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Robert Nardelli and Chrysler

Prof. Peter Morici - 8/7/2007

Yesterday Ceberus shoved aside Thomas LaSorda to name Robert Nardelli CEO of Chrysler. One wonders why. As things currently stand, the North American automobile industry is losing money. Toyota earns about $1200 a car and the Detroit Three lose more than that. Overall, the Big Six--GM, Ford, Chrysler, Toyota, Nissan, and Honda--have trouble turning a profit.

The Detroit Three are not incompetent. They lose money owing to burdensome legacy and everyday labor costs, and anitquated work rules. Without a transformational contract, the domestics will continue to lose money, and by the utterances of Ron Gettlefinger, don't look for the UAW to do what needs to be done to preserve their numbers long term.

As for Chrysler, Robert Nardelli is the wrong man for the job.

Chrysler has three problems. First, it has the immediate problem of putting more desirable products on the road. Nardelli is not a car guy. He can't quick fix what Chrysler hasn't got. He lacks the background.

Second, Chrysler has endemic problems in its supply chain. Chrysler produces the poorest quality, most unreliable products among the big six (GM, Ford, Chrysler, Toyota, Nissan and Honda). Poor quality stems from poor engineering and inept components suppliers. A deep understanding of automotive systems, engineering and supplier relationships are needed to fix Chrysler's quality problems. Nardelli lacks the necessary background.

Third, in five to seven years, newer prototypes--hybrids, fuel cell, hydrogen, etc--will be more much important than today Chrysler is behind in developing new protype vehicles, and it must joint venture effectively with others to compensate. Nardelli is hardly a poster boy for corporate diplomacy. His tour of duty at Home Depot demostrated that.

The North American industry has too much capacity and one too many original equipment manufacturers. Right now either Ford or Chrysler is headed for Chapter 11. Nardelli's appointment makes it more likely that Chrysler will be the company that fails.