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Bob Nardelli: "Fresh Eyes"??nd A Sharp Ax


By David Welch and David Kiley Cerberus Capital Management founder Stephen A. Feinberg rarely speaks publicly about his firm's investments. But what a statement he made when he hired Robert L. Nardelli, the former Home Depot (HD) and General Electric (GE) executive, to run Chrysler, which Cerberus bought for $7.4 billion on Aug. 4.

By naming Nardelli chairman and chief executive, Feinberg sent the message that it will take gut-wrenching change to truly fix Chrysler. Cerberus hasn't divulged its strategy, but sources close to the private equity firm and to Chrysler say the new parent has identified the core problems. Nardelli will have to boost quality and increase lagging productivity at Chrysler's factories. He must bring discipline to a sales strategy of frequent deep discounts to move the metal. And he's likely to shake up management, adding new talent in product development, marketing, and design. "I bring a fresh set of eyes, a new perspective," Nardelli told reporters on his first day on the job. "I can't wait to roll my sleeves up and get to work."

Supporters say Nardelli has the skills and experience needed to fix Chrysler. He negotiated money-saving union deals for GE without labor strife, and he clearly knows how to streamline operations. Moreover, sources say, Feinberg is counting on Nardelli to negotiate big concessions on health care, where Chrysler faces $18 billion in retiree liabilities. "We're going to benefit big-time from his track record," says Thomas W. LaSorda, who vacated the CEO job for Nardelli and now will serve as Chrysler's vice-chairman and president. Retired GE Chairman Jack Welch says Nardelli's tenure at GE shows he isn't just a cost-cutter. Under Nardelli, Welch says, GE's locomotive unit doubled its market share, to 70%, in three years. And the power generation business went from a loss in 1994--the year before Nardelli joined--to a $1.7 billion profit in 1999. "He will make Chrysler more efficient than it has ever been," Welch says.

MILITARY MAKEOVER

At Chrysler, Nardelli's challenge will be to find the kind of revenue gains he made at GE without creating the problems he caused at Home Depot. His military management style led to 100% turnover among his top 170 managers by the time he left the retailer in January. His cost-cutting moves replaced experienced salesclerks with low-wage students, devastating customer service and handing market share to rival Lowe's. "Bringing in a hatchet man for Chrysler could be deadly," says Christoph St??rmer, an analyst at Global Insight Inc. "Chrysler craves vision and inspiration, a real product guru."

Nardelli says he won't revamp Chrysler's fix-it plan but hints he might speed it up: "If we can do it faster and more efficiently, that's what we're going to do." Chrysler has trimmed nearly 13,000 workers and closed a factory, but if sales don't bounce back, more cuts could follow. Big changes may be in store for the design and engineering groups, too. Chrysler once was hailed as Detroit's most innovative automaker. But executives say chief designer Trevor Creed and product development boss Frank Klegon now are on the hot seat. No wonder. Chrysler scores near the bottom in J.D. Power & Associates Inc.'s (MHP) surveys for quality and consumer appeal. "He's going to have to change the whole business model at Chrysler, and it's going to take a tough CEO to do that," says Mike Jackson, chief executive of AutoNation, the biggest car retailer in the U.S.

The good news for Nardelli is that Chrysler's private ownership means he'll be able to restructure the company without worrying about quarterly profit reports. And as long as Chrysler survives, a modest return on investment won't be that hard to make. Chrysler Financial earns $700 million a year, so if Nardelli can get the car business to break even, Cerberus will get an annual return of nearly 10%. But Cerberus will want more than 10%. And that means tearing up entrenched practices without tearing Chrysler apart.

With Gail Edmondson in Frankfurt and Brian Grow in Atlanta


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