Exide Looks to New CEO, Product for a Jump-Start

By DONALD W. NAUSS

June 24, 1999 12 AM PT

TIMES STAFF WRITER

In a career that spanned 40 years in the auto industry, Robert A. Lutz often displayed a Hollywood flair for the dramatic.

Take the 1992 Detroit auto show. Lutz, then the No. 2 executive at Chrysler Corp., unveiled the 1993 Jeep Grand Cherokee by driving a cherry-red model through a plate-glass window.

At the same venue the next year, the cigar-chomping former Marine was stage-side as the new Dodge Ram pickup made a grand entrance: It was dropped with a resounding thud from the roof of Cobo Center in downtown Detroit.

So it comes as little surprise that Lutz, 67, in his new life as chairman, president and chief executive of Exide Corp., the world’s oldest and largest producer of lead-acid auto batteries, is again reaching into his bag of marketing tricks.

And he is borrowing liberally from his experience at Chrysler, where he reached the level of vice chairman before retiring last year just before the completion of the merger with Daimler-Benz to form DaimlerChrysler.

Recently, to introduce a new, rugged premium battery to the media, Lutz had a black plastic-encased unit dropped 100 feet from a helicopter onto a raceway, dragged, then drilled full of holes. The battered battery was then used to start a 750-horsepower race car.

“It’s virtually indestructible,” declared the silver-haired Lutz to a group of amused reporters.

The new lead-acid battery, the Exide Orbital Select, promises greater starting power and longer life than traditional car units. It will cost $125 to $130, two to three times the price of most replacement batteries.

In introducing the Orbital, Exide is attempting to reposition itself as a major producer of premium batteries, rebuild its brand image and capture a greater portion of the high-margin manufacturer’s branded battery market.

The company next month will launch the new battery with a $1-million marketing campaign from Philadelphia-based Harris, Baio & McCullough that includes programming sponsorships on PBS, 30-second ads on Don Imus’ radio program and ads in auto enthusiasts’ magazines.

Lutz’s hope is that the Orbital will provide an image boost to his much-maligned company similar to what the high-performance Dodge Viper sports coupe gave Chrysler during its dark financial days in the early 1990s.

Lutz’s arrival was heralded as the stern medicine that Exide, a onetime Wall Street highflier, needed to turn around its flagging fortunes. It had been wracked by losses, legal problems and management turmoil. The widely held view is that if Lutz could help reinvigorate an ailing giant such as Chrysler, certainly he can recharge a mundane battery maker.

Outspoken and impatient, Lutz quickly took charge of Reading, Pa.-based Exide. He recruited new directors, wrote off bad investments, closed several plants and began paring debt. He also settled two nettlesome lawsuits, including one that alleged Exide was passing off as new used batteries sold under Sears, Roebuck & Co.’s DieHard label.

While these moves should ultimately strengthen Exide, they contributed to a net loss of $79.9 million in the company’s fiscal fourth quarter ended March 31. The company lost $129.6 million for the fiscal year on sales of $2.4 billion, compared with earnings of $18.7 million on sales of $2.3 billion in 1998.

“Lutz is a refreshing change at Exide,” said John Daviduk, analyst with Credit Suisse First Boston. “While there is still a lot of work to do, he has already reversed many of the sins of the last administration.”

The previous management, headed by Arthur Hawkins, pursued market share with high-volume growth that pushed prices down industrywide and pressured profit margins. The company, which produces more than 50 million batteries a year for auto makers and auto-parts retailers, controls about 30% of the U.S. market and 36% of the European market.

In January, Lutz declared it would no longer blindly pursue market share. Rather it would focus on profitable business and relinquish low-margin or money-losing lines. Soon afterward, Exide dropped a 5-year-old deal to supply annually 4.5 million DieHard batteries to Sears amid allegations it was selling old batteries as new.

The Sears business represented nearly 20% of Exide’s U.S. business. Rather than close plants, Lutz said the company would replace the lost Sears volume with higher-priced contracts with other retailers.

Exide recently signed an agreement to supply 1.4 million batteries to Pep Boys in its Western stores. Pep Boys will carry more higher-priced Exide NASCAR Select batteries that cost at least $30 more than the typical DieHard as well as its private-label Prostart made by Exide.

The company also is introducing new products and technologies, including the Orbital. Lutz is clearly using this battery to make a statement about Exide’s future as a technology leader and player in the premium market.

“It’s a flagship product,” said Nicholas Stratigeas, Exide’s sales vice president.

The 12-volt Orbital battery uses a spiral construction instead of flat plates. The six cylindrical cells are tightly wound, providing vibration resistance. The battery is leakproof since the electrolyte is not free-floating but bound in a paste. Exide claims the battery has 15% more power available to start an engine compared with most other batteries.

The Orbital is sealed, doesn’t emit gases and never needs refilling. The company says the battery will last five years, providing one-third longer life than traditional batteries. It is aimed at people who use their vehicles infrequently, such as car collectors and military personnel. Also being targeted are serious off-roaders and ranchers who want the most rugged battery possible.

Exide will produce about 200,000 batteries at a plant in Spain in the first year. Production could hit 1 million within five years. It will be available in NAPA Auto Parts and Kmart stores by the end of the summer.

Exide’s only competition now comes from Optima, a similar battery made by a Swedish manufacturer. But the Optima is not distributed widely in retail outlets and Exide believes its patents will discourage new entries.

The company’s biggest challenge is convincing consumers to shell out $125 for a battery. Today, consumers generally perceive little difference in batteries since they look and perform alike and have similar guarantees. Brand, availability and price are often keys to buying decisions.

The business is largely dominated by private labels, such as Sears’ DieHard. According to Competitive Media Reports, Sears spent more than $17 million to market DieHard to consumers last year. That compares with $8.4 million by AC Delco and $5 million for the Exide NASCAR Select.

Manufacturers’ brands make up just 17% of the 75-million U.S. battery market. But Exide said it captured 15% of that market in just two years with the NASCAR Select.

The company hopes to double its share of the manufacturers’ branded segment in five years. The Orbital will play a major role as Exide attempts to differentiate the product as the most rugged available.

“It’s like the Timex watch--it takes a licking and keeps on ticking,” said Gordon Lane, Exide’s vice president of marketing.

As for Lutz, he is clearly charged up about running a battery giant and figures he won’t run down for at least five years.

“I am working harder than any time in my life,” he said. “As CEO, you can set the pace. I’m working harder than ever and enjoying it more.”

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The Auto Battery Market

Battery makers sold nearly 60 million batteries valued at $1.9 billion in 1997 to consumers at major retail outlets, auto parts stores and auto service centers. Retailers and manufacturers spent an estimated $35 million marketing batteries directly to consumer in 1998.

U.S. Market Share*

Exide: 28%

Johnson Controls: 26%

GNB: 14%

Delphi Automotive: 12%

Others: 20%

Advertising

1998 advertising dollars, in millions:

DieHard: $17.2

AC Delco: $8.4

Exide Nascar Select: $5.0

Interstate: $3.3