posted 08-07-2007 07:36 PM                  

NEW YORK (Fortune) -- For weeks, Chrysler watchers have been wondering what, exactly, Cerberus would be bringing to its new acquisition. What did the sharp pencil guys in New York know about the auto business that Chrysler's own seasoned American executives - not to mention the Germans at Daimler - didn't?

Now the answer is becoming clear. And it isn't encouraging.

Today's earnings are encouraging - but the automaker can't cost-cut its way to long-term profitability, says Fortune's Alex Taylor.

Cerberus' appointment of Bob Nardelli, formerly of General Electric (Charts, Fortune 500) and Home Depot (Charts, Fortune 500), as CEO seems wrong-headed on a number of fronts.

One: Chrysler is a fragile place these days, having only recently recovered from the German invasion and then seen itself sold for essentially peanuts. But soothing bedside manner isn't exactly part of Nardelli's MO. Any remaining talented individuals who stuck around at Chrysler to see how things were going to turn out are now polishing their resumes and arranging severance payments before the boat starts to rock.

Two: Nardelli's appointment undercuts Chrysler's renegade culture. As the youngest, smallest and most fragile of Detroit's former Big Three, Chrysler has always prided itself on its outlaw spirit; it was willing to gamble on things other automakers weren't.

Now comes Nardelli, brandishing his Six Sigma credentials and his GE by-the-books training. His mere arrival has already forced the exit of several talented car guys. Wolfgang Bernhard, a former Chrysler and Mercedes executive, has left the building. Considered a sure thing to become Chrysler's new chairman, he's declared that family considerations prevent him from taking the job. Eric Ridenour, Chrysler's young and up-and-coming chief operating officer, has also bolted. Tom LaSorda, the popular president, took a demotion to stay with the company, but the chances of the easygoing LaSorda coexisting with the hard-charging Nardelli are slim to none, though at Monday morning's news conference, Nardelli took pains to identify LaSorda as his partner and to identify his areas of reponsibility.

Three: Observers are making much of the fact that Nardelli is the second outsider to move into Detroit in the past year, the first being Alan Mulally of Ford (Charts, Fortune 500). But any similarities between the two stop with that fact. Mulally was coming off a big success - the development of the Boeing 787 - has little visible ego, and appears to be very comfortable knowing what he doesn't know. He seems to have charmed much of Ford with his off-putting, gee-whiz style while at the same time using his knowledge of large industrial companies and some basic common sense to shape up the company.

Nardelli, on the other hand, arrives on the heels of an enormous fiasco at Home Depot, appears to have a very high psychic profile, and by all accounts has the tact of a Marine drill instructor. This is not precisely what Chrysler needs at this point in time.

So what does Chrysler need? It needs a seasoned industry executive who understands the company and the business. To start with, Chrysler must do what GM (Charts, Fortune 500) and Ford are already doing: Get smaller, strike a deal with the UAW, rationalize its product line, and learn how to deal with the new realities of foreign competition and $3 gasoline.

Beyond that, it needs to capitalize on its unique strengths. In the 1980s under Lee Iacocca, Chrysler invented the minivan, popularized the SUV, and revived the convertible. Since then, it has enjoyed other out-of-the-box successes like the PT Cruiser, the Chrysler 300, and the hemi engine.

In the past couple of years, it has made some stupid mistakes. The 2006 inventory fiasco was a disaster that everybody in Detroit could see happening but Chrysler was too slow to correct. It also dropped the ball on a couple of new products by visibly cheapening them. And its sure hand with breakthrough design wavered with the clunky Dodge Caliber and the gimmicky Chrysler Sebring.

A smart auto guy would have seen those problems developing and headed them off. There are plenty around. Bernhard would hit fit the bill to a "t." So would industrialist and racing legend Roger Penske, but he is too busy. Former Ford CEO Jac Nasser is making too much money in private equity.

If Chrysler could clone GM's Bob Lutz, now 75, it might have the perfect candidate. Instead it has Nardelli. Aggressiveness and discipline aren't what Chrysler needs right now - it got that under German management. And we know how that story ended.