Global Insight Perspective | |
Significance | In a surprise move that likely offers a clue as to how things will operate at the new Chrysler, a management shake-up has occurred that sees Robert Nardelli installed as the new chairman and CEO of Chrysler LLC. Tom LaSorda stays on as vice-chairman and president of Chrysler, while COO Eric Ridenour is out, and Ron Kolka is promoted to CFO. |
Implications | Nardelli's controversial history at Home Depot has raised eyebrows among the unions, and his brusque militaristic management style is viewed by some with concern in light of the currently laid-back atmosphere at Chrysler. Another concern is the loss of Wolfgang Bernhard, as he had been widely expected to breathe new life into Chrysler's line-up with his product expertise. |
Outlook | Now that Chrysler is a private company, such swift and decisive changes may become the norm going forward. This speed is likely to be beneficial to Chrysler, but the recent management moves may not be well received by the union, a concern given the recently commenced contract negotiations. |
The ink was barely dry on the agreement to sell Chrysler Group to Cerberus Capital Management last week before the first announcement of a management shake-up came. The new Chrysler LLC announced yesterday that Robert Nardelli, 59, has been named chairman and chief executive officer (CEO), effective immediately. Tom LaSorda has elected to stay on as vice-chairman and president of Chrysler, relinquishing the CEO title to Nardelli. Chrysler's chief operating officer (COO), Eric Ridenour, has opted to leave the company after 23 years of service, while Ron Kolka, formerly the company's head of finance and controlling, has been named chief financial officer (CFO) of the newly independent automaker. The move came as a total surprise to the media, which had been expecting former Chrysler COO and Volkswagen (VW) head Wolfgang Bernhard to be installed as chairman. Chrysler spokespeople stated that Bernhard was offered a "non-executive" chairman position, but that he declined to accept the offer due to personal and family reasons. It would appear that Bernhard is no longer acting as part of the Chrysler team, despite previous reports that he had installed an office at the company's headquarters.
The new chairman and CEO, Nardelli, is known as a hard taskmaster, whose militaristic management style has earned both praise and concern among industry watchers. Nardelli has spent the majority of his career at General Electric (GE), where he started in 1971 and worked through various divisions before becoming CEO of its Power Systems Division in 1995. He was one of three contenders to take over the chairmanship of the company after the retirement of legendary GE executive Jack Welch in 2001, but he lost out to Jeffrey Immelt. Nardelli opted to depart and ended up at retailing home improvement chain Home Depot, where he spent six years increasing profits, leading a successful international expansion, and generally increasing shareholder value. He abruptly resigned from Home Depot earlier this year after shareholder concerns about his US$210-million severance package became known. Nardelli himself says that he felt constrained by the publicly-owned nature of Home Depot, and that it prevented him from taking actions that he would have liked to have taken.
Nardelli was on stage with now-Vice-Chairman Tom LaSorda at the company's Auburn Hills (Michigan) headquarters yesterday for a massive celebration of the company's first official day as an independent automaker. Over 8,000 employees and guests braved the humidity and listened to speeches by LaSorda, Nardelli, and United Auto Workers (UAW) President Ron Gettelfinger before acrobats took centre stage and fireworks were launched from the top of the multi-storey office tower.
Outlook and Implications
The move by Cerberus to shake up the Chrysler management so quickly after the announcement of the finalisation of the ownership transfer is likely to be an indicator of how things will operate at the new Chrysler. Private ownership does more than simply allow the company to operate away from the pressures exerted by investors and financial analysts and the rigidity of quarterly performance. It also allows extremely swift decisions to be made at all levels of the corporation, as seen by the installation of Bob Nardelli, a rather controversial choice to become chairman of the automaker. His departure from Home Depot was not regarded favourably, but now, as head of a privately held company, some of the complaints against his rather brusque style in dealing with shareholders will become irrelevant. His internal management style, described as rather militaristic and rigid, will likely come as a shock in contrast to the relatively laid-back and easy-going environment at Chrysler currently. However, as Global Insight analyst Rebecca Lindland said yesterday, "When you have a problem child, one way of getting them in shape again quickly is to send them off to Boot Camp. Chrysler has been losing money, and Chrysler is about to be sent off to Boot Camp."
Nardelli's origins as an outsider in the auto industry are not as much of a concern as they might be, given his extensive experience in manufacturing at GE and his evidently solid knowledge of retailing at Home Depot. The arrival of Alan Mulally as Ford CEO last year has opened the door for the traditionally insular Detroit auto industry to look at other sources to boost its executive pool, which is viewed by many as a benefit given the recent difficulties seen with the "Detroit model of business". This fresh approach is needed at the U.S. automakers, which are fighting for their very survival in their home market. What is more concerning is the mysterious loss of Wolfgang Bernhard to Chrysler. The installation of Nardelli means that there are two very capable manufacturing men at the top of the automaker, at a time when what it really needs are able product people to inject bold ideas into the product line-up. Nardelli describes himself as "liking cars", but there is a big difference between being someone who likes cars and someone who has the enthusiast streak to know what makes a successful vehicle, and who is prepared to make the sacrifices often necessary to achieve that end product. Although highly regarded designer Tom Gale is reportedly still actively involved at Cerberus advising Chrysler on design, there is currently no "product guru" in a position of significant power at Chrysler on a par with General Motors (GM) Vice-Chairman Bob Lutz. Bernhard would have been that executive. His departure may have something to do with the possibility of Chrysler looking for alliances and tie-ups for international expansion; if Volkswagen is a potential partner (the two companies are already collaborating on a VW version of Chrysler's minivans), Bernhard's presence atop Chrysler's board may have been a hindrance.
Union Reaction
Ultimately, the announcement of Nardelli as the top Chrysler man may have its most immediate impact on the recently commenced negotiations with the UAW. Chrysler was already likely to face a difficult time in the new round of negotiations due to its newly private nature; the UAW has a good idea of what Chrysler's financial health is like, but with the arrival of Nardelli and the lack of detail surrounding his compensation package (and refusal to discuss it), negotiations are likely to be more contentious. Executive compensation has long been one of the UAW's hot topics, and the arrival of a new top executive who left his most recent position due to controversy over that very matter is a cause for concern. LaSorda's continued presence has been billed as a selfless act of someone interested in turning around the company, but it is likely to be as much an effort to maintain continuity with the UAW, as LaSorda will remain the union's point of contact for the upcoming negotiations. For LaSorda to have left the company now along with COO Eric Ridenour would have been devastating for the UAW negotiations, and would have furthered feelings of betrayal at the union after Cerberus assured it that it had every faith in LaSorda and his Recovery and Transformation Plan. The installation of a new top executive with a very different style to the current one does not send the union a message of confidence in the current management.