Bob Nardelli has engendered his fair share of controversy while Chief Executive of two of America’s largest corporations–The Home Depot and now Chrysler. Today, 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 (HD) 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 (GM) 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.