By picking a tough-minded outsider to head Chrysler, the struggling automaker's new owners have put company employees, suppliers and dealers on notice that things will be changing.

Cerberus Capital Management's founder Stephen Feinberg closed the $7.4 billion deal to buy Chrysler on Friday and this weekend put his guy in place at the top, installing former Home Depot Inc head Robert Nardelli as the automaker's CEO.

Nardelli's hiring comes at a critical time for the struggling U.S. automaker -- amid contract negotiations with the United Auto Workers union aimed at reducing hourly labor costs in areas such as health care.

I think we need to be tighter on our purse strings, Larry Drake, who heads Kuka Flexible Production Systems, a Chrysler supplier, told an industry conference on Monday in Traverse City, Michigan. I think that's where the changes will be.

Nardelli, a hard-driving former General Electric Co executive, was credited with revamping Home Depot's purchasing systems to save money, but then was widely criticized for a compensation package seen as excessive, including a $210 million severance deal when he left the company in January.

Chrysler's former CEO Tom LaSorda agreed to stay on as Nardelli's deputy and company president with responsibility for operations including a crucial, ongoing round of contract talks with the United Auto Workers union.

That structure gives Chrysler a good cop to face the union in LaSorda, with the bad cop of Nardelli, representing the financial interests of Cerberus, looming in the background, said David Cole, who heads the Center for Automotive Research.

Obviously, he's Cerberus' watchdog, Cole said of Nardelli. And it looks like Tom LaSorda is the guy who's going to run the company.

That dual structure could allow Chrysler management to press the UAW for concessions needed to cut costs, with the implicit threat that such a deal is needed to allow Cerberus to fund continued investment, Cole said.

Nardelli declined to discuss his pay package at the newly private Chrysler, saying only that it would be tied to progress in turning around Chrysler -- which lost $680 million last year and has had to rely on the most costly incentives in the industry to move vehicles this year.

PAY CONTROVERSY LINGERS

Nardelli's hiring could complicate negotiations with Chrysler's 43,000 UAW-represented factory workers, but some analysts said that without the constraints of being a public company, Cerberus will be better positioned to shake up an industry that lost over $15 billion last year.

They may have reasoned that his hard-line approach to leadership is what's needed to turn around the struggling automaker, said John Challenger, chief executive officer of consulting firm Challenger, Gray & Christmas.

Peter Jankovskis, one of two chief investment officers at OakBrook Investments of Lisle, Illinois, said Nardelli's blunt style caused problems with shareholders at Home Depot, but could make him an appealing choice to run a private company.

Jankovskis, who owned Home Depot shares under Nardelli as well as stock in Chrysler rivals General Motors Corp and Ford Motor Co, said Nardelli could move for a faster restructuring of Chrysler.

It could lead to some rationalization within Chrysler itself, not just cutting outside suppliers but paring back certain units of the company that may not be producing as much as he would like, he said.

Keith Davis, an analyst with Farr Miller Washington, which owned Home Depot shares during Nardelli's watch, also expects Nardelli to apply the cost-cutting skills honed at Home Depot.

That's why I think he'll work out well at Chrysler or any manufacturing firm, because he's great at driving costs out of the system, he said.

However, Davis added, while Nardelli drove up Home Depot's margins, he also cut costs so much that some shoppers were driven to rival Lowe's. (LOW.N: Quote, Profile, Research)

University of Maryland economist and commentator Peter Morici said Nardelli lacked the automotive background and deal-making skills to save Chrysler, especially given the pressure for new alliances to fund expensive development of hybrid engines and other technology.

Nardelli is hardly a poster boy for corporate diplomacy, Morici wrote in a comment. His tour of duty at Home Depot demonstrated that.

Nardelli came to Home Depot with much fanfare in December 2000, but quickly drew mixed reviews from workers used to the more free-wheeling management style of its founders.

Last year, the discontent swelled as investors questioned the size of his pay package and by refusing to take questions or review the company's performance at its annual meeting.

These issues won't be a problem for Nardelli at privately held Chrysler, however, analysts said.

Despite the way his career ended at Home Depot, he's a great manager, said Richard Steinberg, president of a Florida asset management firm that owns GM bonds. In a private environment, he's going to be able to do what he needs to ... without the microscope of the public entity.

(Additional reporting by Poornima Gupta in Detroit)

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