Which Nardelli?

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It is prove-it time for Robert Nardelli. It has been barely a week since he was named the new CEO at Chrysler and already the whispering, questioning and speculating is afoot in automotive circles about which Nardelli has arrived. United Autoworkers President Ron Gettelfinger endorsed the Cerberus acquisition of Chrysler only to have the firm name as the new CEO a man whose name has become synonymous with corporate excess. So the question is teed up: Is Nardelli here to save Chrysler, or just save Cerberus’s investment? The two don’t necessarily go hand in hand. Is Chrysler getting the Nardelli who boosted profits at Home Depot for a few years before leaving a slew of problems and making off with a massive pile of shareholders’ money? Will he simply wring costs out of Chrysler and pump short-term profits at the expense of the carmaker’s future? Or are we getting the hard-charging boss who retired General Electric Chairman Jack Welch hails as one of the best operating executives he ever worked with? There are a few hypothetical scenarios one can imagine where Nardelli could emerge as hero or villain.

Here’s Nardelli with the black hat. As I wrote in the current Aug. 20-27 double issue of BusinessWeek, (http://www.businessweek.com/magazine/content/07_34/b4047046.htm) if Chrysler breaks even during Cerberus’s time of ownership, the private equity firm can make roughly 10% on its $7.4 billion investment just on the profits from Chrysler Financial Services, the auto company’s car loan business. If Nardelli slashes costs and investment in new product to make short-term profits at the car company, Cerberus obviously does even better. Suppose Gettelfinger gives Chrysler the healthcare deal the Big Three want this year. That means Chrysler would hand the union a multi-billion sum of cash equal to some portion of the union’s retiree healthcare liabilities. In exchange, the UAW must take over the healthcare plan and manage medical benefits for the workers. The deal would remove some $18 billion in unfunded healthcare liabilities from Chrysler’s books and simultaneously erase one big reason investors and other carmakers shy away from buying U.S. industrial companies. Suddenly, Cerberus would have a profitable company that’s saleable to Wall Street or another carmaker even if the future has been put in jeopardy by cost cutting and slack investment in new cars.

Here’s Nardelli in the white hat. The littlest of the Big Three gets the Nardelli that Jack Welch speaks of in such laudatory terms, the nails-tough executive who not only slashed costs at GE’s locomotive and power generation businesses, but grabbed market share and sent revenue soaring. He did it, Welch said in an interview, by listening to his customers and delivering great product. By the way, in the locomotive business, Nardelli doubled market share at the expense of General Motors, which used to have its own locomotive company. If he can deliver for Chrysler what he did for GE, Nardelli could make his banker bosses an even fatter return and pay some big cash dividends. When car companies are run well, they generate cash like a casino in a Wild West boom town. They don’t call Toyota the Bank of Toyota for nothing. And remember, it wasn’t that long ago that Chrysler was worth nearly $40 billion.

At the press conference announcing his arrival, Nardelli spoke of his love affair with cars and the trio of Chrysler models he owns. Now we’ll see if he really has the desire and ability to fix this company. If he does, Nardelli will prove that he’s the GE guy, not the controversial exec who took heat for his reign at Home Depot. He could rewrite his industrial legacy. He could also dispel some of the fear that private equity firms are just this decade’s robber barons.

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