Video: Nardelli right for Chrysler?

updated 8/6/2007 6:29:38 PM ET 2007-08-06T22:29:38

In an e-mail to employees Friday, Chrysler CEO Tom LaSorda said one of the benefits of being a private company was the speed with which the automaker could act. Employees got a taste of that speed Monday, when in one decisive sweep LaSorda was demoted and the former head of Home Depot was tapped to lead Chrysler LLC.

“The new Chrysler has the opportunity to prove that the private business model can thrive in this industry,” said Bob Nardelli, who left The Home Depot Inc. in January after a shareholder rebellion over his outsized pay. Chrysler’s new board named Nardelli chairman and chief executive; LaSorda was given the No. 2 spot.

It was always clear Chrysler would be a different animal under its new owner, the private equity firm Cerberus Capital Management LP. It no longer has shareholders, so it isn’t required to release earnings or executive compensation figures.

But Monday’s announcement underscored that things won’t be the same with Chrysler in the hands of the secretive Cerberus, which took industry-watchers by surprise with Nardelli’s appointment. Cerberus had previously said it had no plans to change Chrysler’s management team.

“You have to wonder whether or not Cerberus is trying to take Chrysler in a different direction,” said Patrick O’Keefe, president of O’Keefe and Associates, a turnaround consulting firm in Bloomfield Hills.

Nardelli said he plans to proceed with LaSorda’s restructuring plan, which includes cutting 13,000 hourly and salaried jobs in North America by 2009. Nardelli said he wants to help the company focus its efforts and offer his energy and enthusiasm

“It’s not about creating a new strategy. They’ve got it,” he said. “I’m confident that we’ll continue the momentum of Chrysler’s recovery.”

Video: Examining Nardelli

For his part, LaSorda said Nardelli is a strong manager who has helped companies grow. At Home Depot, he increased profits and revenues, while as an executive at General Electric Co. he was known for cutting costs and improving labor relations.

“He’s always been a winner, every business,” LaSorda said. “Leave the egos at the door. Let’s turn around this company.”

It marks the second time in less than a year that an outsider has come to the rescue of one of Detroit’s struggling automakers. Ford Motor Co. named former Boeing Co. executive Alan Mulally as its president and chief executive in September.

Aaron Bragman, an auto industry analyst with the consulting firm Global Insight, said Detroit is in need of outside help as it tries to reverse its fortunes. Last month, foreign brands captured more than 50 percent of the U.S. market share for the first time ever.

“Being an outsider in the Detroit world is not really so much a difficulty as it was before, as we have seen the Detroit model is in trouble,” Bragman said. “This may be the time for fresh eyes.”

But Bragman said he’s concerned because Nardelli doesn’t have product experience, and the most important part of Chrysler’s restructuring will be making cars that consumers want to buy.

Others wondered what effect Nardelli’s hiring will have on ongoing contract talks with the United Auto Workers. Nardelli resigned from Home Depot with a $210 million golden parachute after he came under intense criticism for his hefty pay and slumping stock price.

Nardelli said UAW President Ron Gettelfinger brought up his pay package during a recent two-hour meeting, but he said the two established a good relationship. Nardelli said LaSorda will continue to have primary responsibility for the contract negotiations.

A message was left Monday with the UAW seeking comment.

Pete Hastings, an auto industry corporate bonds analyst with Morgan Keegan & Co., said Nardelli’s aggressive leadership style may hurt the company as Chrysler and the UAW hammer out a new labor agreement. The old agreement expires Sept. 14.

“He would not have been my first choice if I had been making the decision,” Hastings said. “Tact is important to get done what you need to do in transforming the company and working with the unions, and I’m not sure that’s his strong suit.”

Nardelli said Monday his compensation at Chrysler would be based on the company’s performance, but he wouldn’t give any more details. A company official familiar with his agreement said Nardelli would make $1 a year with further compensation based on performance. The official spoke on condition of anonymity because Nardelli’s agreement isn’t public.

Nardelli said he hopes his Home Depot pay package doesn’t become an issue.

“The last thing that I would want to be as part of the new Chrysler is a distraction,” Nardelli said.

Like other U.S. auto companies, Chrysler has been struggling to make a profit while sales were falling and pension and retiree health costs were rising. Chrysler made $1.8 billion in 2005 but lost $618 million in 2006. The losses led DaimlerChrysler to transfer an 80.1 percent stake in Chrysler to New York-based Cerberus in a $7.4 billion deal. The German automaker, which is to be renamed Daimler AG, retained a 19.9 percent interest in Chrysler.

Chrysler, which shot off fireworks Monday to celebrate its new status, also announced that it is reviving the company’s Pentastar logo. First used in 1962, the five-pointed star is returning with a three-dimensional update. The symbol will be used on buildings, signs and corporate stationery but not on vehicles or in dealerships, LaSorda said.

Besides Nardelli and LaSorda, the 11-member Chrysler board now includes representatives from Cerberus and DaimlerChrysler as well as independent directors. Chrysler’s chief operating officer, Eric Ridenour, decided to leave the automaker after 23 years, Chrysler said.

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