Here Come the Cuts at Chrysler

New CEO Nardelli Won't Be Shy Slashing Automaker's $1.24 Billion Ad Budget

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DETROIT ( -- Bob Nardelli ain't no Lee Iacocca.

You could almost hear the groans from dealers, agencies, media owners and the marketing department as Mr. Charm was announced this week as CEO of the "New" Chrysler. Not only is he an unlikely brand ambassador, but experts and the racing form suggest he'll hack the marketing budget, too.
Robert Nardelli, Chrysler's new CEO
Robert Nardelli, Chrysler's new CEO

Mr. Nardelli has been best known in recent years for refusing to address shareholders angry over his lucrative compensation package from his previous employer, Home Depot. Though a smart financial manager, he's reputed to get things done no matter what the human or reputational cost. "He's not a public-relations confidence builder, and he's gruff and arrogant to his people," said Dale Oesterle, business-law professor at Ohio State University's Moritz College.

And Mr. Nardelli won't be shy when it comes to cutting Chrysler's $1.24 billion ad budget -- given that he carved $100 million from Home Depot's much-smaller kitty during his six-year tenure there. "While Nardelli was intrigued with marketing, he never really figured it out," said a former Home Depot manager. "As a result, he viewed marketing as another expense to cut as opposed to an investment to grow the business."

Home Depot spent $524 million in U.S. measured media in 2006, Mr. Nardelli's final full year there, compared with $649 million in 2002, according to TNS Media Intelligence. (Chrysler's budget last year was equivalent to a little more than one-fifth of the $210 million golden parachute Mr. Nardelli received from Home Depot.)

A spokesman for Chrysler said Mr. Nardelli hasn't made any moves yet (the CEO left for vacation Aug. 6 after a press conference announcing his appointment). But observers expect cuts quickly, along with a fast move by Nardelli & Co. to sell off assets to raise cash. Mr. Oesterle predicted that could happen within weeks.

Time is of the essence, as Chrysler is hemorrhaging. The former Chrysler Group posted a loss of nearly $2 billion in the first quarter of 2007; DaimlerChrysler, which still holds a minority stake in the automaker, cited as the main reason $1 billion-plus in restructuring charges. In the same period in 2006, Chrysler Group reported earnings of $857 million before interest and taxes.

Mr. Nardelli was not available for an interview. He's reportedly getting an equity stake and only $1 a year in compensation from Chrysler. At last week's press conference, he said that as a private concern, Chrysler will "immediately" want to "monetize" assets that have a lower market value than book value. Tom LaSorda, who relinquished his CEO title to Mr. Nardelli and is now Chrysler's vice chairman-president, gave the example of a piece of land with a book value of $10 million and a market value of $8 million. "Under a public company, you'd never [sell] it, because it's a loss, but with a private company, it's cash."

Possible sales
Kevin Tynan, auto analyst at Argus Research, said the automaker could sell part of Chrysler Financial, or some of its real estate. He doesn't expect Chrysler to sell any of its three vehicle brands -- at least not yet.

Based on Mr. Nardelli's history, Chrysler could be in for some good things. Walter Todd, portfolio manager of Greenwood Capital Associates, gives Mr. Nardelli credit for doubling Home Depot's earnings and streamlining ordering with a $2 billion digital-technology upgrade. But Mr. Todd said Mr. Nardelli's progress came at the expense of customer service, which allowed Lowe's to gain ground.

In Mr. Todd's opinion, the ex-Home Depot chief is "very out of touch with his employees and his customer base." He suggested Mr. Nardelli may bring to the automaker talent from his alma mater, General Electric Corp.

Another skill that will be sorely needed -- and that Mr. Nardelli doesn't readily display -- is tact, particularly when it comes to tricky negotiations with the United Auto Workers union. At the press conference, Mr. Nardelli said this year's labor talks with the UAW "could be a landmark negotiating period." At the event, he casually slung his arm around a union chief.

When asked about Mr. Nardelli's reputation, the Chysler spokesman pointed to glowing statements by former GE CEO Jack Welch about Cerberus making a smart choice in hiring Mr. Nardelli. Of course, this is the same Mr. Welch who passed over Mr. Nardelli to succeed him in 2000.
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