Detroit/Chicago: Cerberus Capital Management on Monday (6 August) named former Home Depot Inc. Chief Executive Robert Nardelli as chairman and chief executive of Chrysler LLC in an executive shake-up just after the private equity firm completed a deal to acquire the struggling No. 3 US automaker.
Chrysler’s current chief executive, Tom LaSorda, will stay on as president and vice-chairman and continue to lead ongoing talks with the United Auto Workers union as the automaker’s No. 2 executive and a consultant to Cerberus.
In a further shake-up, Chrysler’s current chief operating officer, Eric Ridenour, will leave and his post responsible for production and product planning will not be filled.
“Chrysler has many deeply talented and dedicated people, and I am confident that together we can continue the momentum of Chrysler’s recovery and return this great American icon to a path for global growth and competitiveness,” Nardelli said in a statement.
The leadership reshuffle comes after Cerberus closed its $7.4-billion acquisition of an 80.1% stake in Chrysler from former parent Daimler on Friday (3 August) and underscored both the speed at which the private equity firm was moving to rescue the loss-making automaker and the risks it faces.
The changes come at a sensitive time for Chrysler, which is locked in negotiations with the UAW aimed at reducing its hourly labour costs to make it competitive with Japanese rivals led by Toyota Motor Corp.
In Nardelli, Chrysler is getting a former senior General Electric Co. executive, who was both credited with overhauling purchasing and technology systems at Home Depot and widely criticized for pay and severance packages seen as excessive.
“This is an interesting choice, and I’m somewhat perplexed by it,” said Erich Merkle, an auto industry analyst with IRN Inc. “There are still things that Chrysler needs long term and I’m not sure Nardelli can provide them.”
In a sign of the stress on the US auto industry, Nardelli becomes the second outsider named to lead a US automaker in the past year after Ford Motor Co. hired Alan Mulally as chief executive from Boeing Co.
LaSorda had been widely expected to stay on as Chrysler’s chief executive through negotiations on replacing a four-year deal on wages and benefits for UAW-represented workers that expires on 14 September.
Nardelli received a severance package valued at $210 million, including a $20 million cash payment, when he left Home Depot in January.
He has agreed to take the senior post at Chrysler for a $1 per year salary with further compensation tied to the success of the automaker’s turnaround, according to a person with knowledge of the situation.
UAW talks in focus
The details of the remainder of Nardelli’s compensation package at Chrysler were not immediately available, but could become a question in talks with the UAW.
The UAW endorsed the Cerberus deal to buy Chrysler, which was delayed after bankers were forced to postpone a $12 billion syndicated loan to finance the transaction.
But UAW president Ron Gettelfinger has indicated that executive compensation is one issue for the union as it faces calls to surrender hard-won pay and benefits for the more than 180,000 workers it represents.
A UAW spokesman could not be immediately reached for comment. The union was consulted ahead of the Nardelli appointment, the person familiar with the matter said.
Chrysler lost $680 million last year and has said it will remain unprofitable until 2008 as it restructures by cutting 13,000 job cuts and closing an assembly plant dedicated to the slow-selling Dodge Durango sport utility vehicle.
LaSorda said last year that he accepted responsibility for Chrysler’s financial problems after inventory piled up, consumers turned away from its truck-based vehicle line-up and dealers complained they were being forced to take vehicles they could not sell.
Chrysler’s US sales were down 2% through July and the automaker has been forced to rely on industry-leading incentive ahead of the launch of key new products, including new minivans later this year and new pickup trucks next year.
“They’ve got some momentum on the product side, but my concern is what happens four to five years from now,” said Merkle. “When you get these kinds of management upheavals, what happens to product development?”