Nardelli Pleads for Chrysler, but Would a Bailout Help?

Bob Nardelli has engendered his fair share of controversy while Chief Executive of two of America’s largest corporations–The Home Depot (HD) and now Chrysler.  Thursday, he is at the center of a debate on Capitol Hill to assess the merits of a Federal rescue package for the automakers. Nardelli seeks $7 billion in government funding for privately-owned Chrysler because the current financial meltdown has left “The Big Three” in desperate need of a capital infusion to keep them out of bankruptcy. The trouble is that there are substantial concerns that this is a case of “throwing good money after bad” and it will be tough to convince Republican lawmakers otherwise. Especially considering that Chrysler anticipates burning through $5 to $7 billion in fiscal 2009 but as of the end of the third quarter the company only had $6.1 billion in cash. The domestic automakers need significant structural changes in order to make them sustainable and many think the best way to restructure the industry would be through Chapter 11 bankruptcy.

For anyone unfamiliar with Nardelli, he rose to prominence as a top executive at General Electric (GE). When Nardelli’s mentor, GE’s iconic CEO Jack Welch retired, Nardelli was a finalist for the job but was passed over for Jeff Immelt (still with GE but for how long?). That disappointment did not last long because almost immediately after losing the race to head up GE, he was offered the CEO position at The Home Depot in December 2000. This was his first experience in retail, and he brought the “Six Sigma” management philosophy ingrained at GE to Home Depot with mixed results.

His tenure at Home Depot has been much maligned, most of the criticism coming from the enormous $210 million severance package that he received when he was ousted in early 2007. That “golden parachute” completed what totaled nearly half a billion dollars in compensation for 6 years of under-whelming performance. During Nardelli’s tenure, HD stock was flat for six years while the stock of its closest competitor Lowe’s (LOW) doubled. Nardelli was excoriated for not maintaining Home Depot’s amazing sales growth; prior to his arrival HD sales had doubled every four years for roughly the past 3 decades. The drama climaxed at the shareholder meeting in 2006 when Nardelli stage-managed what was undoubtedly the most poorly handled board meeting in corporate history. He has been a poster child for excessive executive pay ever since.

Nardelli seems to have learned a thing or two about public relations since his unraveling after six years at the helm of Home Depot. He  agreed to take a $1 per year salary when he arrived at Chrysler, much the way Lee Iacocca had done years before. This is a symbolic gesture since eliminating his compensation will not save a company that is leaking $5 billion plus dollars a year. Similarly, the founder of Chrysler’s private equity parent, Cerberus Capital Management, said that it would forfeit any profit made from a future sale of Chrysler so that the government is not seen as funding private equity. Clearly, Cerberus just wants to get out of the auto industry, although you have got to admire his optimism in thinking that Cerberus might actually profit from the sale of Chrysler!

Nardelli is also saying the right things referring to the need to change the industry and he called any government infusion a stop gap measure rather than a “road to nowhere”. We could not agree more, but what we don’t understand is how he expects to enact this change with the UAW contracts still in place. There is a stigma associated with declaring bankruptcy but that does not mean that these businesses would shut down. Instead, Chapter 11 bankruptcy would allow the automakers to trim fat, close plants, shed car lines and models and most importantly renegotiate labor contracts. Where is it written that there must be three domestic automakers?  After all, when General Motors and Chrysler were in merger discussions recently, there was talk of curtailing Chrysler’s operations substantially. Plans were being considered to bring Chrysler’s 26 model fleet down to just 7 autos, close half of its 14 plants and cut 24,000 jobs. If a domestic automaker bailout package is approved, it will not make these bloated companies leaner and thus will not address the core issue. So, Nardelli can talk tough about cutting costs all he wants, this buyout will bring more of the same.

Comments

[jazzme:]

This is positively right on. Chrysler has been failing for forty years due to poor quality,wrong product mix,lousy planning etc. Why keep them on life support? Even our favorite pets have to be "let go of" at some point.
When did we decide that a hedge fund owned corporation should get taxpayer backed loans.
Does anyone believe that Nardelli et al woud have shared the wealth had they hit the timing right when they believed that by taking a distressed bargain Chrysler off Daimler's hands they would end up making a killing? This was a private capital deal.
Maybe Ford and GM would actually benefit and become stronger. Plus they at least have public shareholders who have a stake in their demise.
Where are our priorities? We have a dramtically smaller pie to share than we did just 18 months ago.
I spent 37 years at the hard retail end of the car biz and fully understand the failings of Detroit. I can't tell you how many mistakes corporate hubris are responsable for. I sold/managed/owned at all levels of both import and domestic brands. Oh, and financially went down with the British ship of carmaking in 1981. The word government bailout wasn't possible as the government actually already had owned most of that industry.
I've seen this movie before.

2008 Nov 20 01:17 PM

[leo-68:]

Pleaseeeeee,give me a break,Nardelli is working for a $1.00 after taking half a billion dollars from hard working Home Depot associates and loyal investors. In addition who paid off his mortgage,fancy cars etc.Now he want's more from taxpayers to fix Chrysler.HELL NO! Not this taxpayers dollars.He does not care about Chrysler employees.May I suggest that Mr.Nardelli takes his check book and writes a $1000.00 check to every Home Depot and Chrysler employee and watch the economy bounce back overnight or am I asking too much from the man who only gets a $1.00 salary?Let the public decide!

2008 Nov 20 01:40 PM

[sunil94062:]

My view after seeing Nardelli on TV at the hearings is that he is a psychophant - tell the people what they want to hear! Kiss-Ass kind of person.

He comes across as a typical car salesman stereotype - no substance and a "yes" man.

Actually it is no wonder our 3 Auto companies are in distress - because they have such poor leaders. Not one of them struck a chord of 'wisdom' with me. No one had the depth of knowledge of their companies (or they did not want to tell us the truth), so they hedged, humm'd or haww'd.

For Mulally and Nardelli to say - we just came to the job, as a justification for not knowing the facts about their companies is pathetic. To my mind, a smart CEO, would have been fully prepared with all manner of statistics, backwards and forwards, north to south and have these numbers and facts on the tip of their tounges - because they literally, ate, slept and drank their companies - just like I do for my enterprise. That is all I do all my waking hours, especially the working waking hours. I am therefore honed to perfection in this context! That is how they should be. And I am just a SME!

None of the three CEO's deserve to be a corporate leader and thus should be sacked, and dismissed for cause. They came totally ill prepared and had zero conviction. If none of them would sacrifice their cash comp and go on a earn-out scheme - then their interest is not aligned with us - the tax payer, whose money they seek to get. They should have volunteered that themselves. Pay me last, they should have said, if for nothing else to demonstrate their conviction!

I think it is 100% worth saving the three companies (or an aggregated ONE) and keeping most if not all of their 'good' workers. And I am certain they do have some good workers. No reason why a federal subsidy, to ensure a level playing field for this globalized business, is not warranted. It should be subsidized, if the general consensus is that Japan, Korea, Germany, France, India, etc. subsidize their auto industries, and rely on the US consumer (for example) for their well being, but use their local citizens for making their cars, then YES I am also for lending support to our industry. All manner of support I offer. People will need cars for a long time to come and I don't want to give up that knowledge and skill. The US needs to be KING of this hill.

Being a 'least cost producer' is germane to surviving a free market scheme. Thus, if a subsidy is standard operating global policy, then we support the Detroit 3 with the bail out. At that juncture we do whatever it takes, so our industry is last man standing.

BUT none of these guys deserve to be CEO for sure.

2008 Nov 20 02:59 PM

[TheAdvancedOne:]

Honestly. Everyone has lost there minds. The problem here is we waste time on the problem not the solution. Congress is horrible and everyone says ohh let Big three fall. Well let me give you a snapshot. a few months ago Everyone said that about banking. at the rate we are going atleast close to over 150,000 Jobs Lost with a Expected Job lost of up to 300,000
soo now its auto. next Insurance then all retail. you know what solve the problem if you wanna know how reply to me and i will tell you how lets start a movement and make a better future for our familys. And Stop playing the Monopoly (Crash and Burn Edition)

2008 Nov 20 03:58 PM

[Bababooie:]

This article is neither about Home Depot nor General Motors. Talking about how Nardelli should know what he is getting into is about as much sense as knowing what to do at McDonalds. In both cases you have to experience and adapt to the new environment. The guy at McDonalds has it made, he only has to change his actions, not the actions of 66,000 people. Arm chair CE0s are a dime a dozen. Maybe some of the Airmchair CEOs should report to Congress. . . . OH. . . .WAIT. . . . They work for Congress. . . They Let the economy get into this disasterous situation. . . and are now holding their noses, and pointing elsewhere!

The potential to get financing is completely gone in today's market. There are no institutions who are willing to "Float" a loan. The Financial industry get a loan, and use it to immediately buy-out their competitors. Paulson has put a hold on further loans until it "Pans out". Money makes the work go around, and Paulson has put on the breaks by not placing restrictions on usage. The media is like a five year old child. The more that goes on in business, the less that gets detail reporting.

The special interest representatives (transplant States) have given many tax incentives to get the Masda, Toyota, and Mercedes plants into their States. It is these same Representatives that do not want support for the Domestic Auto makers. Even the playing field, make the Transplants pay back the incentives, place similar Tariffs on vehicles
that our exported vehicles have overseas. Shut down the dealership network from foreign interests.

Bottom Line:
The Automotive market is still growing. The Foreign Automakers are benefiting from a ready made market in the United States. The Foreign Automakers are benefitting from Foreign Subsidy (In France). The Foreign Automakers do not have pension costs (which is being addressed by the US currently). The Foreign Automakers do not have to worry about health care costs (Also being addressed). The Foreign Automakers do not have restrictions outside their country on establishing dealerships.

The high wages of the US Autoworker are days gone by. The UAW sees the handwriting on the wall, and concessions have been made. The British mistake of loosing the Auto Industry should have been a lessson to our Lawmakers.

2008 Nov 20 03:58 PM

[terra:]

Bob Nardelli was a huge failure at Home Depot. He was over paid for failing and had no idea how to run a large retail company. He is totally an all about himself person....No money for Bob....

2008 Nov 23 10:34 AM