Chrysler's Drill Sergeant

Posted by: David Welch on August 6, 2007

I’ll go out on a limb and say that Robert Nardelli, the former General Electric and Home Depot exec tapped by Cerberus Capital Management to run troubled Chrysler, has a shot at fixing the company. No, he isn’t a savior. The problems he left at Home Depot after leaving in January prove that. He doesn’t have the marketing chops of famed Chrysler Chairman Lee Iococca. He doesn’t know how to make great cars. Nor will the public flap over his massive pay at Home Depot make him many friends among the union leaders he needs to win over to get billions in retiree benefits concessions. As my colleague David Kiley points out, he’s not known for being Mr. Nice guy to his subordinates, either. His bare knuckles style could send some talented people fleeing from Chrysler.

But knowing his reputation, Nardelli could also bring much-needed discipline to Chrysler. In addition to its retiree costs problems, which is a common malady in Detroit, Chrysler has simply blown too much money on incentives and flooded rental fleets with its cars in the name of making monthly sales targets and quarterly numbers for the old bosses at Daimler. At Chrysler, Nardelli can do what he did at GE’s locomotive and power generation businesses. He can cut away the fat, invest in new products and bring in some smart business sense.

Even after Chrysler owned up to its bloated inventories and announced a restructuring plan earlier this year, the smallest of the Big Three is still cutting rebate checks like they’re paid with Monpoly money. In July, Chrysler’s U.S. brands spent an average of $4,082 a vehicle on incentives. Only Mercedes spent more. The nearest domestic rival was General Motors, and even GM spent almost $1,000 a car less. Chrysler still pours cars into rental fleets.

The only way to change that is to cut back on spending and sell to those who want the car without being bribed into taking it. That could mean further cuts down the line. Nardelli said at the press conference today that the restructuring plan is dead on. That means no more cuts, right? Don’t buy it. Cerberus has said since the deal was struck in May that the investment firm has faith in Chrysler management. Then, three days after finalizing the deal Cerberus sent Chrysler COO Eric Ridenour packing, brought in Nardelli and made CEO Tom LaSorda his No. 2. La Sorda will be Vice Chairman and President. A lot of people may not like Nardelli’s medicine. And outsiders have notoriously flopped in Detroit. But Chrysler will need a martinet in the corner office if the company is to make it through its latest crisis. If Nardelli’s style doesn’t turn the place over, and if he doesn’t go too far with cost cuts, then his fiery brand of management might just work.

Reader Comments

greg golding

August 7, 2007 3:49 PM

david, good article. what an opportune time to examine 2 Fortune 500 companies under simular conditions of restructing by imperial CEO's appointed by their private-equity backers. Robert Nardelli by Cerberus to run Chrysler and Michael Capellas by KKR to run First Data. both companies have been in restructing mode but will intensify given strict financing conditions in the present private-equity market. given their reputation, both CEO's will encounter resentment from fellow employees. longterm, these CEO's most likely will bring dramatic positive change. it is the honeymoon that remains tricky. greg

Sunny

August 7, 2007 7:17 PM

Has anyone considered that the problems with american auto makers don't hinge on the good or bad publicity a new cheiftain will recieve? American automakers are woefully behind the times - in technology and in scope. The Japanese brought us the first and the best hybrid cars for individuals, but their also innovating how the world will do public transportation - take for example, the DMV - Dual Mode Bus-Train. The DMV is a super-vehicle! In addition to ranking in the top tiers of fuel efficiency, it goes from pavement to train-tracks instantaneously, making public transportation that much smoother and simpler (See "Streets of Tomorrow", CarDevotion.com). The Los Angeles Times recently ran an article about what's holding affluent Angelinos from adoptiong the public transport system. Overwhelmingly, it concluded, the problem is the inconvenience of travel. Navigating Los Angeles's unweildy and stunted webs of bus and tram routes is as stressful as sitting through traffic. However, technology that enables for one smooth ride - as the DMV potentially might - would offer commuters a chance to make the most of their morning trip to work.

Instead of fretting about keeping up with the Joneses - or, it seems, "Japanese" - American automakers need to take an innovative stance on transportation. Henry Ford saw success because he revolutionized habits (With private cars affordable, all americans wanted to drive). That makes sense if you live in a secluded area, where finding someone to split a ride with you will be hard. Now, however, metropolitan centers are so densely populated that public transportation could be much more convenient.

Check out the DMV on CarDevotion and YouTube, read up about all the initiatives in the works for public transportation, think about it, and see if you don't agree with me.

random

September 6, 2007 1:22 PM

Nardelli can certainly cram Six Sigma into Chrysler since after all, this is what GE alums do best. Cram Six Sigma into companies regardless of whether it's needed or not. He can certainly streamline the process, improve quality and get some discipline in manufacturing. However, the perfect assembly line and 99% efficiency does not make a profitable car company. In the marketplace, people care about the "soft" competencies such as design and innovation.

Nobody wants to drive a big metal box with four wheels just because it was assembled in a textbook example of the Six Sigma tradition. People want to drive cars that look unique, stir up emotions, attract the eye and make the driving experience fun and comfortable. Only when the car has caught their eye and made them intrigued do they whip out the safety stats and JD Power ratings. In fact, one of the biggest reasons for Detroit's fall from grace was the idea that if it's built all right and runs when you turn the key in the ignition, the customer should be content. After all, the car is built well, does design really matter? Yes it does.

It's in those crucial soft skills that Nardelli is the weakest and least experienced. I'm amazed that business analysts writing about his appointment to the CEO post only focus on the car manufacturing side of the operation and not marketing and design when their other articles about American car makers always include the words "boring designs and lack of marketing support." Nardelli will get cars out of the factory for less but since he's never had to deal with designing consumer products, just monstrous machines only an engineer could find attractive, he will fail in moving cars off the lot.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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