Powerway lays off 14 after losing software deal with Chrysler

Locally based Powerway Inc. is scrambling to shrink its work force and remake its business plan after the firm’s most lucrative customer–the ailing automaker Chrysler LLC–said it will no longer use Powerway software or mandate its use among the company’s hundreds of suppliers.

Powerway laid off 14 employees and slashed salaries for many who remain after it learned of Chrysler’s plans on June 6. Chrysler’s decision is a major blow for a company that has taken its share of hits as the Big Three U.S. automakers flounder; General Motors Corp. and Ford Motor Co. also are former Powerway customers.

The privately held firm still has major deals with German carmaker Daimler AG, which spun off Chrysler in 2007, and Italy’s Fiat Group. Powerway also works with companies outside the auto industry, including General Electric Co., Honeywell International Inc. and Aerojet, a space and defense contractor.

Powerway develops and markets Web-based quality-control software for manufacturing companies. It employs 75 worldwide, including about 40 at its Indianapolis headquarters at 429 N. Pennsylvania St.

"It’s not the death of Powerway; it’s a restart," H. Dave Chambliss, the company’s CEO, said of the parting with Chrysler. "I can’t say we’re back to business as usual, because it hurts. But I’ve got active salespeople all over the world, and we’re going to continue to do business."

Cutting costs

Chambliss called Chrysler’s move a financial decision driven by dismal sales. Chrysler said this month that its May 2008 sales were down 25 percent from the same month last year. The automaker–now controlled by New York-based private-equity firm Cerberus Capital Management–plans to eliminate 13,000 jobs, or 16 percent of its work force, by the end of 2009.

A spokesman for Chrysler, Kevin Frazier, acknowledged dumping Powerway was a cost-saving move. He said Chrysler is building a quality-control tracking system that won’t cost suppliers a dime, unlike Powerway, which charges for subscriptions. Suppliers have been complaining about Powerway’s fees for years. (Suppliers often pay $10,000 or more up front, plus thousands of dollars more in monthly fees.)

"We plan to host an internally supported data-management tool we feel will improve efficiency for both suppliers and the company," Frazier said.

GM gave a similar explanation when it dropped Powerway in 2005, setting up its own Web-based interface instead. Ford tested Powerway’s system but never mandated it among suppliers.

Chambliss would not say how much the contract with Chrysler was worth, describing the setback as a "hit in the face." But he isn’t giving up on the automaker. He believes Chrysler could realize it made a mistake and come back to Powerway, which handles several million Chrysler-related transactions per month. The subscription is scheduled to end on June 30.

"The impact on their business will be quite significant, and that won’t be realized until Chrysler goes to a manual business," Chambliss said.

Rough ride

Powerway has had a roller-coaster ride since it was founded in 1985. In 2000, Powerway promised to add 2,000 jobs to its roster of 250 employees in exchange for $53.4 million in state and local incentives. The company was on a roll: Chrysler had just invested $25 million, and Powerway seemed poised to revolutionize engineering in the U.S. auto industry.

Then the dot-com bubble burst. And Detroit’s fortunes took a turn for the worse, sweeping Powerway along for the ride. Layoffs have been frequent, and management has turned over a couple of times since longtime CEO Mike Campbell committed suicide in 2002. In January 2007, then-Chairman Tom Hiatt hired Chambliss, an IT turnaround expert, to revive the brand.

Chambliss doesn’t have the same aspirations as his predecessors. He calls prior management’s plans to hire hundreds of employees "asinine" and prefers to run a lean operation. If any jobs are added, they will be in sales and marketing and for development projects to improve Powerway’s technology.

He also is trying to sell the software to customers in other industries, including food production and heavy machinery. The firm’s programs provide models for how parts should be built and verify that the end product meets specifications.

"Our application works across all of them," Chambliss said. "It doesn’t matter what you’re building."

But it’s a tough time to be an old-line software maker, particularly in the automotive field, said David E. Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.

Problems include new competitors; cheaper, multipurpose products; and a preference for open-access instead of fee-based programs. Suppliers are finding success in their push for software with fewer complexities and costs.

"There’s such a dynamic atmosphere in the software field right now," Cole said. "We’re seeing very rapid obsolescence of many of the old software tools."

Hope on horizon

The loss of Chrysler could actually help sales in at least one way: Powerway now can offer discounts to entice subscribers that it couldn’t before because of a "favored-nation" clause that promised the lowest available prices for Chrysler and its vendors.

Powerway does not disclose revenue figures, but Chambliss hopes to push revenue past $100 million. He said the company was "very profitable" in 2007 and still is on target to turn a profit in 2008.

In February 2007, Hiatt told IBJ the company’s revenue ranged between $10 million and $50 million, but he declined to be more specific. Hiatt remains on Powerway’s board and is a managing director of locally based venture capital firm Centerfield Capital Partners, a major investor in the company.