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Chrysler makes surprising CEO choice

Kai Ryssdal Aug 6, 2007

Chrysler makes surprising CEO choice

Kai Ryssdal Aug 6, 2007


Kai Ryssdal: The last time you heard the name Bob Nardelli, it was probably followed by the words $210 million. That’s how much money Nardelli walked away with when the board of directors at Home Depot showed him the door back in January.

As of today, Nardelli has a new gig. He’s running the newly-private Chrysler. Cerberus, the private-equity group, closed its deal for the automaker Friday. Nardelli’s getting paid a good deal less this time: a dollar a year with a big incentive payment if the company turns around. But the news of the day is still turning some heads.

Jeff Sonnenfeld’s at the Yale School of Management. Professor Sonnenfeld, what were your thoughts when you heard?

Jeff Sonnenfeld: Kai, frankly, I was stunned. This is a man who left in defeat and disgrace at the Home Depot and is the poster child of excess CEO compensation, and his reputation was in tatters for poor performance. You would have thought that Chrysler could have done better, especially since Chrysler’s come off a whole sequence of CEOs that have disappointed them.

Ryssdal: He’s got, it seems to me, a couple of things he really has to work on. One is Chrysler’s already in-place turnaround plan — $3 billion in restructuring, 13,000 layoffs. The other is the United Auto Workers and negotiations over a new long-term contract. How do you think that’s gonna go?

Sonnenfeld: It’s stunning. You’re so right. It’s a week ago that they opened negotiations with the Auto Workers. So here you have a guy who doesn’t have a amicable relationship with the rank and file, who now has come in. And you have a series of product failures that the union is painfully aware of. And the union, of course, is aware that this is a guy who had previously been well-overpaid and underperformed. It’s not gonna be a winning formula. And Chrysler, of all the automakers in the U.S. right now, has developed a bit more of a maverick and an employee-focused voice. They really expect to be heard.

Ryssdal: Do you think it’s an opportunity for the unions here to get some gains?

Sonnenfeld: I think the unions here are as shocked as the rest of us, and I think that they recognize that the good old days of collaboration are over — that they’re gonna have to be ready to bargain tough and hard, and take strong positions. ‘Cause they have somebody who is not a conciliatory peacemaker.

Ryssdal: All right, well then I have to ask you, all of that said, why did Bob Nardelli get this job?

Sonnenfeld: This is a company that likes splash. Their foreman chairman, they put in Dan Quayle, Vice President Quayle. They go for high-profile, audacious style. Number two, this is a guy who was a legendary good operator at GE that just didn’t find his footing at Home Depot. And their belief is maybe this is a process, a manufacturing business, that he’ll have a new shot at it. He is a bright, talented guy. He’s not one of the rogue CEOs that plundered shareholder wealth. And he’s on a mission to prove that he’s different than the people he’s been grouped with.

Ryssdal: Does it matter that he’s not a car guy?

Sonnenfeld: I think it matters a lot, because this is an extremely complicated business. People who’ve moved in from the outside, such as the CEO of Ford, have [been] very, very quick to acknowledge it’s a far more complicated business than they expected. They’ve got a lot of different industries and technologies come together, a lot of different timeframes. So they have very difficult juggling acts. And he’s not been in an environment as complicated as this one.

And what’s really gonna make a difference, people in this industry tell me repeatedly and I agree, is the quality of the management team that knows the industry that he has reporting to him. If he repeats his history and surrounds himself with platoons of GE soldiers, then he’s gonna have a problem. If he uses people who really know the business, he’s got a chance — and if he learns to listen.

Ryssdal: If Chrysler were still a public company, there would be a time horizon. He’d have, you know, a year, two years to turn this thing around. Do you think Cerberus is gonna let him sit in there for awhile and work on it?

Sonnenfeld: Cerberus, I think, will have him on a very short time horizon as well. It’ll be, I would think, not much more than 12 months to see what he does.

Ryssdal: Jeff Sonnenfeld at the Yale School of Management. He’s got a new book out about CEOs coming back from the brink. It’s called “Firing Back.” Professor Sonnenfeld, thanks a lot for your time.

Sonnenfeld: Sure, thank you.

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