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Insider: The Nardelli Factor

The ink on the divorce papers was barely dry when Cerberus Capital Management installed a new CEO at Chrysler.

The arrival of Bob Nardelli as chairman and CEO of “the new” Chrysler sent shockwaves through Detroit. The hard-charging executive known as “Little Jack,” a nickname given for his die-hard loyalty to former boss and GE chairman Jack Welch, has what some would say is an overly aggressive work ethic (it’s not uncommon for Nardelli to be at the office into the wee hours and often on weekends). That workaholic attitude—along with a staunch belief that everything has to be measured and tracked, no matter what—has not resulted in a stellar track record.

The biggest criticism of Nardelli results from the exorbitant $210-million golden-parachute he received after begin ousted from Home Depot in January 2007 despite the company’s sagging stock price (market valuation fell 40% during his tenure) and stagnant retail sales results (maybe this guy is cut out for the auto industry after all, since it suffers from lagging stock prices and poor retail sales), but it’s important to point out that the Home Depot board is more culpable than he is for agreeing to pay him that sum in the first place. Still, Nardelli needs to be taken to task for his approach to cost cutting at Home Depot, which relied on more part-time help in lieu of seasoned workers knowledgeable in particular areas of contracting and construction.

Tossing experienced people by the wayside has helped Home Depot’s main competitor—Lowe’s—gain share and boost customer satisfaction. The University of Michigan’s American Customer Satisfaction Index survey in 2006 showed Home Depot’s overall perceived quality ratings fell by the largest decline ever measured in any industry since the survey’s inception in 1994. While Nardelli has been gone from Home Depot for several months, his impact is still evident: During a recent trip to my local Home Depot, I was shuffled between departments trying to get an answer on a particular product, which no one seemed to know, particularly the two younger women in their orange aprons who were chatting about how hung over they were from the night before. Not to mention another visit when the paint desk was vacant and the only person willing to help was a staffer who was unable to handle the weight of a 5-gallon bucket.

Hopefully Nardelli will not repeat the same mistakes as he enters the world of Detroit’s auto industry. All he has to do is look upon the carcasses of outsiders who have come and gone before him—Ronald Zarella being the most notable of them all—to realize this town loves to chew up those who underestimate it. He might be able to avoid common failings by surrounding himself with those who truly know this industry inside and out and by keeping those veterans close by his side. He must also be willing to listen to those who know how this industry works and realize those who own the retail stores (dealerships) are more powerful than the companies that feed them product, as opposed to traditional consumer retail networks where the head office runs the show.

Most important of all, Nardelli must realize that cars and trucks are not the same as DeWalt sanders and Stanley garage door openers. This is a totally different business and consumers expect more than just lip-service; a vehicle being the second largest ticket purchase they’re likely to make in their lives. The focus should be on developing reliable, stylish and appealing vehicles consumers will want to buy, which means not trying to squeeze an extra dime out of each vehicle by doing more molded-in color plastic parts, rather investing in materials and features that surprise and delight. By the way, this “my way or the highway” attitude that’s reportedly Nardelli’s signature will have to be mellowed a bit. If his true purpose is to turn Chrysler around, Nardelli will have to work in cooperation with the union and suppliers to build bridges, not burn them. Chrysler is an enterprise that succeeds as a result of its people and their enthusiasm, not in spite of it.

Cerberus’ choice of Nardelli makes perfect sense if you think that all they want to do is make money and off-load the enterprise piecemeal down the road, which is where I see this going. Watch for Cerberus to swap Jeep to GM for the remaining 51% of GMAC it doesn’t already own, while the remainder will likely end up in the hands of a foreign rival with a fruity-sounding name. 

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