AUBURN HILLS, MI – Be careful what you wish for. It might come true.
Either Robert Nardelli has never heard this caution, or he is unfazed by it. BecauseLLC’s top executive says the current economic crisis represents “the kinds of things CEOs look for” when they accept an assignment.
“They look for the challenge,” he says, conveying a sense of optimism that belies’s fragile position in a crumbling U.S. industry.
This time last year, the former Home Depot CEO and General Electric Power Systems chief was just getting comfortable in his new skin, having been handpicked to lead Chrysler by the auto maker’s new owner, Cerberus Capital Management LP.
Within weeks Nardelli already had presided over a painful restructuring that slashed production 10.1%, hacked about 10,000 names from hourly and salaried payrolls and chopped four slow-selling models from the auto maker’s lineup.
“We were taking what we thought was a very aggressive, conservative view of 2008,” he tells Ward’s in a wide-ranging interview. “We were much more conservative than the industry average and some of the other manufacturers.”
Chrysler’s forecast of a 15.5 million-unit industry undercut by 500,000 the assumptions of
others. “Through the first quarter, we looked very smart,” he says.
Then the banking industry collapsed, accompanied by a staggering escalation in gasoline prices that panicked consumers and killed, once and for all, the high-margin large SUV and personal-use pickup market.
As a result, the seasonally adjusted annual rate of sales plunged below 11 million units – the lowest level in nearly 25 years, according to Ward’s data.
And through October, just three of Chrysler’s 14 plants could boast capacity utilization at or above 70%, a sharp contrast to like-2007’s performance, when half of the auto maker’s plants met that benchmark, according to Ward’s.
Fast-forward to this day, in the conference room just outside Nardelli’s office, where he declares he would have accepted the Chrysler job even if he had known the bottom would fall out.
“I don’t look back and kick the dirt and say, ‘Gee, ain’t it awful?’” he says. “I’m frustrated because we have so many good things going.”
They include an ambitious electric-car program and a redesigned Dodge Charger sedan that “will blow you away,” Nardelli reveals.
But these things will see the light of a different day at Chrysler.
“Will we be able to run the company in the traditional fashion? The answer is, no,” he says. “We need to change the way we operate internally. We’re going to have to have a broader span of control. We’re going to have to have fewer levels in the organization.
“We’re going to have to be much more focused and do a lot more prioritization on what are the programs that are going to drive the immediacy of cash return and liquidity. We’ll have to make some tough calls on some on some of the programs we have in the pipeline for 2013-15.”
As the smallest of Detroit’s auto makers, and the only one without a significant global footprint to leverage cost, Chrysler is hedging its bets.
“I can’t put a chip on every technology,” Nardelli says. “So from my experience, having run a power business for five years, the (U.S.) infrastructure is best-suited to handle electric. Whether you use your household 110 (voltage) or your dryer 220, to me, if you have a shot at trying to be compliant with (fuel-economy mandates) and maybe having consumer acceptance, I think it’s going to be on the electric vehicle. That’s where I did put our bet for Chrysler.”
The auto maker surprised industry observers in September when it rolled out a trio of electric concept vehicles – a fully electric Dodge-brand sports car, as well as a Chrysler minivan and Jeep Liberty SUV powered by electric motors whose batteries were recharged by small gasoline engines called range-extenders.
The auto maker promises to market one of the three by 2010, but Nardelli does not tip his hand about which one it will be. He boasts about the sports car’s performance, but adds “the other two we put out there with the range-extender that get you close to 400 miles (640 km) on eight gallons (36L) of gas, (they are) a pretty good bet.”
The way the vehicles were engineered also point to a frugal approach of which Nardelli is proud.
“The subtlety of our strategy should not be missed,” he says. “I could have spent $1 billion on a new platform. Or I could have spent the money on the technology and install it into existing vehicles to get out there sooner. That’s the road we chose.”
He bristles at industry whispers that Chrysler engineers pulled an all-nighter so executives could dazzle media with a smoke-and-mirrors demonstration.
“I can assure you it wasn’t an all-nighter,” Nardelli says, adding a backhanded swipe at the Chevrolet Volt, a planned model-year ’10 electric vehicle thatCorp. has kept under close watch. “We did have a group of journalists driving our vehicles. These weren’t just your typical auto show, roll-on-the-stage-and-hold-your-breath (vehicles).”
Expect Chrysler also to offer another glimpse of its future at next month’s North American International Auto Show in Detroit, where the results of its connected-cockpit development work will be unveiled, Nardelli says. Earlier this year, the auto maker established a team to work specifically on vehicle cockpits.
For all Chrysler’s optimism, however, it has seen the derailment of several significant product programs. Plans to build a Jeep Grand Cherokee SUV featuring Mercedes-brand Bluetec advanced diesel technology have been delayed, while production of its first hybrid-electric vehicles – versions of the Dodge Durango and Chrysler Aspen SUVs – will end Dec. 31, just four months after Job One.
The HEV production halt coincides with the accelerated closure of Chrysler’s assembly plant in Newark, DE. But the auto maker has said it has more hybrids in its pipeline.
In addition, plans to introduce a U.S.-market vehicle equipped with fuel-saving, dual-clutch technology were scuttled after Chrysler sued supplier-partnerGmbH & Cie KG, which subsequently filed for bankruptcy.
Such developments don’t bode well, in the near-term, for the auto maker’s dealers. But Nardelli dispels any notion Chrysler is out to starve its store owners.
There is no “no cloak-and-dagger, clandestine strategy,” he says. “The dealers are an extension of this company. Taking dealers out is not a strategic objective of ours.”
A key part of Chrysler’s ongoing strategy involves manufacturing partners, Nardelli adds, pointing toMotor Co. Ltd. as one example. The auto makers have a deal that will see Chrysler build pickups for Nissan and another that calls for Nissan to supply Chrysler will small cars.
“There’s probably not a manufacturer that we haven’t talked to about platforms or how might we take advantage of capacity at each other’s facilities, whether it be for engine, whether it be for drivetrains, whether it be for axles,” Nardelli says. “We’re open to any of those things.”
He describes the approach as “share to win.”
Meanwhile, the United Auto Workers union, while supportive of Chrysler’s management team, is wary of another partnership, having just extracted its members from a frustrating affiliation with Germany-basedAG.
“We would prefer to go it alone,” says General Holiefield, vice president of the UAW’s Chrysler department.
But no growth can occur without a fundamental change in Chrysler’s operations, or the overall business climate, warns industry analyst Joe Phillippi of New Jersey-based AutoTrends Inc.
“It’s going to be really, really tough,” Phillippi says. “Largely because the credit markets are still frozen, particularly as it relates to the car business. And consumer confidence is just, in a word, terrible.”
Nardelli draws consolation from a deep-rooted belief that a turnaround is inevitable and the knowledge that Chrysler, reeling from a 37.7% year-over-year sales decline through October, according to Ward’s, is not alone in its suffering.
“I don’t think there’s anyone immune from what we’re seeing in this industry,” Nardelli says, adding a caveat clearly aimed at Washington, where the fate of Detroit auto makers rests in the hands of politicians pondering emergency aid.
“My concern is I just hope that as a country, we understand the criticality of this industry. Depending on how you look at it, on the dealer basis they represent about 18% of retail sales in this country. If you look at it from the (Gross Domestic Product) standpoint, depending on how far down you go on the supply chain, it could be 3%, 4%, 5% of GDP.
“If you go all-in, we could be talking about literally millions of people depending on the auto industry for employment – not only direct employees, but suppliers, sub-tiers, all the transportation, etc.”
Nardelli put a finer point on this scenario in his late-November testimony before the Senate Committee on Banking, Housing and Urban Affairs, projecting up to $400 billion in lost wages and $150 billion in lost government revenue. And his forecast for a Chrysler that does not receive financial aid is chilling.
Liquidity could fall “below the level necessary to sustain operations in the ordinary course,” Nardelli testified. As a result, health-care coverage for retirees would be at risk, as well as $2 billion in annual pension payments to retirees and surviving spouses, $35 billion in annual business for suppliers and $6 billion in wages for 56,600 direct Chrysler employees.
“There’s plenty of blame to go around,” Nardelli tells Ward’s. “But we are where we are. I believe there’s an infinite capacity to improve upon everything you do.”
How does Nardelli rate his performance as Chrysler CEO?
“We clearly have a vision,” he says. “We clearly have alignment on execution. The subsets to that are putting together a product cadence, working on the quality, really stepping out on a leadership position on electric vehicles. The disappointment is not being able to do more, faster. We would be healthier.”