The best way to rewrite the sentence to avoid ambiguity is:
C. Arnold told Chad that he needed to get a haircut.
This option clearly specifies that it is Chad who needs the haircut, reducing any potential confusion. However, note that option A has a grammatical error ("Chad's needed" should be "Chad needed"). Option B implies that Arnold thought Chad needed a haircut, but it does not specify he explicitly told Chad, while option D contains a grammatical error as well. Therefore, option C is the clearest and most effective rewrite.