Chrysler took a bold step in its new life as a private company Monday, appointing Bob Nardelli, the controversial former boss of home improvement chain Home Depot, as its new chief executive. The surprise appointment raised eyebrows but could be just the jolt needed to help revive the ailing automaker.
Nardelli, a former high-ranking General Electric executive, left Home Depot under a cloud in January after a shareholder rebellion sparked by his hefty pay and the company’s stagnating stock price. His severance package, worth an estimated $210 million, made him a poster child for excessive executive pay.
Now Nardelli is moving into Chrysler’s corner office as the No. 3 U.S. automaker faces a raft of challenges, including a crucial round of contract negotiations with the United Auto Workers union. Chrysler is desperate to secure cuts in pay and benefits to make it more competitive with Japanese heavyweights Nissan, Honda and Toyota.
Nardelli declined to disclose compensation package at Chrysler, which as a private company no longer has to release such information. Reportedly he will take home just $1 a year and will likely get an ownership stake in the company if he can revive its fortunes. Still, for observers like Jeffrey Sonnenfeld, a professor at the Yale School of Management, Nardelli’s appointment at the helm of an iconic American company is curious.
“You wonder what [Steve] Feinberg, Cerberus’ CEO, is thinking with so much talent out there,” Sonnenfeld told CNBC Monday. “They could have done a lot better. The drawbacks here are obvious, but [Nardelli] was, to his advantage, a strong operational manager.”
Nardelli has big weaknesses but also great strengths, Sonnenfeld said. He is extremely hard-working and smart, but he’s “on a mission to prove something,” and has a “tin ear” to his critics, he added. If Nardelli can listen to his critics and learn from failure, he’ll be “a fabulous boss” Sonnenfeld said.
Nardelli’s results-driven management style has turned off both employees and customers, but he helped increase revenue and profits at Home Depot and his strong leadership style could be just what Chrysler needs, said George Magliano, director of automotive industry research for the Americas at Global Insight.
“This is a turnaround situation,” he said. “I think Chrysler’s already done a good job of cutting costs, so now I think Nardelli’s coming in to refocus the attitude at the company. He has a reputation as someone who pushes people to do things differently, and that’s what he’ll do. He has a free hand to shake things up.”
Nardelli’s appointment is the second time in under a year that an outsider has been called to lead a U.S. automaker. Last September, Ford named Boeing executive Alan Mulally to be its chief executive officer. Mulally replaced family scion Bill Ford after the company had lost $1.44 billion in the first half of 2006.
The fact that [Nardelli] comes from outside the auto industry undoubtedly was a factor in his appointment, said John Challenger, CEO of outplacement firm Challenger, Gray & Christmas. The outsider’s perspective “may prove to be beneficial to an industry that is notoriously resistant to change,” Challenger said.
Nardelli’s reputation as a deal maker may also be crucial as the automaker needs to forge new alliances, after the unraveling of Chrysler’s nine-year union with Germany's Daimler-Benz, which spun off 80 percent of the U.S. unit in a $7.4 billion deal. Nardelli will likely be tasked with growing the automaker’s global business, forging alliances with names like Hyundai, Volkswagen, or Renault-Nissan.
“The feeling is that Chrysler on its own is going to have a tough time surviving, and it has issues with product, so it has to be aggressive in that area,” said Magliano.
Chrysler’s Dodge Caliber compact car hasn’t done well, Magliano said, and the company doesn’t have much in the way of smaller, family-sized cars, except for the Chrysler Sebring and the 300 sedan.
“[Chrysler’s] product offering is still too truck-heavy, and the company is too North America-centric, so that’s going to have to change,” Magliano said. “They have to revitalize their car lineup and I don’t think they can do it alone. It’s why they did a deal recently to produce cars with China’s biggest automaker, Chery. They need to broaden their market exposure.”
Chrysler, which has produced automobiles since 1925, has struggled in the shadow of GM and Ford for years. In 1979 former Ford executive Lee Iacocca famously was brought in to help Chrysler avoid bankruptcy, but as a smaller player the company remained vulnerable to the 1998 takeover by Daimler-Benz.
When the deal with Cerberus was announced this year, executives said private ownership would help the company focus on longer-term growth. Chrysler lost $618 million in 2006 and $1.98 billion before interest and taxes in the first quarter of this year and has said it will remain unprofitable until 2008 as it restructures, cutting jobs and closing plants.