Monday, August 6, 2007

New Chrysler: The Party Is Over Before It Starts

Michelle Krebs

Michelle Krebs, veteran automotive-industry

authority, joins Edmunds editors, analysts and

data experts to provide news and commentary

Even before the party celebrating Chrysler’s divorce from Daimler and its marriage to private equity firm Cerberus Capital Management Corp. begins for employees today, the party is over.

Last night’s announcement that the controversial former CEO of Home Depot Bob Nardelli is Chrysler LLC’s new chairman and CEO is an indication that business as those at Chrysler have known it is over.

Despite all of its claims of patience, being in for the long haul and seeming compassion, Cerberus has sent the clear message that it intends to move quickly -- and likely ruthlessly -- to turn Chrysler around. In fact, Nardelli’s compensation requires it.

No more Mr. Nice Guy.

Selection of Nardelli: Cost-cutting expansionist

While the appointment of Nardelli take the helm of the New Chrysler initially came as a shock to many in the industry, it shouldn't have.

With the first private equity firm owning a car company, business will not be as usual, and neither will those who will run the business. Already, Ford went to the outside, tapping former Boeing executive Alan Mulally to run the troubled automaker.

Cerberus obviously found Nardelli attractive because of his capability in expanding a business and his cost-slashing expertise.

In its statement, Cerberus credited Nardelli, who headed The Home Depot, from 2000 to January 2007, with doubling sales as well as the number of store operations, moving globally into Mexico and China, and delivering more than 20 percent earnings-per-share growth for four consecutive years while growing dividends from 16 cents to 90 cents per share. Nardelli also has extensive senior operations experience in manufacturing and transportation, the statement noted.

Before joining Home Depot, Nardelli narrowly missed out as head of General Electric, for what has been described as his "imperial" management style and poor relations with stockholders. Still, he is still credited with successes at GE, where he grew businesses and slashed costs -- attributes surely Cerberus finds attractive.

What Cerberus' statement did not point out that Nardelli left the retailer under pressure with a controversial $210 million severance bonus and a declining stock price. His was among other compensation packages that created shareholder backlash over such excess.) At Chrysler, Nardelli will draw no salary. His compensation will be directly linked to the equity performance of the carmaker.

That's further indication that Cerberus -- and Nardelli -- will waste no time in turning things around. For Nardelli to be paid requires it.

Wolfgang gone

The Nardelli appointment was as much of a shock because it had been widely believed that former Chrysler COO and Volkswagen exec Bernhard would take the top job.

He had, in fact, been offered the job as non-executive chairman but declined, supposedly due to personal and family reasons. However, obviously the post of a non-executive chairman didn't sit well with Bernhard, who likes to be firmly in control.

Again, passing over Bernhard should not have been surprising. He has ruffled lots of feathers at Chrysler, Daimler (which will retain nearly 20 percent of Chrysler and still be involved in projects), and Volkswagen.

Further, why would Cerberus tap the same folks to run the New Chrysler that got the old one in the state it is in today?

Bernhard hand in establishing the operations of the Chrysler today and its product plan. Also out is Eric Ridenour, a 23-year Chrysler veteran, who had been head of product development under Bernhard and rose to COO.

How long for LaSorda?

The buzz has been and continues to be how long will LaSorda last. Supposedly he was the man -- CEO. Now he has been displaced, becoming president and vice chairman. He will also serve on Chrysler's board and as vice chairman of a Cerberus operating group.

That looks like a way to ease him out of Chrysler. LaSorda likely will be kept on throughout the current labor talks, since he is popular with the union, having been from a union activist family. But once that contract is signed, the bet is he'll be brushed aside completely with a nice buyout package.

More management changes

More management changes are likely.

Look for changes in the design and product development staffs as Chrysler must develop better, homerun products and do it faster.

Top designer Trevor Creed has long been rumored to be out. Hot young designer of the 300, Ralph Guilles, like is "the annointed one for that post.

So for now Chrysler employees party on at the company's expense at today's celebration at the Auburn Hills, Mich., headquarters. Because the party is over.

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