Gary Valade’s new purchasing power – CFO of Chrysler Corp
When Chrysler Corp. completes its historic merger with Daimler-Benz AG, look for Gary Valade in the front seat with co-chairmen and CEOs Robert Eaton and Juergen Schrempp.
Although exchanging his CFO title at Chrysler for the top purchasing post at DaimlerChrysler may sound like a step down the executive ladder, industry watchers insist that Valade won’t be losing any clout.
As head of global purchasing, he will take primary responsibility for delivering billions of dollars in promised cuts on which the success of the merger may rest. “That’s where the bang in this transaction is,” declares Tracinda Corp. vice chairman Jerry York, Valade’s predecessor at Chrysler and now a top adviser to Tracinda chairman Kirk Kerkorian, who is Chrysler’s biggest shareholder. The purchasing job is “critical,” says York, who lobbied for Valade to succeed him in 1993, when York left Chrysler for the CFO post at IBM Corp.
In his new post, pending shareholder approval, Valade, age 57, will ride herd over thousands of suppliers providing tens of thousands of parts for vehicles ranging from no-frills, $11,000 Plymouth Neons to 12-cylinder, $140,000 Mercedes coupes. The skills required for the job should be familiar to Valade, who joined Chrysler in 1968 as a management trainee in the corporate controller’s office and worked his way steadily through the automaker’s ranks.
During Chrysler’s first near-death experience, in 1979, which was averted when Chrysler chairman Lee Iacocca persuaded the U.S. government to provide loan guarantees while the carmaker slashed production costs to the bare minimum, Valade was serving as a mid-level manager in product analysis and cost planning. In ensuing years, as Chrysler continued to set industry standards for cost cutting and efficient production, Valade served a stint as assistant controller for corporate financial control.
When the carmaker’s second brush with severe financial difficulties propelled further rounds of cost cutting in 1991 and 1992, Valade was in the trenches as Chrysler’s vice president and corporate controller. He admits the tumultuous experiences were chastening.
“The discipline to maintain cost structure when things are going well is the number one lesson that comes through each of those downturns,” observes Valade, who declined to speak specifically about the merger with Daimler-Benz while securities are in registration.
Since becoming finance chief, he has earned high marks from securities analysts and other industry observers for more than tightening the balance sheet and maximizing cash flow. When Kerkorian mounted a hostile offer for the company in 1995, Valade was part of the team that successfully maintained Chrysler’s independence.
By extending vaunted supplier alliances and other purchasing efficiencies to a world outside Chrysler’s principal market in North America, Valade may jostle the auto industry.
“No major suppliers on either side of the Atlantic are going to want to be left out,” warns York.
The merger announcement calls for synergistic savings of $1.4 billion in year one and $3 billion within five years. CEOs of both automakers describe these goals as conservative, while less-guarded industry analysts believe that $5 billion within three years ought to be a cinch.
The more aggressive recipe calls for $3 billion in purchasing synergies plus $1 billion lopped from research and development and another $1 billion from SG&A.
Valade’s status at DaimlerChrysler befits an executive who played a key role in the merger negotiations from the outset. One month after Daimler-Benz CEO Schrempp broached an invitation to Chrysler CEO Eaton on January 12, while Schrempp was in Detroit for an automobile show, the two men met quietly at the President Wilson Hotel in Geneva, Switzerland. Schrempp brought Eckhard Cordes, Daimler’s board member for strategy; Valade accompanied the Chrysler chairman.
Valade’s efforts have earned a handsome payoff. Even as an early June sell-off took some froth out of the stock market, the value of his package of Chrysler shares and options jumped from $26.6 million to $36.3 million – over and above his $1.4 million in total annual compensation. He would be richer still, however, had he not sold 60,000 shares earlier this year for $39.05 each, according to CDA Investnet, in Weston, Florida.
On June 10, the same shares changed hands for an additional $1 million. Such a financial setback won’t prevent him from enlarging his personal fleet of Chrysler automobiles to include a Mercedes Benz or two. Says Valade: “I’ll be anxious to try one out.”
S.L. Mintz is CFO’s New York bureau chief.
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