Magazine

Bob Nardelli's Bumpy Road


He disappointed at Home Depot and may soon have to step down from Chrysler. What's gone wrong for the former GE star?

When Cerberus Capital Management hired Robert L. Nardelli to fix Chrysler in 2007, the private equity shop and majority owner figured an outsider like Nardelli would show those Detroit guys how to run a car company. After all, he had learned his stuff at General Electric (GE), a company that reputedly bred the best managers in the world.

It hasn't worked out quite the way Cerberus planned. Nardelli may not be Chrysler's chief much longer—either because the company is liquidated or because Fiat (FIA.MI) gets a controlling stake and puts its own man in the job. Nardelli's exit would mark the second time he has been bounced as CEO since leaving GE in 2000. Three years ago, Home Depot (HD) gave him the shove, too.

It may be tempting to see Nardelli's missteps as an indictment of the Jack Welch school of management. But other Welch acolytes have fared better since leaving GE, among them W. James McNerney Jr. at Boeing (BA). Nardelli has proved himself a manager who can slash costs. But since leaving GE he hasn't demonstrated compelling strategic vision.

Of course, fixing Chrysler would have tested any executive. The company was losing money well before the economy imploded. Daimler (DAI), the former owner, cut spending on new models, and Nardelli's bosses at Cerberus declined to invest more money. Chrysler argues that Nardelli had some successes, such as forcing executives to get more disciplined about spending and pushing for quality improvements.

All the same, some of the choices he made hurt more than they helped. Nardelli's default position is to cut costs. That's an understandable instinct when a company is hemorrhaging money. But Nardelli's cuts haven't always served strategic ends. At Home Depot, he replaced many veteran hardware guys and retired tradesmen with twentysomethings making less money. The cuts gave profits a short-term pop, but lackluster service drove away loyal customers.

At Chrysler, Nardelli cut costs partly by robbing from tomorrow. Car companies are nowhere if they don't have new products in the pipeline. But he cut capital spending for new models from more than $3billion in 2007 to $2.3 billion for the next two years. When the feds showed up to assess Chrysler's viability, they noted that Nardelli's team planned only four new models for the next five years. They also pointed out that Chrysler had dedicated half as many engineers to a given vehicle project as General Motors (GM). Nardelli could have cut more production to find a breakeven point rather than axing engineers and crimping product development.

Fights with Managers

Nardelli tends to ram through his ideas. At Home Depot he acquired a wholesale business, despite objections from his executives that it would shift focus from the retail stores. Several key people left, and Home Depot later sold the company. At Chrysler, Nardelli tangled with managers and engineers, including veteran Mike Donoughe, who didn't agree with some of the boss's plans. When Nardelli fired him, Donoughe joined Tesla Motors, the Silicon Valley electric-car company. A Chrysler spokesperson says Nardelli held "fireside chats" with managers and showed them "deep respect."

One of the great ironies of Nardelli's tenure is that though he billed himself as the plucky outsider waging war on Detroit myopia, his strategy differed only in degree from what the car guys have been doing for years: restructuring. Like his predecessors, he wasn't able to wring concessions from the unions fast enough. Instead, he saved money by paring white-collar ranks. His legacy is a Chrysler so hollowed out it may no longer be viable as a standalone company.

Return to the Auto Bailout Special Report Table of Contents

Welch is BusinessWeek's Detroit bureau chief.

We Almost Lost the Nasdaq
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus