Chrysler's Nardelli lays out a game plan

DETROIT (Fortune) -- The most-talked about subject at the Detroit auto show has nothing to do with new cars, alternative fuels, or China's plans for the U.S. auto market. It is Chrysler, now under private ownership, and its outside-the-industry CEO Bob Nardelli.

Nardelli tried to remove some of the mystery surrounding Chrysler and put some of the rumors to bed in a roundtable for business journalists on Monday. He largely succeeded. If Chrysler is going to thrive in its current incarnation, it will be because it can move faster and smarter as a private company than it could as a division of DaimlerChrysler.

Nardelli has already demonstrated that he expects to do that. Industry insiders give him considerable credit for deciding to cut Chrysler's vehicle production within days of stepping into his job. Production is the lifeblood of any automaker because it books revenue when it builds vehicles, not after dealers sell them. Nardelli's decision was a difficult one - but was proved correct when the market softened last fall.

By the same reasoning, Nardelli made another tough call when he reduced Chrysler's inventory levels by 100,000 vehicles. The effect was the same as reducing production - taking 100,000 vehicles out of inventory means 100,000 vehicles that won't ever be built. Said Nardelli: "We took that on and still beat our pro forma financials," and Chrysler ended the year with $1 billion more cash than it had forecast.

Building cash is Nardelli's mantra. "We need intensity on cash," he said. Chrysler wants to boost its free cash flow so it can repay its owners and invest in the future. Chrysler lost $1.6 billion in 2007.

Nardelli said Chrysler has developed a three-year plan to become profitable. He wouldn't say when that is supposed happen, but he said: "We have a very clear vision on when we'll return to profitability. We made progress in 2007 and we'll make more progress in 2008." He's expecting 2008 industry sales in the 15.5 million to 16 million range, a bit lower than some forecasters.

But as Nardelli says, the key is realism: "We look at the industry that way it is, rather than the way you'd like it to be." If sales come in worse than that, "the whole industry will have to adjust." Adds Nardelli, perhaps unnecessarily now: "One of the advantages of private companies is we can adjust more quickly."