Looking for a star turn
Aug 7th 2007
Chrysler gets a tough new boss
CHRYSLER could do with some reminders of past, happier days when bumper sales and profits were the norm. The completion last week of a deal with Germany’s Daimler whereby Cerberus Capital Management, a big private-equity firm, acquired 80% of the Detroit giant, saw the struggling carmaker return to American ownership. Three days later, on Monday August 6th, the firm resurrected its famous “pentastar” logo, dropped after the merger with Daimler in 1998. Perhaps more important, Chrysler has also got a new boss: Robert Nardelli. The surprise is two-fold. Last week Cerberus had insisted that Chrysler’s management would not change. And Mr Nardelli is from outside the car industry.
Employing a boss not weaned from an oilcan has a precedent. Ford’s boss since last September, Alan Mullaly, was hired from Boeing. Its recent unexpected return to profit suggests outsiders might be useful. More surprising is Cerberus’s abrupt change of heart. Tom LaSorda, whom Mr Nardelli replaces as chief executive and chairman, might have expected to finish the job he has started. Mr Nardelli inherits a restructuring plan that calls for 13,000 job cuts over three years and heavy investment in fuel-efficient engines. This is intended to counteract slumping sales of big sports-utility vehicles on which Chrysler has recently relied.
Clearly Cerberus has concluded that Mr LaSorda, although popular and personable, is not the man to tow Chrysler out of its troubles (however he will stay on as a deputy to his successor). Chrysler will part company with its chief financial officer. Nor will Wolfgang Bernhard, a former Chrysler executive who latterly joined Cerberus, become the chairman, as many had expected. He has now quit the buy-out firm for “family reasons”.
The appointment of Mr Nardelli bolsters the image of private-equity firms as ruthless remodellers of out-of-date companies. Pugnacious and abrasive are some of the kinder descriptions of Mr Nardelli’s management style. He learned his trade under the tutelage of Jack Welch at General Electric. When passed over to succeed “Neutron” Jack” he went to Home Depot, America’s biggest home-improvement chain. There he was best known for his big paypacket and riling investors and lowly staff in equal measure.
Mr Nardelli bagged $125m between landing the job in 2000 and his departure this year, as well as a $210m severance package. But under his guidance Home Depot’s share price fell by 12%, although profits and revenues grew handsomely. His pay is unlikely to raise such ire at Chrysler; rumours suggest he will earn just $1 a year with generous performance-related bonuses adding to the pot. But what the measures of success might be is not clear.
Mr Nardelli has talked of “re-establishing Chrysler as a standalone industry leader”. If his pay is based on that achievement he will have to survive on $1 a year for some time. Other sources suggest that Cerberus wants market share boosted by one percentage point to 12% in three years. Not an easy task given Chrysler’s continual slide in America and Cerberus’s other intention of cutting low-margin fleet sales to rental firms to protect the price of new vehicles. Mr Nardelli has promised a “laser focus” on management in the execution of strategy.
Mr Nardelli might also make an impression on the unions. Along with Ford and General Motors, Chrysler has started negotiations with the United Auto Workers union on a new labour contract to replace one that expires in September. The UAW will resist concessions but has never before faced a private-equity owner with a reputation for axe-wielding. Health-care benefits, job security, wages and pensions mean that on average workers get $30 an hour more that Toyota’s American workforce. Unless some progress is made to close this gap America’s carmakers will continue to founder.
Some insiders suggest that a deal to offload the management of health-care liabilities to a union-run fund has already been struck between Cerberus and the UAW. If true, Mr Nardelli may feel that this is a sign that more concessions may yet be wrung from the union. For its part the UAW may fear that Chrysler is in the mood for a fight.