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Five Answers From Bob Nardelli

Posted by: Helen Walters on November 19, 2008

BusinessWeek executive editor John Byrne interviewed Bob Nardelli last week at a forum in Palm Springs, and as promised, he put five of our readers’ questions to the man currently at Chrysler’s helm. We’re waiting on the video but given all that’s going on with the auto industry, it didn’t seem worth waiting to post a text version. Here — and after the jump — are Nardelli’s answers.

Reader Jonathan Lo: Many people feel American automakers deserve to go by the wayside. Their chronic inability to control costs, especially with labor, poor automobile designs, and outrageous executive salaries are a mere fraction of the problems that plague this industry. Whenever I hear about a failing company lobbying the Government for money, I am reminded of the government’s poor handling of the S&L crisis, which can be summed up as, “Why should taxpayers throw good money after bad?” Americans will still have quality vehicles to drive, so what does it matter that they aren’t Chrysler or GM?

Bob Nardelli: Let me put this in perspective, if I could. If you think about Chrysler alone, when we were doing the due diligence, there’s around a million people dependent upon Chrysler’s success. So you could say, well, let them go down. And the country will be okay. I think the difference is, and I don’t mean to belittle at all the loss of Lehman, but it’s one thing to lose a company. I think what we’re dealing with here is the loss of an industry because of the inter-dependence (of the Big Three and their suppliers). So if you said, “let Chrysler or GM or Ford go down,” if you look at the supplier base that’s already as fragile as the auto industry, the manufacturers, I think you will see a rippling effect that is unprecedented. If you just look at the pension obligation that the country would inherit, the Pension Benefit Guarantee Corporation right now has about a $14 billion deficit. The pension obligation that would be handed over to the government would more than double that obligation for the pensioners in this country. Go all the way back to the steel mill, the foundry, the tier three, tier two, tier one primary supplier. If you look the entrepreneurs in this business, there are many. I have 3,500 small business owners. They’re called dealers. Each of them employ about 100 to 150 people. The larger ones have 300 on their payroll. So the rippling effect throughout the country cannot go unestimated. People can’t fail to appreciate the impact of an industry.You know, a lot of people say, ‘well, isn’t it like the airline industry, Bob? No big deal.’ I think not. You know, airline industries went into bankruptcy. And basically, you’re going to get on a plane. You may hold your nose and hope like heck that they didn’t cut maintenance costs. But you don’t own it. You’re going to go from here and we’ll go back to New York this afternoon. In an auto, you can defer (a purchase and often a repair). And not only can you defer, but people are also deferring maintenance. In good times, maintenance is seen as an investment in their vehicle to make sure the appreciated value was there. Today, they’re seeing it as an expense. So not only are they not buying vehicles, if you look at unemployment at 6%, probably going nine to ten, if you look at consumer confidence at an all time low, if you look at currency in circulation up $28 billion, people are hording cash. So you’ve got a number of external factors. We’ve got the financial institutions where we don’t have money flowing yet. And so I think this is a very broad and pervasive issue for our country, let alone the national security issue if you lose the automotive industry.

Reader TC: Considering that Chrysler will need a motivated workforce to successfully execute a turnaround, how do you plan to address the withering impact to employee morale?

Nardelli: Well, I'd be less than honest if I said that when we announced yet another major furloughing it didn’t help. These are people that have been together an average of 20.4 years. They're neighbors, they're friends, they're colleagues. But it's amazing, the resilience and the commitment. These are people that have been in the industry a long time. They're passionate about it.

They're consummate supporters of the auto industry. And so we try to keep them motivated, to keep the morale up. You know, a lot of companies have to create a burning platform to get motivation. Well, we're all wearing asbestos suits right now. So it's pretty hot every day. But we manage to stay focused. We manage to keep looking forward and work our way through this.

It is clearly probably the biggest challenge I’ve had over the 13 or 14 different businesses I've been part of or run over the years. This is clearly the biggest challenge, because of the external factors.

Reader Jazz4: How can an ex-executive of Home Depot be expected to turn around an automobile company?

Nardelli: I've been blessed over my career to have had the opportunity and the challenge to transition across a broad range of businesses and industries. So what you learn is, as you develop your tool kit, that 50, 60, 70 percent of your managerial skills are portable. The last 25 percent, you have to be a dry sponge.

You have to emerge yourself into that business. And I think the challenge I had every time I went through that was to put myself on a vertical learning curve. Because the rate with which I absorbed the new industry was the rate by which I paced the change that would take place. I think one of the advantages you have coming in new is you don't have to justify the past. One of the toughest things managers have to do is to change what they may have put in place. The toughest thing to do, before you can change your company, is you have to change yourself.

Reader Stone Payton: Can you really expect an organization as large and complex as Chrysler to innovate with the agility and speed necessary to meet today's (and tomorrow's) market demands?

Nardelli: Well, I think as we set about putting our imperatives in place, our strategy was to enhance the core. That means we have to fix what we have. Customers first, quality period. In the first 60 to 90 days, we did over 500 unique line item improvements to improve the ride, the handling, the fit, the finish. Things that may have been cost reduced out, we put back into our vehicles to try and get a more competitive advantage. We looked at content and we brought content up, so that we were on parity. So enhancing the core was phase one. Extending the business was about getting adjacencies of growth. Are we really maximizing our parts and service business? Are we really taking some of the product platforms and extending those? It was a very conscious decision to use some existing platforms, spend our money on technology to get them to the market sooner, and then finally, expand. That means bringing our products in. When we got divorced (from Daimler), we lost that international footprint. So we said "customer first, quality period." And we set that out and we talked about it relentlessly. And we keep talking to make sure that our metrics, our measurement, the accountability, the consequences of those are communicated broadly across the organization. We were, again, I think a little insular from the standpoint on technology. Suffering a little bit from the "not invented here" syndrome. So we really have tried to open the kimona within Chrysler and look much more broadly outside. I think a proof positive example of that is our alliance with Nissan, where we're going to work with them to get a smaller platform vehicle. In exchange, we will become their exclusive truck manufacturer. So it's a great quid pro quo. And I think it’s also a vote of confidence by Nissan to say Chrysler is going to be our truck manufacturer. And it allowed us to get into the smaller car segment.

DanGreen23 (via Twitter): We’ve heard extensively about the Chevy Volt. What are Chrysler’s plans for alternative auto technology?

Nardelli: Some companies out there are developing hybrids. Some are doing fuel cells. Some are doing natural gas. Some are doing electric. As I sat back and looked at the technology, and I looked at the infrastructure within our country, and having spent you know, five or six years running the energy business, a few years running the transportation business, my assessment was, I think we can get into compliance faster by focusing on one technology. That's electric. And we have three prototypes of electric-powered vehicles we have just shown —- a two-seat Dodge sports car, a Jeep Wrangler, and a Chrysler Town & Country minivan.

There were some critics in the auto industry that... well, they really aren't new frames. They're not new bodies. And that was a conscious decision. I could spend over a billion dollars to develop a new platform, to put on a new top hat. Or, I could spend the money on the technology and try to retrofit vehicles that would get me into the marketplace sooner, with first mover advantage. And again, retain the reliability and the durability of a lot of the components in the vehicles we know.

So we said for the outdoor enthusiast, for people that want the freedom, who, you know, roam the globe, the electric vehicle will maintain the environmental protection that they need. If you look at the people who need to transport a larger volume of passengers, you know, we went with the mini-van. And then, we didn't want to leave out, of course, the Dodge enthusiast, as we position our three brands -- bold, intimidating, speed, competitive is the Dodge vehicle that's out there.

Now, remember there's six million plugs in the US household today. And so when I looked out there, from my experience, there's not a lot of natural gas stations. There's not a lot of places where you're going to get fuel cells. And the hybrid, quite honestly, is a very costly alternative, because you're paying for two redundant systems, a traditional combustion and a redundant electric.

So, we went where we thought the consumer basically comes home, plugs [a car] into [a] 110. If they want to do it in four hours, they plug it into their dryer outlet, their 220 outlet. Over 80 percent of the consumers today, the drivers drive less than 40 miles.

We've said we would pick one of those (the three prototypes), work like heck to get out there so that we're in the market by 2010.

Reader Comments

Doug Sapp

November 20, 2008 8:23 AM

I am hearing a lot of the same type of responses from the other 2 automakers, "we can't let this industry fail because we can't afford to let this industry fail."

To me, it is a form of blackmail with a nice soft touch of sentiment. "If you don't give us the money we will all suffer the consequences." What a great thing for the auto industry and the unions. They can both now step back say that whatever happens, it's not their fault.

If we (It's our money) don't bail them out, boom, there goes the auto industry and it's our fault. If we bail them out, we endorse their behaviors and they continue on as they have for the past decades until they send us another ransom note.

When does it stop????
When does it change????

Let's let them go and deal with the consequences. Maybe Tesla Motors could slide into Detroit and pick up key talent at a discount, manufacturing capabilities at pennies on the dollar, maybe this is what it takes to get true innovation going from the former big 3.

Green Innovation

November 22, 2008 8:23 PM

The graduate students of the Management of Innovation course at Johns Hopkins
University (JHU) have published an insightful, timely, and free book on Green Innovation, which I am sure you will enjoy reading! Please click on the link below to download your free copy.

Mike Reardon

November 24, 2008 3:04 PM

Congress and the public have forgotten, the Auto industry in 2005 had 16 million units, this year it will may hit 11 million cars and trucks. Its time for the industry to find one right prototype to get behind and ask for support for the infrastructure build out to support that car nation wide.

Stone Payton

December 18, 2008 7:40 AM

Is the video on this interview out yet?

Helen Walters

December 18, 2008 9:53 AM

Stone, Rather upsettingly, we weren't able to get the video of this encounter after all. Sincere apologies, Helen

Stone Payton

December 18, 2008 10:51 PM

No Worries . . . The text report was well worth the reading, and I was certainly honored to have my question in the mix.

Keep up the good work!

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