The New Regime at Chrysler - Rocky Times Ahead?

chrysler_penta.jpgThe ex-CEO of Home Depot, Robert Nardelli, has been named as CEO of Chrysler, now that it has separated from its ill-fated “merger” (cough) with Daimler-Benz. Nardelli left in disgrace from Home Depot due to questions over his enormous pay package despite Home Depot’s stock taking a precipitous dive. Prior to that he was successful at GE’s power systems division. Chrysler is now owned by the private equity firm Cerberus (named after the 3-headed dog that guarded Hades…)

I’m inclined to agree with Bruce Nussbaum on this one when he says “Picking Robert Nardelli to save Chrysler is the most bone-headed idea Of 2007.” He goes on to say:

The private equity guys at Cerberus Capital Managerment who bought Chrysler from Daimler think that Six Sigma can bring Chrysler back from the dead but they are dead wrong. Ex-GE, Six Sigma-believer Robert Nardelli practically ruined Home Depot in his stay there as CEO by putting the company through a Six-Sigma ringer, bringing in ex-military officers with a bent for hierarchy and replacing the company’s once-wonderful customer-focus with a wholesale mania that infuriated customers—and sent the stock down 8% during his tenure. Chrysler needs that?

The conventional wisdom is that Nardelli is the perfect “outside” guy to come in and straighten out Chrysler, just the way top Boeing exec Alan Mulally has been brought in to save Ford. Nardelli, described as “pugnacious” in the WSJ, will show the unions that they have to give up money and benefits and kick suppliers around too. That Chrysler has to downsize and rightsize to survive is, well, obvious. Any CEO will have to do that. But downsizing is only necessary, not sufficient.

Chrysler needs a top manager who is one with its customers—who knows their culture, their needs, their dreams. Nardelli isn’t that guy. He was successful at GE with their electric-power business. That’s a a b2b kind of business. Home Depot is a b2c kind of business but Nardelli ran away from retail. He felt comfortable only with b2b and built an entirely new wholesale operation that drained money and energy away from Home Depot’s core competency of listening to and understanding its retail customers. Hundreds, if not thousands of Home Depots wonderful store “helpers” left. In the end, the downturn in the housing market hurt the wholesale operation deeply and now, post-Nardelli, Home Depot is getting rid of it.

Private equity guys tend to like Six Sigma because it plays to their ideas of what makes for a successful turn-around—cutting costs, making business process more efficient, etc. They would do better to learn about innovation and design, especially when it comes to a car company.

From Cerberus’ point of view the Six Sigma, cost-cutting/efficiency approach makes a lot of sense of course, because ultimately they are going to sell off Chrysler either whole or in pieces. But from a longer-term perspective neither they nor Nardelli understand the car business or what it takes to make innovative consumer products that people feel passionate about.

What were the two things that have saved Chrysler in the past?

  1. Invention of the minivan. If inventing a whole new product category in the mature car industry doesn’t qualify for go-for-the-fences innovation, I don’t know what does. It was this innovation together with the cost-cutting efficiencies that came from the K-series platform that got Chrysler back in the black in the 80’s.
  2. The Dodge Viper. Personally I’ve always thought the Viper was a ridiculous car (though I’ve autocrossed it and have a lot of respect for what it can do - 500hp and 500 ft-lbs of torque through the rear wheels are nothing to sneeze at). But it was the halo created by this single car that gave Dodge - and by extension - Chrysler just the bump it needed in the 90’s. They then followed this through with well-executed bread and butter vehicles.
While there is certainly more fat to trim in all three of the US car companies, they also need to grow their top lines with attractive and compelling products that people want to buy over the foreign competition, and none of the latest moves at Chrysler are pointing in that direction.