more prominent, innovative stuff. These really are a series of companies that are building out our own tech platforms, and I do think we have things to offer that are different from Silicon Valley.” One insight that the builders of the MKE Tech Hub Coalition have gleaned is that “many tech people are classic engineers who just want to solve problems, and we have interesting challenges in Milwaukee companies for where things are going. They may not be creating the latest app for the iPhone, but think about our tech challenges: These are big, challenging, fun problems to solve for engineering types." Yet the tech-hub initiative “isn’t some sort of hail mary for us to survive,” Schlifske stressed, noting the number of Fortune 500 companies and other major corporate entities headquartered in Wisconsin’s major metro area. “For Northwestern Mutual, for instance, it’s about staying relevant for the next generation of employees and [insurance] policy owners.” The formal launch of the tech hub follows another Schlifske-led effort last year which involved the establishment of venture funds to promote the startup community in Milwaukee. Schlifske conceded that, like other industrial cities in the middle of the country, Milwaukee does have “some image issues that we need to overcome a bit. But when we bring people here, Milwaukee is getting a nice reputation as a livable city, not some backwater place.” He noted, for example, that the Democratic Party plans to hold its 2020 presidential convention in Milwaukee next year. “I think the city is way past its Rust Belt image.” Also, in an advantage that Milwaukee shares with other cities in flyover country, the cost of living is significantly lower than on either coast. “It’s cheaper and easier for people to live here than in Boston or Silicon Valley,” Schlifske said. “One of our CEOs told me they recently hired a digital vice president from Microsoft who told him, ‘I can either own my own home or send my kids to a private school [in Milwaukee] or both,’ though not in California. And in Milwaukee we even have great public schools.”
CEO Mary Barra steps in and helps GM craft a new four-year deal with the UAW to end strike.
The stakes for both GM and the UAW have increased markedly in a walkout that is the union’s longest against America’s largest automaker since 1970.
Don’t look now, but the General Motors strike is threatening to become a significant drag on a U.S. manufacturing economy that really doesn’t need any more baggage right now.
Farmshelf founder and CEO Andrew Shearer is pursuing a vision of using manufacturing scale to bring down the cost of his hydroponic horticultural systems to transform his Brooklyn-based startup into a primary engine of the global food system.
U.S. manufacturing may seem to be on the ropes these days with all the reports of a decline in activity, but as National Manufacturing Day neared on Friday, Americans’ perceptions about the national industrial backbone remained strong.
Jason Lippert, CEO of LCI Industries, has headed into a downturn in the recreational-vehicle industry this time around much better prepared than last time.