Posted on 08/07/2007 1:43:37 AM PDT by bruinbirdman
By picking a tough-minded outsider to head Chrysler, the struggling automaker's new owners have put company employees, suppliers and dealers on notice that things will be changing.
Cerberus Capital Management's founder Stephen Feinberg closed the $7.4 billion deal to buy Chrysler on Friday and this weekend put his guy in place at the top, installing former Home Depot Inc (HD.N) head Robert Nardelli as the automaker's CEO.
Nardelli's hiring comes at a critical time for the struggling U.S. automaker -- amid contract negotiations with the United Auto Workers union aimed at reducing hourly labor costs in areas such as health care.
"I think we need to be tighter on our purse strings," Larry Drake, who heads Kuka Flexible Production Systems, a Chrysler supplier, told an industry conference on Monday in Traverse City, Michigan. "I think that's where the changes will be."
Nardelli, a hard-driving former General Electric Co (GE.N) executive, was credited with revamping Home Depot's purchasing systems to save money, but then was widely criticized for a compensation package seen as excessive, including a $210 million severance deal when he left the company in January.
Chrysler's former CEO Tom LaSorda agreed to stay on as Nardelli's deputy and company president with responsibility for operations including a crucial, ongoing round of contract talks with the United Auto Workers union.
That structure gives Chrysler a "good cop" to face the union in LaSorda, with the "bad cop" of Nardelli, representing the financial interests of Cerberus, looming in the background, said David Cole, who heads the Center for Automotive Research.
"Obviously, he's Cerberus' watchdog," Cole said of Nardelli. "And it looks like Tom LaSorda is the guy who's going to run the company."
That dual structure could allow Chrysler management to press the UAW for concessions needed to cut costs, with the implicit threat that such a deal is needed to allow Cerberus to fund continued investment, Cole said.
Nardelli declined to discuss his pay package at the newly private Chrysler, saying only that it would be tied to progress in turning around Chrysler -- which lost $680 million last year and has had to rely on the most costly incentives in the industry to move vehicles this year.
PAY CONTROVERSY LINGERS
Nardelli's hiring could complicate negotiations with Chrysler's 43,000 UAW-represented factory workers, but some analysts said that without the constraints of being a public company, Cerberus will be better positioned to shake up an industry that lost over $15 billion last year.
"They may have reasoned that his hard-line approach to leadership is what's needed to turn around the struggling automaker," said John Challenger, chief executive officer of consulting firm Challenger, Gray & Christmas.
Peter Jankovskis, one of two chief investment officers at OakBrook Investments of Lisle, Illinois, said Nardelli's "blunt style" caused problems with shareholders at Home Depot, but could make him an appealing choice to run a private company.
Jankovskis, who owned Home Depot shares under Nardelli as well as stock in Chrysler rivals General Motors Corp (GM.N) and Ford Motor Co (F.N), said Nardelli could move for a faster restructuring of Chrysler.
"It could lead to some rationalization within Chrysler itself, not just cutting outside suppliers but paring back certain units of the company that may not be producing as much as he would like," he said.
Keith Davis, an analyst with Farr Miller Washington, which owned Home Depot shares during Nardelli's watch, also expects Nardelli to apply the cost-cutting skills honed at Home Depot.
"That's why I think he'll work out well at Chrysler or any manufacturing firm, because he's great at driving costs out of the system," he said.
However, Davis added, while Nardelli drove up Home Depot's margins, he also cut costs so much that some shoppers were driven to rival Lowe's. (LOW.N)
University of Maryland economist and commentator Peter Morici said Nardelli lacked the automotive background and deal-making skills to save Chrysler, especially given the pressure for new alliances to fund expensive development of hybrid engines and other technology.
"Nardelli is hardly a poster boy for corporate diplomacy," Morici wrote in a comment. "His tour of duty at Home Depot demonstrated that."
Nardelli came to Home Depot with much fanfare in December 2000, but quickly drew mixed reviews from workers used to the more free-wheeling management style of its founders.
Last year, the discontent swelled as investors questioned the size of his pay package and by refusing to take questions or review the company's performance at its annual meeting.
These issues won't be a problem for Nardelli at privately held Chrysler, however, analysts said.
"Despite the way his career ended at Home Depot, he's a great manager," said Richard Steinberg, president of a Florida asset management firm that owns GM bonds. "In a private environment, he's going to be able to do what he needs to ... without the microscope of the public entity."
As of 2003, GM had 339,000 retirees and Toyota had 65.
Those numbers will change as retirees die, the auto companies downsize retiree benefits and Toyota’s workforce ages and retires. ~But first the damage will get more severe.
The difference is simply that GM is an American company with a long presence and Toyota is a newcomer with fewer liabilities.
Sorry, attributed to:
http://www.industryweek.com/ReadArticle.aspx?ArticleID=1331
Chrysler is in about the same shape.
First, kill all the unions......
I guess CEOs are like NBA head coaches. No matter haw bad you are, and how many times you get fired, there will always be another job down the road.
Perhaps you can add NFL and MLB to that list! Dennis Green comes to mind...wonder who he'll coach next.
“Chrysler cannot wish away either of these, regardless of its owners, or CEO’s.”
They can. They can cut pensions if a certain financial loss threshold is reached. That is in the contract from the past.
All they have to do is build better cars at a better price.
Join the club. I bought my last Chrysler 10 years ago.
At Lebanon Rd. and Andrew Jackson Highway here in the Nashville area there is a Lowes on one side and a Home Depot on the other.
Five years ago I bought a water heater at Lowes and went across the street to get two pipe nipples that Home Depot carried and Lowes couldn’t sell me.
But, I'm not hoping very much.
What a stupid move. Eager to hear what Jim Cramer says....
Seven thousand off of list price.
I think that has been Lowe’s strategy: look for orange buildings and build within sight of them. Makes store location easy!
Which brings up an important point. The auto industry (US) has operated much like the US government - make promises that they cannot possibly afford/tie up future funds and obligations. Why has the US auto industry made such promises - the union. The unions have outlived their useful and constructive roll by about 60 years. When unions were about actual worker safety/working conditions - they were quite instrumental in bringing up standards in US manufacturing. But we taxpayers now fund an agency of the federal government to take care of that (OSHA). Now, the unions are about getting all the pay and benefits they can squeeze out of the employers - even if that means cutting their own throat. Here is what it boils down to - Toyota, Nissan, and other overseas companies building plants in the US choose "right to work" states for a reason. And while the Japanese plants have operated under a "no layoffs" plan their entire time in the US (they do also hire temporary workers - as does other companies like Remington Arms), they have kept the promises and continue to make huge profits. While the big 2 have had many layoffs. The benefits and pay, though maybe not quite as plumb/golden as the big 3, are quite good at the Japanese factories. As I posted at a previous time on the same subject - IF the big 3 were to decide to work together to bust the Union, they could. If all three decide that they are going to set the conditions of work, the pay scale, the benefits packages - all based upon what they can actually afford - maybe (God forbid) tie in benefits and bonuses with actual profits and quality.... IF the Union says no, then shut them down. At this point, it is difficult to imagine that it would hurt the already bleeding ledger. IF GM/Ford/Chrysler are to stay in business, they must be run like a business. That means operating in a manner that makes a profit. They cannot continue in the red forever. if the union decides to play hardball, then they should be willing to face layoffs or even complete loss of jobs. And it may come to this - how much does it cost to build and open an auto manufacturing plant in a right-to-work state? A billion dollars? How much is GM or the other makers bleeding due to inane benefits and union demands? I realize that training a whole new workforce would also be extremely expensive- but the current model is NOT WORKING. Without change, and SOON, the only US made cars will be by foreign companies (like Toyota, Nissan, Honda, Hyundai, etc.)
At one time long ago when I worked there, Chrysler was known best for their engineering. Quality has always been in question even when I was with Dodge. A Nephew who is a garage mechanic advises me now that their quality is not desireable. Regarding union muscle. Years ago when at another auto company I asked the Director of Labor Relations if he thought the union would strike if we didn’t give them more fans for an alleged health and safety issue. His response answered the problem at hand. “Do you think we’d let them strike.? They then got lots of extra fans. By the way that settlement only cost money. It was the principle issues that hurt us the most, and those involved work practices. Glad to help in anyway I can.
How is it that I can get to where you are just when you’re there????
Tell me more. I could listen to this for the rest of my life.
yeah, i could.
I agree. Unfortunately, its illegal, and the perps would go to jail. The union can get together to pit one company against the other, and that's entirely legal. But if the companies try it, they violate the law. Such is the legacy of FDR. This is not to exonerate decades of mismanagement by company bosses (I'm one of them, retired), but it does complicate the current strategy.
But the loophole would be if the the companies just choose to not bow down to the unions. It would not require an actual “conspiracy”, just that the management decides to do what is best financially for the companies...
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